How Are Social Security Benefits Taxed?
Understanding Reductions and Taxation of Social Security Benefits
How Job Earnings and Taxes Impact Your Social Security
Social Security benefits are a lifeline for many retirees, but did you know your benefits can be reduced or taxed based on your income? Here’s what you need to know.
Earnings Reductions Before FRA
If you work while collecting Social Security before reaching your Full Retirement Age (FRA), your benefits may be temporarily reduced.
In 2025, you can earn up to $23,400 before reductions apply.
For every $2 earned over the limit, $1 is withheld from your benefits.
The year you reach FRA has a higher limit of $62,160, with a $1 reduction for every $3 earned over the limit.
These reductions are not permanent; withheld benefits are recalculated and added back to your payments after reaching FRA.
Taxation of Social Security
Your Social Security benefits may also be subject to federal income tax based on your combined income:
Single filers: Up to 50% of benefits are taxable for incomes over $25,000, and up to 85% for incomes over $34,000.
Married filing jointly: The thresholds are $32,000 and $44,000, respectively.
Combined income includes:
Gross income
Non-taxable interest (e.g., municipal bonds)
Half of your Social Security benefits
What About Spousal Benefits?
Spouses and ex-spouses may be eligible for up to 50% of the worker’s benefit, while widows and widowers can receive up to 100%. These benefits are calculated based on the worker’s FRA amount.
The Bigger Picture
While reductions and taxes might seem daunting, Social Security remains a vital safety net. Understanding these nuances ensures you’re prepared to maximize your benefits and avoid surprises during retirement. Social Security can be just one component of your retirement plan.
If you’re curious how your traditional 401(k), your Roth IRA, or your real estate investments could contribute to the big retirement picture - allow us to paint that picture for you.
We can illustrate what’s possible, and how you may want to navigate the close of your career and enter the golden years.
Book a consultation call with us today to see what picture we could paint for you.