Over 66 million retired Americans receive Social Security income, including roughly six million baby boomers who signed up to begin receiving benefits in 2024.
While Social Security income is only designed to replace about 40% of a person’s pre-retirement income, many people rely on it exclusively to support themselves in retirement. That’s concerning, given that the average Social Security payment to retired workers is below $2,000 monthly, yet the average retiree’s monthly expenses total $4,345, according to the Bureau of Labor Statistics.
The gap between Social Security income and expenses means every dollar matters, making it important to understand how the IRS taxes Social Security income.
Retired workers rely heavily on Social Security income. The IRS taxes Social Security when a retiree’s inome exceeds specific thresholds.
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Is Social Security income taxed by the Federal Government?
The taxation of Social Security benefits began with the Social Security Amendments of 1983, which for the first time made a portion of these benefits subject to federal income tax.
The system was expanded a decade later when the Omnibus Budget Reconciliation Act of 1993 introduced a second tier of taxation, creating the framework we still use today.
Your potential tax liability is determined by your “combined income” (AGI + nontaxable interest + half of your Social Security benefits):
No taxation: Beneficiaries with combined income below $25,000 ($32,000 for joint filers) pay no federal taxes on their benefitsUp to 50% taxed: Those with combined income between $25,000 and $34,000 ($32,000 to $44,000 for joint filers) may be taxed on up to half of their benefitsUp to 85% taxed: Individuals with combined income above $34,000 ($44,000 for joint filers) may be taxed on up to 85% of their benefits
High Income Taxpayers Pay More Taxes on Social Security Benefits
Tax Policy Center/TheStreet
About half of Social Security beneficiaries pay no tax on their benefits
Of note, about half of Social Security beneficiaries pay no tax on their benefits — primarily because their incomes fall below the specified thresholds, according to the Center on Budget and Policy Priorities.
On average, the Center notes that beneficiaries pay about 7% of their benefits in income taxes. Those in the bottom two income quintiles (with incomes below $63,300) owe an average of 1% or less of their benefits in taxes, according to the Center. In contrast, beneficiaries in the top quintile (with incomes over $205,800) pay 20%. Read Eliminating Taxation of Social Security Benefits Would Be Unwise.
Watch out for tax bracket creep
A significant challenge for many retirees is that these income thresholds have never been indexed for inflation since their establishment. Consequently, as incomes naturally rise over time due to inflation, an increasing number of Social Security recipients find their benefits subject to taxation—a phenomenon often called “bracket creep.”
These federal taxation policies were primarily implemented to strengthen Social Security’s long-term financial stability. Still, they create an essential baseline that affects your overall retirement tax picture regardless of which state you choose for retirement.
While on the campaign trail in 2024, President Trump did propose not taxing Social Security benefits. In February 2025, Rep. Thomas Massie (R) introduced the Senior Citizens Tax Elimination Act (H.R. 1040) to implement this promise.
Related: These 9 states tax retirees’ Social Security the most
For more retirement related news and analysis, check out Retirement Daily on TheStreet.
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