If you’re collecting Social Security, there’s a good chance you owe federal
income tax on part of those benefits. Roughly half of all beneficiary households
do in a given year, and in a Senior Citizens League survey, 51% of respondents
said they didn’t expect to owe anything at all.
That makes it one of the more surprising retirement
mistakes, especially for people who don’t discover the rule until after
they’ve started collecting benefits. Here’s why that keeps happening and why
some lawmakers want it to change.
How federal taxes on Social Security benefits work
Whether your Social Security benefits are taxed depends on your provisional
income. The IRS calculates it by adding together:
- Half of your Social Security benefits
- Your other taxable income
- Any tax-exempt interest
If that total is more than $25,000 for a single filer or $32,000 for a married
couple filing jointly, part of your Social Security benefit becomes taxable.
Above $34,000 for single filers or $44,000 for joint filers, up to 85% of your
benefits may be included as taxable income.
The 85% limit applies to the portion of your benefit that is included in your
taxable income. Your regular federal income tax rate is then applied to that
amount. As provisional income rises, a larger share of your Social Security
benefit can be included in the calculation.
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The income thresholds have stayed the same for decades
Congress set the current income thresholds in 1983 and 1993 and never adjusted
them for inflation. According to the Social Security Administration’s history of
the rule, the thresholds were “intentionally not indexed,” allowing inflation
and wage growth to gradually bring more retirees into the tax over time.
When the rule first took effect in 1984, fewer than 10% of Social Security
beneficiaries owed federal income tax on their benefits. Today, that figure has
grown to roughly half of beneficiary households.
The Congressional Budget Office (CBO) expects that share to keep growing under
current law as more retirees cross the same income limits that have remained
unchanged for decades.
That also means a cost-of-living adjustment can increase the taxable share of
your Social Security benefit, even when the raise is simply keeping pace with
inflation.
The latest tax break leaves the old rule in place
In 2025, Congress created a temporary deduction for people 65 and older as part
of the One Big Beautiful Bill. If you qualify, you can claim an extra $6,000
deduction, or $12,000 for a married couple where both spouses are at least 65.
The deduction begins to phase out above $75,000 for single filers and $150,000
for married couples filing jointly, and it is scheduled to expire after 2028.
The deduction may reduce some retirees’ federal tax bills during those years,
but the income thresholds used to tax Social Security benefits remain the same.
The formula that allows up to 85% of benefits to be included in taxable income
is still in place, and the Tax Policy Center noted that the law included “no
direct tax cut on Social Security.” The deduction also does not apply to
retirees who are under 65.
Changing the thresholds comes with a cost
Federal taxes collected on Social Security benefits help fund both Social
Security and Medicare. The tax collected on the first 50% of taxable benefits
goes to Social Security’s trust funds, while the revenue from benefits taxed
above that level goes to Medicare’s Hospital Insurance trust fund.
Changing or eliminating the income thresholds would reduce that funding unless
Congress replaced it from another source.
The 2026 Trustees Report projects that Social Security’s retirement trust fund
will pay full benefits only through late 2032, making it more difficult to
replace a funding source the program already depends on. Although lawmakers have
proposed pairing higher thresholds with other sources of revenue, none of those
proposals has become law.
Planning around these thresholds can save you money every year
How you draw income in retirement can affect how much of your Social Security
ends up being taxed. Roth IRA withdrawals don’t count toward provisional income,
so converting some savings into a Roth during your 50s or early 60s could keep
more of your Social Security out of retirethe taxable zone later.
The timing of other withdrawals plays a role too. A large traditional IRA
withdrawal in a single year can push a bigger share of your benefits into
taxation than smaller withdrawals spread across several years.
And if you’re already collecting and paying more in taxes than you expected, a
conversation with a tax professional can help you sort out the best way to
manage your income mix going forward.
Bottom line
Finding out that part of your Social Security is taxable can be frustrating,
especially if you never saw it coming. The rules have been around for decades,
yet they’re catching more retirees every year as incomes gradually rise.
Knowing how those rules work before you file or make large withdrawals can help
you save
money in retirement by reducing unexpected taxes and giving you a clearer
picture of how much of your Social Security you’ll actually keep.
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Author Details
David Maina, CPA
David Maina, CPA, is a writer for FinanceBuzz with eight years of experience covering personal finance, with a focus on Social Security and retirement-related benefits. He helps readers understand how policy changes and personal decisions can impact their Social Security income, from avoiding common mistakes to navigating issues like benefit reductions and garnishments due to debt. He also breaks down complex topics like Medicare interactions and payment projections so readers can better plan for retirement.
