Edward A. Zurndorfer–
Most federal employees and uniformed services members know that Social Security or FICA (Federal Insurance Contribution Act) tax is deducted from their salaries each pay date. Once they retire and start receiving their Social Security retirement benefits, they will receive their lifetime-paid FICA taxes back, plus more. But not every employee and uniformed service member is aware that the IRS and some states tax Social Security retirement benefits. This column discusses how much the IRS taxes Social Security retirement benefits and which states also tax Social Security retirement benefits.
The first step in determining whether an individual’s Social Security benefits are taxable is to determine the individual’s combined income. An individual’s combined income is calculated by adding: (1) the individual’s adjusted gross income (AGI); plus (2) the individual’s nontaxable interest and tax-exempt dividends; and (3) 50 percent of the individual’s Social Security benefits.
An individual’s AGI includes the individual’s total gross income minus certain deductions such as interest from qualified savings bonds, foreign earned income or foreign housing, and employer-provided adoption benefits.
For a married couple in which each spouse is receiving a Social Security benefit, the combined income is computed separately for each spouse and then totaled together as a basis for determining the taxable amount of the Social Security benefits paid to each spouse.
The Social Security Administration sets the following thresholds when calculating how much of an individual’s Social Security benefits are taxed. These withholdings are based on the individual’s combined income (computed as shown above) and tax filing status, as shown in the following table:
| Taxation Level | Married Filing Jointly | Married Filing Separately | All Other Tax Filing Statuses |
| 0 percent | Under $32,000 | Not Applicable | Under $25,000 |
| Up to 50 percent | $32,000 – $44,000 | Not Applicable | $25,000 – $34,000 |
| Up to 85 percent | More than $44,000 | Any Amount | More than $34,000 |
Note: Married filing separately column assumes an individual lived with his or her spouse at any point during the year. If this is not true, then refer to the “all other tax filing statuses” column.
The table shows that any individual or married couple whose combined income falls into the “0 percent” taxation level does not have to pay taxes on his or her Social Security benefits. But anyone whose combined income is above the zero percent level will pay federal income tax on some of their Social Security benefits as discussed below.
Although an individual could owe taxes on up to 50 percent or 85 percent of his or her Social Security benefits, this does not mean he or she will actually owe taxes on that amount of benefits. If the individual falls into the “50 percent taxation” range, the IRS says that person should owe federal income tax on the lesser of half of the individual’s Social Security benefits, or half of the difference between the person’s “combined income” and the taxation threshold set by the IRS for the individual’s tax filing status. The following table summarizes the computation of the taxable portion of Social Security benefits:
| Combined Income | Taxable Social Security Benefits | |
| Single, Head of Household, Qualifying Widow(er) | ||
| $25,000 or less | No taxable Social Security benefits | |
| $25,001 – $34,000 | Lesser of: (1) 50% of Social Security benefits, or (2) 50% of provisional income above $25,000 | |
| More than $34,000 | Lesser of: (1) 85% of Social Security benefits or (2) 85% of provisional income above $34,000 plus lesser of: (a) $4,500, or (b) 50% of Social Security benefits | |
| Married Filing Joint Return | ||
| $32,000 or less | No taxable Social Security Benefits | |
| $32,001-44,000 | Lesser of: (1) 50% of Social Security benefits, or (2) 50% of combined income above $32,000 | |
| More than $44,000 | Lesser of: (1) 85% of Social Security benefits or (2) 85% of combined income above $44,000 plus lesser of: (a) $6,000, or (b) 50 % of Social Security benefits | |
| Married Filing Separate1 | (any amount) | Lesser of: 85% of Social Security benefits or 85% of combined income. |
1 Assumes taxpayer lived with spouse at any time during the year. If the taxpayer did not live with his or her spouse at any time during the year, compute the taxable portion as though the individual was single.
