Personal Finance
How Can Social Security Benefits Affect Taxes?
Many retirees receive monthly Social Security benefits, but are they taxable? Here's what you need to know.
About nine out of ten people 65 and older were receiving a Social Security benefit as of December 2023, according to the Social Security Administration.
But are Social Security benefits included in your taxable income?
While a key source of income for retirees, these benefits could affect your tax situation if your overall income exceeds a certain threshold.
Since that threshold can be different for everyone, it could be a good idea to speak with a financial advisor.
Consulting a fiduciary financial advisor can be a great first step to planning for Social Security benefits, and how the associated taxes could fit into your overall retirement plan. That's why we created a free tool to help match you with up to three financial advisors.
Click here to take our quick retirement quiz and get matched with vetted advisors in just a few minutes, each obligated to work in your best interest.
Research suggests people who work with a financial advisor feel more at ease about their finances and could end up with about 15% more money to spend in retirement.¹
A 2022 Northwestern Mutual study found that 62% of U.S. adults admit their financial planning needs improvement. However, only 35% of Americans work with a financial advisor.²
How Can Social Security Benefits Affect Taxes?
Social Security benefits are included in your adjusted gross income (AGI) if your total income, which consists of half of your Social Security benefits combined with any other sources of income, exceeds a certain threshold.
This may affect the taxation of those benefits and your potential eligibility for various tax credits and deductions, which in turn could impact your overall tax liability and financial situation.
A financial advisor could help optimize your retirement plan to minimize your tax liability. Click here to get matched with up to three advisors who serve your area in just a few minutes.
Social Security Income and AGI
You may have to pay federal income tax on your Social Security benefits when your income surpasses a certain threshold.
This means if your combined income of Social Security benefits and other taxable incomes (including wages, self-employment income, interest and dividends, and other sources that have to get reported on your tax return) are above the IRS limit, you could potentially pay taxes up to 85% of your benefits.
Here is the IRS rule for taxes on your Social Security benefits:³
- Individual tax filers with a combined income between $25,000 and $34,000 may have to pay income tax up to 50% of Social Security benefits. And those with more than $34,000 could get taxed on up to 85% of the benefit.
- Joint tax filers with a combined income between $32,000 and $44,000 may have to pay income tax up to 50% of benefits. And those with more than $44,000 could get taxed up to 85%.
Tips for Lowering Your AGI
Reducing your AGI can help lessen your overall tax liability. Here are three common tax strategies:
- Maximize retirement contributions: Your retirement account contributions can get deducted from your total income.
- Find tax deductions: Depending on your situation, there could be a number of tax deductions you may be eligible for. These could include student loan interest deductions, medical expense deductions and property tax deductions, among others.
- Utilize tax credits: There are also many tax credits that you might qualify for. These can include the earned income tax credit (EITC), the child tax credit, the saver’s credit and education credits, and more.
How to Get Help With Social Security Taxes
Depending on your income level when including Social Security benefits, you may end up paying taxes on those benefits. It’s important to properly plan for these taxes.
That’s where a financial advisor can be invaluable.
But how do you find a vetted fiduciary financial advisor, obligated to work in your best interest?
This is the biggest hurdle for many. With thousands of daily Google searches for "Fiduciary financial advisors near me," "best fiduciary financial advisor," and "financial investment advisors near me," the hunt for a vetted fiduciary advisor can feel like a wild goose chase.
But it doesn't have to be. And thankfully, it really isn't.
Our free matching quiz links Americans with up to three fiduciary financial advisors who serve their area so they can evaluate and choose the one who fits their needs.
SmartAsset has matched thousands of people with financial advisors. Advisors are rigorously vetted through our proprietary due diligence process. We only match with fiduciaries, so all of your financial advisor matches are legally committed to acting in your best interest.
Our advisor matching quiz is at no cost to you and there is no obligation to work with any of your advisor matches. You're in control.
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The information contained in this article is general and not specific to any individual's situation. The SmartAsset quiz matches you with up to 3 financial advisors to which you can compare and decide which to work with. You can consult a financial advisor about your inherited property and taxes. The SmartAsset quiz can't make a determination regarding your inherited property and taxes.
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Sources:
- "Planning and Progress", Northwestern Mutual (2022)
- "Journal of Retirement Study" (Winter 2020). The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of your future results. Please follow the link to see the methodologies employed in the Journal of Retirement study.
- “Fact Sheet.” Social Security Administration (2024)
