People often misunderstand Social Security retirement benefits and taxation since not all social security benefits are taxable. The amount of benefits one receives and how much Federal tax applies depend primarily on the income level of the receiver and other factors.
How to determine if benefits are taxable
If Social Security benefits are the only source of income for the year, they may not be taxable. However, if income is received from other sources, such as wages, self-employment, interest, dividends, etc., up to 85% of the benefits may be taxable.
In addition, it’s important to note that some states currently tax Social Security benefits: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.
To determine if benefits are taxable, calculate your “combined income.” Combined income is the total of your adjusted gross income, non-taxable interest, and half of your annual Social Security benefits. Note that depending on marital status, Social Security is taxed differently.
Social Security and taxes in 2025
The rules and regulations regarding Social Security and taxes can be complex and may change. Therefore, being informed about benefits and taxation is vital:
For single taxpayers
If your income is between $25,000 and $34,000, income tax will apply to up to 50% of your benefits. If income exceeds $34,000, up to 85% of the benefits may be taxable.
For married taxpayers filing jointly
If you and your spouse have a combined income of $32,000 to $44,000, you may have to pay income tax on about 50% of your Social Security benefits. If joint income exceeds $44,000, up to 85% of your benefits may be subject to taxation.
Despite the complexity of Social Security and taxes, these two aspects are crucial to retirement income and tax planning. Understanding how retirement income and draw-down strategies, benefits, and taxes work together is essential to financial management in later life stages.
Consulting with financial and tax professionals may mitigate unexpected tax implications when receiving Social Security benefits and drawing down retirement savings assets.
SWG4171698-0124 a This information is provided as general information and is not intended to be specific financial guidance. Before you make any decisions regarding your personal financial situation, you should consult a financial or tax professional to discuss your individual circumstances and objectives.
Our family financial services firm, August H. Velten & Associates, has been in business for 12-years in Melbourne, FL. August Velten (CLU) is a 40-year veteran of the Financial Services industry. August is a former instructor for the Life Underwriter Training Council and once occupied the legislative seat for the Maine Association of Life Insurers. In Brevard County, you may have seen him on local access TV or read one of his articles in a local area magazine. Jessica Waterhouse, August’s daughter, left her own practice to join the firm in 2019. Jessica is a Florida licensed insurance producer, securities licensed (Series 65), a long term care specialist (CLTC) and holds certification as a National Social Security Advisor. Both August & Jessica are instructors for financial literacy workshops in both Brevard and Indian River County offering education in Social Security and Financial Planning. Contact the office today to schedule an introductory meeting or review of your current financial plan.
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