Federal income tax on Social Security has not changed in the new bill

No recent federal legislation has removed or suspended the tax on Social Security benefits. Social Security remains taxable income under the same rules that have been in place since 1983. Between 50 and 85 percent of your benefits may be subject to federal income tax, depending on your total income for the year.

The confusion often comes from news coverage of proposed bills that never became law, or from state-level tax changes that do not affect federal taxes. If you have read that Social Security is "no longer taxed," that claim refers to a bill that was introduced but did not pass, or to a state tax change in a specific state.

Key Takeaways

  • Social Security benefits remain taxable at the federal level under rules unchanged since 1983, regardless of recent legislative proposals.
  • Whether your benefits are taxed depends on your "combined income," which includes wages, pensions, interest, and half your Social Security benefits.
  • If your combined income exceeds $25,000 (single) or $32,000 (married filing jointly), you may owe federal tax on up to 85 percent of your benefits.
  • State taxes on Social Security vary by state; some states tax benefits while others do not, independent of federal law.
  • You can request that the Social Security Administration withhold federal taxes from your monthly payment to avoid a tax bill at year-end.

How the federal tax on Social Security actually works

The IRS uses a calculation called combined income to determine whether your Social Security is taxable. Combined income equals your adjusted gross income plus nontaxable interest plus half of your Social Security benefits. This is not the same as your total income.

If your combined income is below $25,000 (or $32,000 if you are married filing jointly), none of your Social Security is taxed. If it exceeds that threshold, you may owe federal tax on up to 50 percent of your benefits. If your combined income exceeds $34,000 (or $44,000 married), you may owe tax on up to 85 percent of your benefits.

The tax applies only to the amount over the threshold. For example, if you are single with a combined income of $27,000, only the $2,000 above the $25,000 threshold counts toward the taxable portion of your benefits.

What counts toward your combined income

Combined income includes wages from work, self-employment income, pensions, interest from savings accounts and bonds, dividends, capital gains, and rental income. It also includes income from retirement accounts like traditional IRAs and 401(k)s if you withdraw money.

It does not include Supplemental Security Income (SSI), certain railroad retirement benefits, or interest from municipal bonds. If you are still working while collecting Social Security, your wages count toward combined income even if you have not yet filed your tax return.

Withholding taxes from your Social Security payment

You can ask the Social Security Administration to withhold federal income tax from your monthly benefit payment. This prevents you from owing a large tax bill when you file your return in April. You can withhold 7, 10, 15, or 22 percent of your benefit, or request a fixed dollar amount.

To set up withholding, contact Social Security by phone at 1-800-772-1213, visit your local Social Security office, or use your account at ssa.gov. You can change or stop withholding at any time. If you do not withhold and owe taxes, you may face penalties and interest if you do not pay by the April important date.

State taxes on Social Security vary widely

Thirteen states tax Social Security benefits to some degree: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. The rules differ in each state. Some tax only benefits above a certain income threshold; others tax all benefits regardless of income.

If you live in one of these states and receive Social Security, check your state's tax authority website or contact a tax professional to understand your state's specific rules. Moving to a state with no Social Security tax is one reason some retirees relocate, though other tax considerations (property tax, sales tax, cost of living) also matter.

What proposed bills have suggested about Social Security taxes

Several bills introduced in Congress have proposed eliminating or reducing the federal tax on Social Security, but none have become law. These proposals have appeared in different years and under different names. News coverage of a proposed bill can create the impression that the change has already happened, especially if the headline is shared without a date.

To check whether a specific bill passed, search Congress.gov by bill number or title. You can also check the Social Security Administration's official website (ssa.gov) for current rules. If a bill does pass in the future, the Social Security Administration will announce the change and explain how it affects your taxes.

How to report Social Security on your tax return

Social Security benefits appear on Form SSA-1099, which you receive in January if your benefits were taxable in the previous year. You report this amount on Form 1040 (the main federal income tax form) and calculate the taxable portion using a worksheet in the instructions.

If you use tax software, it will walk you through the calculation. If you prepare your return by hand or work with a tax professional, they will use the combined income formula to determine what portion of your benefits is taxable. Reporting incorrectly can trigger an audit, so take care with this calculation or seek help if you are unsure.

Frequently Asked Questions

Did a new bill eliminate taxes on Social Security?

No. No recent federal legislation has changed the tax status of Social Security. Proposed bills have been introduced, but none have passed. If you read that Social Security is no longer taxed, the article likely refers to a bill that did not become law or to a state-level change in a specific state.

What is the income limit before Social Security becomes taxable?

If you are single, Social Security becomes taxable when your combined income exceeds $25,000. If you are married filing jointly, the threshold is $32,000. Combined income includes wages, pensions, interest, and half your Social Security benefits. Income below these thresholds means no federal tax on your benefits.

Can I avoid paying tax on Social Security by not working?

Not necessarily. Even without wages, other income like pensions, interest, dividends, or rental income counts toward combined income. If your total combined income exceeds the threshold, your benefits may still be taxable. Withholding taxes from your payment is often the simplest way to manage the tax.

Do all states tax Social Security the same way?

No. Thirteen states tax Social Security benefits, but each has different rules about income thresholds and tax rates. Nine states do not tax Social Security at all. Check your state's tax authority website or speak with a tax professional to understand your state's specific rules.

What should I do if I owe taxes on Social Security?

Report the taxable portion on your Form 1040 when you file. If you did not withhold taxes during the year and owe a large amount, you can pay it with your return or set up a payment plan with the IRS. Going forward, request withholding from Social Security to avoid owing taxes next year.