Federal Taxation of Social Security Benefits

Some individuals may have to pay federal income taxes on Social Security benefits. This generally applies only if they have other substantial income such as wages, self-employment income, interest, dividends and other taxable income that must be reported on their federal income tax returns. Based on current tax rules, no one pays federal income tax on more than 85% of his or her Social Security benefits.

A single individual who files a federal tax return and has “combined income” between $25,000 and $34,000 may have to pay federal income tax on 50% of his or her Social Security benefits. Whereas another individual with the same tax filing status who has combined income in excess of $34,000 may be taxed on up to 85% of his or her Social Security benefits.

If a couple files a joint return and has a combined income between $32,000 and $44,000, they may have to pay federal income tax on 50% of their combined Social Security benefits. A joint filer who has more than $44,000 in combined income may be taxed on up to 85% of the combined Social Security benefits.

A married individual who files a separate tax return likely will pay federal income taxes on his or her Social Security benefits.

If an individual does have to pay taxes on his or her Social Security benefits, he or she can make quarterly estimated tax payments to the Internal Revenue Service (IRS) or choose to have federal taxes withheld from his or her benefits.

“Combined income” is the total of adjusted gross income, nontaxable interest and 50% of Social Security benefits. If you believe your Social Security benefits may be taxed, you should consult a tax advisor.

Based on current tax rules, no one pays federal income tax on more than 85% of his or her Social Security benefits.

For more information, refer to Publication 915 on the Internal Revenue Service (IRS) website.
 

Individual State Taxation of Social Security Benefits
 

You may be considering relocating closer to your children and grandchildren or seeking a warm oasis in retirement. Your Social Security benefits may be subject to state taxes depending on your location.

The following U.S. states tax Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia.

(U.S. citizens residing abroad in certain countries may be exempt from U.S. tax on their Social Security benefits.)

For more information, refer to Publication 915 on the Internal Revenue Service (IRS) website.
 

Federal Insurance Contributions Act (FICA)

The law requires employers to withhold taxes from employee earnings to fund Social Security and Medicare programs. Your employer also pays a tax equal to the amount withheld from employee earnings. Individuals who are self-employed pay Self-Employed Contributions Act (SECA) taxes on net earnings.

Sources: State tax departments, CCH, the Tax Foundation, Kiplinger, the American Hotel & Lodging Association and the Distilled Spirits Council of the United States.

Maximum Amount of Taxable Earnings

For 2018, the maximum amount of taxable earnings is $128,700¹⁵ This is also known as the taxable wage base.

You may claim a refund of any excess Social Security taxes withheld from higher earnings when you file your personal income tax return with the IRS. Although Social Security taxes are capped at the taxable wage base, Medicare taxes apply to all earnings.

Earned income exceeding $200,000 (or $250,000 for married couples filing jointly) is subject to an additional .09% in Medicare taxes equaling 13.3%.¹⁶

MAXIMUM TAXABLE EARNINGS EACH YEAR

1937-1950	$3,000	1980	$25,900	1994	$60,600	2008	$102,000
1951-1954	$3,600	1981	$29,700	1995	$61,200	2009	$106,800
1955-1958	$4,200	1982	$32,400	1996	$62,700	2010	$106,800
1959-1965	$4,800	1983	$35,700	1997	$65,400	2011	$106,800
1966-1967	$6,600	1984	$37,800	1998	$68,400	2012	$110,100
1968-1971	$7,800	1985	$39,600	1999	$72,600	2013	$113,700
1972	$9,000	1986	$42,000	2000	$76,200	2014	$117,000
1973	$10,800	1987	$43,800	2001	$80,400	2015	$118,500
1974	$13,200	1988	$45,000	2002	$84,900	2016	$118,500
1975	$14,100	1989	$48,000	2003	$87,000	2017	$127,200
1976	$15,300	1990	$51,300	2004	$87,900	2018	$128,700
1977	$16,500	1991	$53,400	2005	$90,000	2019	$132,900
1978	$17,700	1992	$55,500	2006	$94,200
1979	$22,900	1993	$57,600	2007	$97,500

Self-Employment: Paying Social Security and Medicare Taxes

You are self-employed if you operate a trade, business or profession either by yourself or as a partner. You must report your earnings for Social Security when filing your federal income tax return.