Social Security Tax Rates

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This article is not about the taxes that working people pay on their income into social security, but rather the social security tax rates that retirees pay on their social security benefits. Yes, you pay tax on your social security benefits and that has been the case since 1984 (prior to that, social security income was tax free).

The tax rates on social security benefits are as follows and based on your total income. In fact, the table below shows the social security tax rates based on your modified adjusted gross income (MAGI) which we explain next.

Percent of social security income taxed Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of the year, Married people
0% Less than $25,000 Less than $34,000
Up to 50% $25,001-$34,000 $34,001 to $44,000
Up to 85% More than $34,000 More than $44,000

Notice that for people with lower income (e.g. single with modified adjusted gross income below $25,000), social security income is tax free. However, no amount of social security income is tax free if you are married filing separately and lived with your spouse at any time during the tax year.

Social Security Tax Rates based on Modified Adjusted Gross Income

MAGI is One-half of your social security benefits, plus

  • All your other income, including tax-exempt interest, plus
  • Interest from qualified U.S. savings bonds, plus
  • Employer-provided adoption benefits, plus
  • Foreign earned income or foreign housing, plus
  • Income earned by bona fide residents of American Samoa or Puerto Rico.

If you think about the above list, you see that IRS is determining how rich you are by considering your interest from tax exempt bonds and US savings bonds. So your social security tax rate is based on a figure much higher that your adjusted gross income. By the amount that your MAGI exceeds your base amount (table above) you pay tax on your social security income at the social security tax rates specified in the table.

Let's see a sample calculation using the social security tax rates.

Summary

Knowing how to manage your finances, even your social security decisions, is a challenge.   You can find other related information in our blog Retirement Income.