Social Security income can be taxed at the federal level and at the state level, depending on your total income and where you live.
At the federal level, your Social Security income is subject to taxation if your total income exceeds certain thresholds. The Social Security Administration uses a formula called “provisional income” to determine whether your benefits are taxable. Provisional income includes not only your Social Security benefits, but also other forms of income such as wages, investment income, and pension income.
For the tax year 2021, if you file as an individual and your provisional income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your Social Security benefits. If your provisional income is above $34,000, you may have to pay income tax on up to 85% of your Social Security benefits. If you file a joint return with your spouse, the income thresholds are higher.
At the state level, some states tax Social Security benefits while some do not. Some states exempt Social Security income from taxation altogether, while others only tax a portion of it.
It’s important to note that even if your Social Security income is taxable, you may be able to reduce your tax bill by taking deductions and credits that are available to you. It’s always a good idea to consult with a tax professional to understand your specific tax situation.