How is my Social Security benefit taxed?
Believe it or not, Social Security (retirement) Income is not taxed the same way as earned income.
Instead, the IRS uses a provisional or “combined income,” which is income from all sources (wages, interest, dividends, pension payments, and taxable distributions from retirement accounts. Uniquely, this includes any foreign-earned income, which is usually excluded from your US tax calculation (at least in part) via the foreign earned income exclusion (FEIE), but provisional income includes foreign income for the calculation to see how much of your Social Security income is subject to federal tax. Keep in mind, only taxable income is included, so no Roth IRA distributions would be included.
How much of my Social Security award will be taxed?
If you file as single:
Combined Income < $25,000 ————> 0% of your award may be taxed by the Federal government.
Combined Income $25,000 to $34,000 —> Up to 50% of your benefits may be taxed.
Combined Income $34,000+ ———> Up to 85% of your benefits may be taxed.
If you file as Joint (MFJ):
Combined Income < $32,000 ————> 0% of your award may be taxed by the Federal government.
Combined Income $32,000 to $44,000 —> Up to 50% of your benefits may be taxed.
Combined Income $44,000+ ———> Up to 85% of your benefits may be taxed.
Keep in mind, this is only federal tax; your state might also tax your social security award, see below for more on that.
What changes come from OBBA?
From now until the 2028 tax year, taxpayers 65 and over will have an additional $6,000 deduction per qualified individual. People who file Married Filing Joint (MFJ) will receive two $6,000 deductions. The $6,000 deduction is not adjusted for inflation in future years.
Do states tax Social Security?
Yes, some do. They are Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. Each has its own rules. West Virginia will no longer tax Social Security beginning in 2026.
How Social Security is Taxed by State:
Colorado: Taxpayers 65 and older can deduct all of their federally taxed Social Security benefits. For those aged 55 to 64, all federally taxable Social Security income can be deducted if their adjusted gross income (AGI) is $75,000 or less for single filers and $95,000 or less for joint filers. Above those thresholds, a $20,000 deduction is allowed.
Connecticut: Social Security benefits are not taxed if your AGI is below $75,000 for single filers or $100,000 for married couples filing jointly. If your income exceeds these limits, up to 25% of your benefits may be taxed.
Minnesota: Offers a subtraction for Social Security income. For 2025, married joint filers with an AGI up to $108,320 and single or head of household filers with an AGI up to $84,490 are exempt from state taxes on their benefits.
Montana: Social Security benefits are taxed to the same extent as they are at the federal level. Taxpayers aged 65 and over can take a subtraction of $5,500 from their federal taxable income.
New Mexico: Single filers with an income up to $100,000 and joint filers with an income up to $150,000 are exempt from state taxes on their Social Security benefits.
Rhode Island: Retirees who have reached full retirement age and have a federal AGI below $104,200 (for most filers) or $130,250 (for joint filers) are exempt from state tax on their Social Security benefits.
Utah: Taxes Social Security benefits but offers a nonrefundable tax credit to offset the tax. Taxpayers can use a worksheet to determine the amount of the credit. However, you cannot claim this credit if you also claim the retirement tax credit or the military retirement credit.
Vermont: Social Security benefits are fully exempt for single filers with an AGI of $50,000 or less and for joint filers with an AGI of $65,000 or less. Partial exemptions are available for those with slightly higher incomes.
West Virginia: West Virginia is in the process of phasing out its tax on Social Security benefits. In 2025, 65% of benefits can be subtracted from AGI. By 2026, 100% of benefits will be exempt for all taxpayers.
By: William Nunn, CFP®
Horizon Financial Planning LLC
New Orleans, LA
