Social Security is one of the foundations of most Americans' retirement planning. In an annual poll from Gallup, 60% of retirees said Social Security is a major source of income, and another 28% said it played a minor role in their budget. Keeping as much of your Social Security benefits as you can is essential for many households. That means keeping taxes on your Social Security income low.
One of the biggest challenges for seniors collecting Social Security can be balancing different retirement tax strategies with the effect on Social Security taxes. Unfortunately, Social Security tax rules can be very complicated, and keeping Social Security taxes low is often in conflict with other retirement tax strategies.
If you're not careful, you could end up with a major surprise when your taxes come due.
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How the government taxes Social Security
Before we dive into how to avoid taxes on Social Security, you'll need a basic understanding of how Social Security benefits get taxed in the first place. The federal government uses a metric called "combined income" to determine how much of your Social Security, if any, is subject to income taxes. Combined income is equal to the sum of half your Social Security benefits, your adjusted gross income, and any non-taxable interest income.
If your combined income exceeds certain thresholds, a portion of your benefits become taxable as detailed in the table below.
| Taxable portion of Social Security | Single Filer | Joint Filer |
|---|---|---|
| 0% | Less than $25,000 | Less than $32,000 |
| Up to 50% | $25,000 to $34,000 | $32,000 to $44,000 |
| Up to 85% | More than $34,000 | More than $44,000 |
Data source: Social Security Administration.
If those thresholds seem extremely low, that's because they haven't changed since Congress set them over 30 years ago. There's no inflation adjustment, so you must keep your combined income as low as possible every year to avoid additional taxes on Social Security. Since the annual COLA keeps increasing benefits, that's becoming more and more difficult.
Fortunately, many retirees have a lot of control over the rest of their income, which typically comes in the form of retirement account withdrawals and capital gains. But trying to use some standard tax strategies with both of those income sources could lead to more of your Social Security income becoming taxable, negating the benefits.
Pitfall No. 1: The 0% capital gains tax bracket
Long-term capital gains get a preferred tax bracket compared to other sources of income. The taxes on gains on the sale of securities held for longer than one year can be as low as 0%.
You can take a significant amount in capital gains before you have to start paying a penny of taxes. In 2025, joint filers with $96,700 or less in taxable income won't pay anything in long-term capital gains taxes. Individuals are capped at $48,350.
It can be very tempting to take some gains on your investments, especially after the market produced such strong returns over the last two years. But you'll need to keep in mind the effect on your combined income and how it will make Social Security benefits taxable.
If you max out the 0% long-term capital gains tax bracket, for example, you'll end up making 85% of your Social Security benefits taxable. In turn, that'll push the same amount of capital gains income into the 15% tax bracket. What you thought was an opportunity to take gains at 0% tax just turned into a much bigger tax bill.
Pitfall No. 2: Retirement account withdrawals
Withdrawals from an IRA or 401(k) are usually one of the main sources of income for retirement. Any amount withdrawn from retirement accounts counts as regular income for tax purposes.
You can avoid paying taxes on your retirement account withdrawals if you have enough deductions to offset the amount you take from your accounts. In 2025, the standard deduction for a couple age 65 or older is $33,200.
Keep in mind, however, that any amount you withdraw from your retirement accounts will also count toward your adjusted gross income and combined income by extension. That means a couple taking full advantage of the standard deduction will push some of their Social Security benefits into taxable territory.
The effect could be greater if retirees look to take advantage of the low tax brackets currently available, whether through withdrawals or Roth conversions. While you might only pay 10% on your additional distribution, you could also increase your taxes on Social Security benefits at the same time. That makes your real marginal tax rate much higher.
Pitfall No. 3: Ignoring state taxes
Many states have gotten rid of taxes on Social Security, but nine states will still tax your benefits in some cases. The following states still impose taxes on some Social Security beneficiaries:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
If you live in one of these states, it's worth exploring the rules your state government uses to determine how much you'll owe in taxes on your Social Security benefits. Many will exempt households that keep their adjusted gross income below a certain level, which is often different than the combined income thresholds the federal government uses. Understanding the details and how federal and state tax strategies can conflict with one another could save you a lot of money come tax time.
It's worth noting that the state laws are constantly changing, and many states have gotten rid of taxes on Social Security benefits. West Virginia is currently sunsetting its taxes on Social Security, and it won't tax benefits at all starting next year.
Tax planning in retirement becomes much more complex once you start collecting Social Security. It might be worth paying the extra taxes in some instances to lower your potential tax burden in the future. As long as you remain mindful of how different income sources will affect your overall taxes, you can make the most of your Social Security income and your retirement savings.
