Taxes on Social Security Benefits and How to Avoid Them

Person Hand Filling Social Security Benefits Form

Many people are surprised to learn that their Social Security benefits can be subject to federal taxation. Whether your benefits are taxed depends on what is known as your “provisional income.” This is your adjusted gross income (not counting Social Security benefits) plus nontaxable interest and half of your Social Security benefits. 

For people filing as individuals or heads of household with provisional incomes of less than $25,000, Social Security benefits are not taxed. For couples filing joint returns, the figure is $32,000. Unfortunately, individuals with provisional income of between $25,000 and $34,000, or couples filing jointly with provisional income of between $32,000 and $44,000, up to 50% of Social Security benefits may be taxable. In the case of individual filers with provisional incomes above $34,000 or joint filers whose provisional incomes exceed $44,000, up to 85% of Social Security benefits may be subject to taxation.

The information above concerns federal taxes. 13 states levy their own taxes on Social Security income, although they do so in varying degrees. These states are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, North Dakota, Vermont, Utah and West Virginia. (Taxation of Social Security benefits is being phased out in West Virginia. Most residents won’t be taxed on their benefits as of the 2021 tax year.)

In our next post, we’ll look at specific ways to avoid taxes on Social Security benefits.

Please contact us today to schedule a time to discuss your estate planning needs.  

Add a Comment

Your email address will not be published. Required fields are marked *