2025 Social Security Benefits and Taxes

People often misunderstand Social Security retirement benefits and taxation since not all 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 Social Security 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, Social Security 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.