How Social Security benefits are taxed

Social Security benefits can be tax-free, partly taxable or mostly taxable. It depends on your other income. Up to 85% of your benefits can be included in taxable income, never more.

The rules have a quirk that matters for planning. In a certain income range, each extra dollar of other income also makes more of your benefits taxable. That can push your real tax rate well above your bracket.

Step 1: work out your provisional income

The IRS starts with a measure often called provisional income or combined income:

• your adjusted gross income, not counting Social Security
• plus tax-exempt interest, such as municipal bond interest
• plus half of your Social Security benefits

Withdrawals from traditional IRAs and 401(k)s, pensions, wages, interest, dividends and capital gains all count. Roth IRA withdrawals and HSA withdrawals for medical costs don't.

Step 2: compare it with the thresholds

The taxable amount is worked out in layers:

• Below the first threshold, none of your benefits are taxable.
• Between the thresholds, half of each dollar above the first threshold is taxable, up to half of your benefits.
• Above the second threshold, 85% of each dollar above it is taxable. Add the smaller of half your benefits and a fixed amount: $4,500 if single, $6,000 if married filing jointly.
• In every case, the total is capped at 85% of your benefits.

These thresholds aren't adjusted for inflation. They've been the same for decades, so each year more retirees pay tax on some of their benefits.

Married people filing separately who lived together during the year get no threshold at all. Up to 85% of their benefits is taxable from the first dollar.

A worked example: taxable doesn't mean taxed

Dev and Priya are both 67 and file jointly. In 2026 they receive $40,000 of Social Security, withdraw $30,000 from an IRA, earn $2,000 of bank interest and $1,000 of tax-exempt bond interest.

1. Provisional income: $30,000 + $2,000 + $1,000 + half of $40,000 = $53,000.
2. That's $9,000 above the $44,000 threshold. 85% of $9,000 is $7,650.
3. Add the fixed amount of $6,000. Taxable benefits are $13,650.

Their adjusted gross income is $32,000 + $13,650 = $45,650. Their deductions are larger than that:

• the standard deduction of $32,200
• an extra $1,650 each for being 65 or older
• the temporary senior deduction of $6,000 each

Together that's $47,500. Their taxable income is zero, so they owe no federal income tax, even though $13,650 of their benefits counts as income.

A worked example: the tax torpedo

Lou is 70, single, and receives $30,000 of Social Security. He withdraws $35,000 from his IRA.

• Provisional income: $35,000 + $15,000 = $50,000.
• Taxable benefits: 85% of the $16,000 above $34,000, plus $4,500, is $18,100.
• Taxable income, after $24,150 of deductions, is $28,950. That's in the 12% bracket.

Now Lou withdraws one more $1,000. His IRA income rises by $1,000, and $850 more of his benefits becomes taxable. His taxable income rises by $1,850, so his tax rises by about $222.

That's a 22.2% rate on the extra $1,000, though he's in the 12% bracket. People in the next bracket up can see rates near 40% in this range. This effect is often called the tax torpedo.

It stops once 85% of benefits is taxable. Above that point, extra income is taxed at your normal bracket again.

What you can do

You can't change the formula, but you can change where your income falls.

• Draw down traditional accounts earlier. Withdrawals or Roth conversions before you claim Social Security don't interact with benefits. See Roth conversions.
• Delay Social Security. A larger benefit later, paired with lower IRA withdrawals, can keep more of your income out of the torpedo zone.
• Use Roth money in high-income years. Roth withdrawals don't count toward provisional income.
• Give from your IRA. A qualified charitable distribution counts toward your required distribution but stays out of your income. See QCDs and donor-advised funds.
• Watch other thresholds. The same income moves can trigger Medicare premium surcharges. See IRMAA and ACA subsidy cliffs.

State taxes on benefits

Most states don't tax Social Security. A few do, often with exemptions by age or income. If you're thinking about moving, see moving states in retirement.

Paying the tax

Social Security doesn't withhold federal tax unless you ask. You can choose a flat withholding rate on Form W-4V, or pay quarterly estimated tax. If you also take IRA withdrawals, withholding from those can cover the tax on your benefits.

How the app handles Social Security taxes

Each year, the plan works out your provisional income and the taxable part of your benefits with the thresholds above, for your filing status. The taxable part flows into federal tax, and into state tax according to each state's rules.

The Tax rates screen doesn't read your rate from a bracket table. It works out each year's taxes again with $1,000 more income and measures the difference. That rate includes benefits becoming taxable, so torpedo years stand out. Withdrawal-order and Roth conversion comparisons use the same tax calculation, so their costs include the torpedo too.

Why this matters for your withdrawal plan

The torpedo zone is usually a band of a few tens of thousands of dollars of other income. Retirees with modest pensions and IRA withdrawals often land right in it. Two plans with the same total spending can pay quite different tax, depending on which accounts they draw from and when.

Some households fill a low bracket with IRA withdrawals before benefits start, then rely on Social Security plus Roth money later. Others find their required distributions alone will push them past the zone, so the torpedo matters little. Your own numbers decide which group you're in.

Frequently asked questions

Is my Social Security taxed at a special rate?

No. The taxable part is added to your other income and taxed at your normal rates.

Do the thresholds include my spouse's income?

Yes, on a joint return. Both spouses' benefits and other income count.

Will the thresholds ever rise?

They're set in law and not indexed. Only a change in the law would raise them.