How your Social Security benefits are taxed

If you’re wondering how your Social Security benefits are taxed, you’re not alone. We’ve outlined four important facts you should know about Social Security benefits taxation and what you can do to potentially reduce your tax burden.
1. Social Security tax thresholds are not adjusted for inflation
Although the 2025 Social Security cost-of-living adjustment (COLA) of 2.5% wasn’t as big of a bump as the 3.2% from 2024, the increase will help many retirees still feeling the effects of inflation. However, it’s important to note that even though your benefits increased, the combined income threshold for the amount of your benefits that are subject to tax did not.
Combined income is calculated by adding half of your Social Security benefits and any earned nontaxable interest (such as from most municipal bonds) to your adjusted gross income (AGI). Unless your combined income is less than $25,000 for an individual filer, or $32,000 for a joint filer, up to 85% of your Social Security benefits may be taxed. So, while this boost in benefits can help better meet the growing cost of day-to-day needs, the COLA increase may mean more of your benefits will be taxed.
2. Certain states also tax Social Security benefits
In addition to paying federal taxes on your Social Security benefits, you may also need to pay state taxes depending on where you live. While several states tax Social Security benefits, the amount subject to tax may depend on your age, tax-filing status and AGI. If you live in one of these states, you may need to factor this additional tax liability into your retirement income strategy.
3. Withholding benefits can help reduce your year-end tax bill
To help avoid a larger-than-expected tax bill or an underpayment penalty, you can file IRS Form W-4V with the Social Security Administration to request to have 7%, 10%, 12% or 22% of your monthly benefits withheld. Fortunately, you are not locked into one rate forever. You can change it, if you like, based on changes in your financial picture.
4. Certain retirement account distributions do not count toward your combined income
Taking distributions from your retirement accounts each year can affect the amount of your Social Security benefits that may be taxed. However, not all withdrawals from these accounts will be included in your combined income.
For instance, qualified distributions from a Roth IRA are tax-free and therefore do not increase your AGI. For this reason, these withdrawals are not included in the combined income calculation.
If you don’t have a Roth IRA, you can convert your traditional IRA to a Roth IRA to gain access to tax-free distributions in the future. However, this conversion is a taxable event.
Taxes are not the “be-all and end-all”
Though it may be tempting, reducing your tax burden as much as possible shouldn’t be the only consideration when it comes to funding your retirement. Your Edward Jones financial advisor and qualified tax professional can help you determine an overall retirement strategy for your unique situation.
Important information:
Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation. This information has been prepared from sources and data we believe to be reliable, but we make no guarantee to its accuracy or completeness.