Yes, a portion of your Social Security benefits may be subject to federal taxation using tax brackets. Your tax bracket is determined by your net taxable income as shown on line 43 of Form 1040. This value is your gross income minus all allowable deductions. For social security income that adds to your combined income, you may be subject to up to 85% income tax on your SS benefits.

Key Takeaways

  • Social Security income benefits may be taxed up to 85% depending on total annual income. 13 states also individually tax Social Security income.
  • Each year, thresholds for federal income tax brackets as well as Social Security income limits are published by the IRS.
  • Review IRS Publication 915 for the process of calculating your income tax due on benefits.

What Portion of Your Household's Social Security Benefits Is Subject to Federal Income Tax?

The amount of Social Security benefits to include as gross income varies from a maximum of 85% all the way down to 0%. Review IRS Publication 915 for the process of calculating this amount. After calculating this amount, you must include it on line 20b of Form 1040 or line 14b of Form 1040A as ordinary income.

A senior whose only source of income is Social Security does not have to pay federal income taxes on their benefits. If he receives other sources of income, including tax-exempt interest income, they must add one-half of his annual Social Security benefits to their other income and then compare the result to a threshold set by the IRS. If the total is more than the IRS threshold, some of his Social Security benefits are taxable.

For 2020, the threshold amount is $25,000 for singles and $32,000 for married couples filing jointly. Married couples who live together but file separately have a threshold of $0 and must pay taxes on Social Security benefits regardless of other income earned.

Social Security and Income Tax 

What Is Ordinary Income?

Ordinary income represents most of your household's taxable income from sources such as wages, self-employment income, pensions, Social Security benefits, rents, royalties, and interest. Other forms of household income – such as capital gains, qualified dividends and capital gains from collectibles – are not considered to be ordinary income; instead, they are taxed at different rates.

How Is Ordinary Income Taxed?

All sources of ordinary income are added together, and then all allowable deductions and personal exemptions are subtracted from this total. What remains is subject to tax using tax brackets and the IRS tax tables.

For 2019, for those married filing jointly, the first $19,050 of ordinary income is taxed at 10%, from $19,051 to $77,400 is taxed at 12%, from $77,401 to $165,000 is taxed at 22%, and so on, up to the top bracket of 37% for income at $600,001 and up. There are currently seven tax brackets.

For tax year 2020, the top tax rate remains 37% for individual single taxpayers with incomes greater than $518,400 ($622,050 for married couples filing jointly). The other rates are:

  • 35%, for incomes over $207,350 ($414,700 for married couples filing jointly);
  • 32% for incomes over $163,300 ($326,600 for married couples filing jointly);
  • 24% for incomes over $85,525 ($171,050 for married couples filing jointly);
  • 22% for incomes over $40,125 ($80,250 for married couples filing jointly);
  • 12% for incomes over $9,875 ($19,750 for married couples filing jointly).
  • .0% up to $9,874 ($19,749).

States That Tax Social Security Benefits

Most states do not tax Social Security benefits, but 13 do under certain circumstances. The states that tax Social Security benefits are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. Iowa used to assess taxes on benefits until it phased the taxes out completely in 2014, while New Mexico exempts some benefits for beneficiaries age 65 and over.