Introduction
Many retirees are surprised to learn that Social Security benefits may be taxable. Depending on your total income, up to 85% of your Social Security could be subject to federal income tax. However, with smart planning, you can minimize or even eliminate these taxes.
This guide explains how Social Security is taxed, the IRS formulas, income thresholds, and tax-saving strategies to help you keep more of your retirement income in 2025.
When Are Social Security Benefits Taxable? (IRC § 86)
Social Security benefits become taxable when your “combined income” exceeds certain thresholds:
Combined Income = Adjusted Gross Income (AGI) + Nontaxable Interest + 50% of Social Security Benefits
| Filing Status | 50% of Benefits Taxable If Combined Income Is: | Up to 85% Taxable If Over: |
|---|---|---|
| Single | $25,000 – $34,000 | Over $34,000 |
| Married Filing Jointly | $32,000 – $44,000 | Over $44,000 |
Note: No Social Security taxes apply if you have combined income below $25,000 (single) or $32,000 (MFJ).
Example:
- Jane (Single) receives $20,000 in Social Security and $30,000 in IRA withdrawals.
- Combined Income = $30,000 + (0.5 × $20,000) = $40,000
- Result: 85% of her Social Security is taxable.
Federal Tax Treatment vs. State Tax Rules
- 13 states also tax Social Security benefits, but most offer exemptions.
- States like Florida, Texas, and Nevada do not tax Social Security income.
Strategies to Reduce Taxes on Social Security
3.1. Roth IRA Withdrawals
- Roth IRA distributions are not included in combined income.
- Replace taxable IRA withdrawals with Roth withdrawals to lower your combined income and reduce tax on Social Security.
Example:
- Replacing a $10,000 Traditional IRA withdrawal with a $10,000 Roth withdrawal may reduce taxable Social Security by thousands.
3.2. Delay Social Security Benefits
- Waiting until age 70 to claim benefits not only increases your monthly payments but can also allow time to:Â
- Convert Traditional IRAs to Roth IRAs
- Withdraw from taxable accounts at a lower tax rate
3.3. Manage Required Minimum Distributions (RMDs)
- RMDs from Traditional IRAs/401(k)s increase taxable income, which can trigger Social Security taxes.
- Consider Qualified Charitable Distributions (QCDs) from IRAs to avoid RMD taxation.
3.4. Use Tax-Free Investment Income
- Income from municipal bonds is not taxable federally, but it does count toward combined income.
- Use tax-efficient mutual funds and ETFs to minimize capital gains and dividends.
3.5. Strategic Withdrawals Before Claiming Benefits
- Withdraw from IRAs or taxable accounts before claiming Social Security to lower future RMDs and reduce taxable income during benefit years.
IRS Forms You May Need
| Form | Purpose |
|---|---|
| Form SSA-1099 | Reports annual Social Security benefits |
| Form 1040 | Main tax return form |
| Form 8606 | For non-deductible IRA or Roth conversions |
| Form 5329 | Report early IRA withdrawals or RMD penalties |
Common Mistakes to Avoid
- Assuming Social Security is always tax-free – up to 85% is taxable at higher income levels.
- Not considering Roth conversions – Roth distributions can keep you under the income threshold.
- Missing RMDs – Penalties are 50% of the missed amount.
- Ignoring state taxes – Some states still tax Social Security benefits.
Conclusion
With proper planning, you can reduce or eliminate taxes on your Social Security benefits. Strategies like Roth withdrawals, delaying benefits, managing RMDs, and keeping combined income low can make a big difference in your retirement income.
To create a personalized tax plan for Social Security, schedule a consultation with Anshul Goyal, CPA EA FCA. Book an appointment here:
About Our CPA
Anshul Goyal, CPA EA FCA is a licensed Certified Public Accountant (CPA) in the United States, an Enrolled Agent (EA) admitted to practice before the IRS, and a cross-border tax expert. He specializes in retirement and Social Security tax planning, IRS compliance, and helping U.S. citizens and Indian expatriates protect their retirement income from unnecessary taxation.
Frequently Asked Questions (FAQs)
1. Is Social Security income always taxable?
No. It’s only taxable if your combined income exceeds IRS thresholds.
2. How much of my Social Security is taxable?
Up to 85% of your benefits may be taxable based on your income and filing status.
3. Do Roth IRA withdrawals affect Social Security taxes?
No. Roth withdrawals are not included in combined income and can help avoid taxation of benefits.
4. What is the best way to avoid taxes on Social Security?
Keep income below thresholds using Roth accounts, strategic withdrawals, and delaying benefits.
5. Which IRS form shows my Social Security income?
You’ll receive Form SSA-1099 each year from the Social Security Administration.