To understand how much money you may have in retirement, you first need to figure out whether taxes will reduce your Social Security benefits—and if so, by how much.
If your monthly Social Security check is your sole source of income, it’s likely you won’t owe any tax at all. But if you have other income—like business or job compensation, dividends, pension payments, or distributions from a retirement account—up to 85% of your benefits could be subject to tax.
The taxable portion of your benefits is determined by what the IRS calls your combined income. This amount is equal to half your annual Social Security benefits plus any other income you have for the year—including otherwise tax-free income, such as municipal bond interest. If you’re a married couple filing jointly, you’ll need to add your incomes together (including half of each spouse’s Social Security benefits).
Combined income calculations
IRS income thresholds for Social Security taxes haven't been adjusted since 1983, which has kept them relatively low. So most retirees are likely to pay some tax on their benefits.
Single filers: If your combined income is between $25,000 and $34,000, up to 50% of your Social Security benefits may be subject to ordinary income tax rates. If your income is more than $34,000, up to 85% of your benefits may be subject to ordinary income tax rates.
Married couples filing jointly: If your combined income is between $32,000 and $44,000, up to 50% of your Social Security benefits may be subject to ordinary income tax rates. If your income is more than $44,000, up to 85% of your benefits may be subject to ordinary income tax rates.
The taxable portion of your Social Security benefits must be reported as income on your federal tax return. Ultimately, how much tax you’ll pay is determined by all the usual considerations, including what income tax bracket you’re in after deductions and exemptions.
Thirteen states levy a tax on Social Security income: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.
The rules vary significantly by state, with some mirroring IRS rules and others going their own way. If you live in one of the 13 states that take a bite out of your benefits, visit the for a link to your state’s tax agency, where you’ll find information about Social Security taxes along with other resources.
Overall tax picture
Social Security is potentially just one piece of your retirement income. Working with a financial consultant, tax professional, or both can help you consider how your benefits fit into your overall plan and how to manage them in the most tax-efficient way possible.
What You Can Do Next
Read more insights about and .
Need help navigating the complexities of retirement income? Call or to discuss your goals with a Schwab financial consultant.