The following worksheet can be used to calculate the taxable portion of Social Security benefits:
5. Combined income (line 2 + line 3 +line 4) ……………………………. $__________
6. Base amount 1 (status: A. $44,000, B. 0, C. $34,000) ………..……. $__________
7. Base amount 2 (status: A. $32,000, B. 0, C. $25,000)…….……….. $__________
8. 50% of (line 5 – line 7) (not less than $0)…………………………….. $__________
9. 50% of (line 6 – line 7)………………………………………………………. $__________
10. Taxable SS under 85% Rule (smallest of line 2, line 8 or line 9….$_____
11. Taxable SS under 85% Rule 85% of (line 5 – line 6) (not less than 0) …………….…. $_________
12. Sum of line 10 and line 11 …………………………………………………$__________
13. 85% of SS benefits (0.85 of line 1) …………………………………….$__________
14. Total taxable SS benefits (smaller of line 12 or line 13)……….$__________
The following example illustrates:
Frank and Amanda are a married couple, each age 67, and are filing a joint tax return for 2020. In January 2021, Frank received a 2020 Form 1099-SSA showing net benefits of $18,500 in box 5. Amanda received a 2020 Form 1099-SSA showing net benefits of $12,500 in box 5. Frank also received a taxable FERS annuity of $25,000 while they together received a total of $6,000 in interest and dividend income during 2020. Frank and Amanda determine the taxable portion of their Social Security benefits using the worksheet:
5. Combined income (line 2 + line 3 +line 4) …………………………..……… $46,500
6. Base amount 1 (status: A. $44,000, B. 0, C. $34,000) …..…………..……. $44,000
7. Base amount 2 (status: A. $32,000, B. 0, C. $25,000….…………………….. $32,000
8. 50% of (line 5 – line 7) (not less than 0) ……………………………………..…. $7,250
9. 50% of (line 6 – line 7)……………..…………………………………………………… $6,000
10. Taxable SS under 85% Rule (smallest of line 2, line 8 or line 9) ……. $6,000
11. Taxable SS under 85% Rule 85% (line 5 – line 6) (not less than 0) ………………….. $2,125
12. Sum of line 10 and line 11 ………………………………………………………… $8,125
13. 85% of SS benefits (0.85 of line 1) …………………………………………….. $26,350
14. Total taxable SS benefits (smaller of line 12 or line 13).……….…….. $8,125
Frank and Amanda will, therefore, include $8,125 of their Social Security benefits in their 2020 gross income that is subject to federal income tax.
Those individuals who owe federal income taxes on their Social Security benefits may either make quarterly federal estimated income tax payments to the IRS or request that the IRS withhold federal income taxes from their Social Security benefits checks. Having one’s federal taxes automatically withheld may be the smarter move if the individual does not want to calculate how much has to be paid each quarter in estimated taxes.
The following 13 states tax Social Security benefits:
| Colorado Connecticut Kansas Minnesota Missouri | Montana Nebraska New Mexico North Dakota | Rhode Island Utah Vermont West Virginia |
Each of these states has its own formulas as to how they tax Social Security benefits.
The FedLife Podcast is your in-depth, biweekly deep dive into the world of federal benefits and retirement planning. Hosted by federal benefits expert Ed Zurndorfer and Dan Sipe of Serving Those Who Serve, each 30-minute episode unpacks the complexities of FERS and CSRS retirement, FEHB and Medicare, survivor benefits, tax planning, and more. Designed for federal employees and retirees who want more than just the basics, FedLife goes beyond the headlines to explore the rules, nuances, and strategies that can make a meaningful difference in your retirement. Remember: it’s your Fed life, make it a great one.
The Fed15 Podcast is your weekly 15(ish)-minute briefing on federal benefits and financial planning, built specifically for federal employees and retirees. Hosted by Dan Sipe and Katelyn Murray of Serving Those Who Serve, each episode delivers clear, actionable guidance on topics like FERS and CSRS retirement, TSP strategies, FEHB, survivor benefits, tax planning, and more! Whether you’re five years from retirement or already there, The Fed15 helps you cut through the noise, avoid costly mistakes, and make confident decisions about your federal benefits.
