How much of your Social Security benefits must be reported as taxable income depends on your provisional income, your overall income, and IRS thresholds.
What is the Senior Deduction?
There is a new deduction for taxpayers age 65 and older, which has been promoted as “no tax on Social Security.” That phrasing is a bit misleading, as the deduction is not limited to people who receive Social Security benefits and it does not automatically make Social Security tax exempt. For 2025 through 2028, qualifying taxpayers may be eligible for a $6,000 ($12,000 if married filing joint with both taxpayers being over 65 years old) “senior” deduction – subject to limitations and income phase outs. The senior deduction can help reduce taxes on Social Security benefits; however, some retirees are already exempt from tax on Social Security.
What is your Provisional Income?
To determine how much of your Social Security benefits may be taxable, you first need to calculate your provisional income.
Start with your adjusted gross income (AGI), which is your income from taxable sources after certain “above-the-line” adjustments but before the standard deduction, itemized deductions, and other deductions such as the senior deduction.
Common “above-the-line” adjustments include:
- Traditional IRA adjustments
- Health Savings Account contributions
- Student loan interest
For many taxpayers who qualify for the senior deduction, their AGI is often close to their provisional income because they generally do not have any “above-the-line deductions”.
Provisional income starts with your AGI before including Social Security benefits. Then, the following are added back:
- 50% of Social Security benefits
- Tax-exempt municipal bond interest
- Tax-exempt interest on U.S. Savings Bonds used for qualified education expenses,
- Tax-free adoption assistance payments received from your employer
- Student loan interest deductions
- Any tax-free foreign earned income and housing allowances, and certain tax-free income from Puerto Rico or U.S. possessions
After provisional income is calculated, it is compared with the income phase outs to determine how much of the benefits are taxable (0% up to 85%).
When are your Social Security Benefits Tax-Exempt?
Generally, your Social Security benefits are not subject to federal income tax if your provisional income is below the following amounts:
- Married filing jointly with provisional income of $32,000 or less
- Single, married filing separately, head of household, or surviving spouse with provisional income of $25,000 or less
There is a special rule: if you are married filing separately and lived with your spouse at any time during the year, your provisional income threshold is $0 – which means up to 85% of your Social Security benefits may be taxable.
These thresholds went into effect in 1984 and have never been adjusted for inflation. As retirement income has increased over time, more retirees are subject to federal tax on portions of their Social Security benefits.
Reminder: state tax treatment may differ, as states have their own tax rules. For example, in Wisconsin, all social security benefits received are excluded from Wisconsin income. Please consult with your tax advisor.
When are up to 50% of your Social Security Benefits Taxable?
Generally, up to 50% of Social Security benefits must be reported as taxable income on Form 1040 if:
- Married filing jointly with provisional income over $32,000 but less than $44,000
- Single, married filing separately, head of household, or surviving spouse with provisional income over $25,000 but less than $34,000
The tax-exempt portion of Social Security benefits gradually decreases as your provisional income rises. The closer you are to the higher threshold, the closer you’ll be to reporting 50% of your social security benefits as taxable.
When are up to 85% of your Social Security Benefits Taxable?
Generally, up to 85% of Social Security benefits must be reported as taxable income on Form 1040 if:
- Married filing jointly with provisional income over $44,000
- Single, married filing separately, head of household, or surviving spouse with provisional income over $34,000
- Married filing separately but you lived with your spouse at any time during the year with a provisional income over $0
The exact percentage depends on the amount your provisional income exceeds the applicable threshold and the size of your Social Security benefits relative to other income. Any taxable Social Security Benefits will be taxed at your ordinary income rates.
Tax Planning – Social Security Benefits
Smart and proactive tax planning can potentially reduce your tax liability from Social Security benefits. Reach out to Wegner CPAs for help with assessing your eligibility for the senior deduction and determining how much of your Social Security benefits may be taxable.
