Is Social Security Taxable?

Glenn Kirst is a planning excellence lead consultant at Northwestern Mutual.

You or your spouse have spent years working and paying into Social Security, and now it’s finally time to collect your benefit. Because your payroll taxes went toward Social Security for so many years, you’re exempt from paying taxes on these payments when they come your way—right? Well, not necessarily.

Depending on how much income you’re earning in retirement—from Social Security and other income sources— a portion of your Social Security payments may be subject to income tax. According to the Social Security Administration, about 40 percent of people who collect Social Security pay tax on their benefit.

Read on to determine whether you’ll have to pay taxes on your Social Security payments and how Social Security tax is calculated. There are also some tips about how to minimize the overall impact of taxes in retirement.

Does Social Security count as income?

Yes, your Social Security benefit does count as income. It’s specifically a form of income known as unearned income, which includes other types of income that you don’t earn from a job like interest and dividend payments, disability benefits, unemployment benefits and more.

How much of your Social Security benefit counts as taxable income, however, depends on a number of different factors—including your total income from all sources, as well as how much you’re receiving in Social Security payments.

So, though you’ll never have to pay taxes on your full benefit amount, there’s a good chance that a portion of your Social Security benefit will be subject to income tax.

Are Social Security benefits taxable?

Whether your Social Security benefits are taxable by the federal government will depend on the benefits you receive and your total income. Many people who collect retirement benefits pay taxes on their Social Security benefit because their total income (including Social Security and income from other sources) puts them into a threshold that makes the benefit subject to taxes. However, if your income is below that threshold, your benefit may not be subject to taxes.

On the state level, only these nine states tax Social Security benefits: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah and Vermont.

Is Supplemental Security Income (SSI) taxable?

Supplemental Security Income (SSI) is a benefit from the Social Security Administration intended for people who have limited income and resources and are either disabled, blind or 65 or older. This benefit works a bit differently than retirement benefits. One major difference between the two is that SSI is never subject to taxes. So, any SSI payments you’d receive would not be included in your taxable income and therefore would not be taxed.

Is Social Security Disability Insurance (SSDI) taxable?

Like SSI, Social Security Disability Insurance (SSDI) is a special disability insurance benefit from the Social Security Administration that can support you and certain family members if you become disabled and if you are “insured” (meaning, you have worked and paid into Social Security). However, unlike SSI, SSDI benefits may be subject to tax—just like Social Security retirement benefits. This will also depend on the amount of your benefit payment and your other sources of income.

How is Social Security tax calculated?

The formula for taxation of Social Security benefits is: adjusted gross income + nontaxable interest + 1/2 of your Social Security benefits = combined Income.

Once you’ve calculated your annual combined income, you’ll compare it to the IRS base rates by your filing status. In 2025, if your annual combined income is above the threshold amounts below, your Social Security benefits may be subject to tax:

• $25,000 for single, head of household or qualifying surviving spouse
• $32,000 for married filing jointly
• $25,000 for married filing separately (if you lived apart from your spouse)
• $0 for married filing separately (if you lived with your spouse within that year)

If your combined income surpasses the upper limit ($34,000 for single filers and those who are married filing separately; $44,000 for those who are married filing jointly), then up to 85 percent of your benefit may be subject to tax. This is the most of your benefit you’d have to pay taxes on.

If you fall between those two numbers, then you may owe income taxes on up to 50 percent of your benefit.

What is the Social Security tax rate?

If you are required to pay taxes on your benefit, a portion of your benefit will be taxed at the federal income tax rate for your tax bracket. But remember—not all of your benefit will be taxed. How much is taxed will vary from person to person, depending on the situation.

Your income tax return, which takes into account your income sources and total income (including Social Security benefits), will ultimately help you calculate the exact amount you’ll need to pay on your Social Security benefits and at what rate.

At what age is Social Security no longer taxable?

Age is not a factor in determining whether or not you need to pay taxes on your benefits. Social Security benefits are subject to tax as long as you live—regardless of your age.

How do I avoid paying taxes on Social Security?

Though you may not be able to completely avoid paying taxes on your benefits, there are some financial moves you can make to help reduce the impact of taxes.

1. Convert retirement funds to a Roth IRA or Roth 401(k)

With a Roth 401(k) or Roth IRA, you take distributions tax-free (since you’ve already paid taxes on the money you contributed). That means that any retirement income from Roth accounts doesn’t count toward your annual combined income—so, anything you withdraw from a Roth account during retirement won’t impact your Social Security benefit’s tax liability. Using a mix of taxable and non-taxable accounts can give you some flexibility, as you can withdraw enough from taxable accounts to stay in a certain tax bracket, then move to non-taxable sources to meet your needs¹.

Roth accounts and Roth conversions are also subject to five-year rules that could trigger taxes. There’s a lot to think about when you convert to a Roth, however, so you’ll want to make sure you understand all the pieces in play (and make sure you speak with a tax advisor before taking any action).

In the year you convert the Roth, the funds will count as part of your taxable income, which means you’ll owe income tax on them in that year. That means those funds will count toward your taxable income, which could increase what you’d owe in Social Security. You’ll also want to be aware that Roth conversions can impact your Income-Related Monthly Adjustment Amount (IMRAA) threshold and what you owe for Medicare.

2. Access the cash value of a permanent life insurance policy

Cash value that you can access whenever you need it is one of the perks of a permanent life insurance policy. There are ways to access your cash value without owing any tax, which makes it another non-taxable income source that you can use for income if you’re trying to stay within a certain tax bracket.

3. Delay taking Social Security benefits

There are several potential benefits to delaying taking Social Security if you’re able to hold off. Not only will you be able to increase your total benefit amount (you’ll get an additional 8 percent every year that you delay claiming your benefits beyond your full retirement age), but by increasing your payment amount, you’ll also likely have to rely less heavily on income from other retirement accounts once you do begin taking payments. And by taking less from your retirement accounts, you may be able to lower your annual combined income (which includes only half of your Social Security benefit payment).

4. Purchase a qualified longevity annuity contract

A qualified longevity annuity contract, or QLAC, is a type of deferred income annuity you can purchase with funds from a qualified retirement account that can allow you to delay your required minimum distributions from age 73 to 85. Delaying distributions can allow you to stay in a lower tax bracket longer, reducing the amount you’d owe in taxes.

5. Work with a financial advisor

There’s a lot of strategy involved in deciding when to take Social Security and how to leverage other retirement accounts to minimize your tax impact in retirement. And there’s no one-size-fits all solution: The best decision for you will depend on your individual situation. Though the IRS has worksheets and resources that can help you make these decisions, working with a financial advisor simplifies the process immensely.

Your Northwestern Mutual financial advisor can help you look at all your assets and determine where Social Security best fits into the equation. An advisor can also help show you the impact of different claiming decisions and help you plan ahead so you’re not paying more taxes than you need to on your hard-earned retirement savings.

This material does not constitute tax or legal advice. Please consult with a tax or legal professional for advice about your specific situation. The primary purpose of permanent life insurance is to provide a death benefit. Using permanent life insurance accumulated value will reduce the death benefit and may affect other aspects of the policy.

¹Roth distributions may be subject to ordinary income tax and may be subject to a 10% IRS early withdrawal penalty if taken before age 59 ½.

Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP^®, CERTIFIED FINANCIAL PLANNER^®, and CFP^® (with plaque design) in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization’s initial and ongoing certification requirements to use the certification marks.