You’ve probably heard the rumor. Someone at a BBQ or a local VFW mentioned that Congress finally axed the tax on Social Security. It sounds right, doesn’t it? You paid into the system for forty years with after-tax dollars, so getting taxed again on the way out feels like a double-dip from the IRS.
But honestly? Is social security still taxed? Yes. It very much is.
Despite a few high-profile bills floating around the halls of D.C., the federal government still takes its cut if you make more than a modest amount. The rules haven't changed much since 1993, which is actually part of the problem. Those income thresholds haven't been adjusted for inflation in decades.
Basically, as your benefits go up with the Cost of Living Adjustment (COLA), you're more likely to get pushed into a taxable bracket. It’s a bit of a "stealth tax" that catches people off guard every April.
The Federal Math: How the IRS Decides Your Fate
The IRS doesn't just look at your Social Security check. They use a specific metric called combined income (or provisional income).
Calculating it is weird. You take your Adjusted Gross Income (AGI), add any tax-exempt interest you earned—like from municipal bonds—and then add exactly half of your Social Security benefits. That’s the number that determines your tax bill.
For 2026, the thresholds remain stuck in time:
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- Single Filers: If your combined income is between $25,000 and $34,000, you might pay tax on up to 50% of your benefits. If you're over $34,000, up to 85% of your benefits are taxable.
- Married Filing Jointly: The "no-tax" zone ends at $32,000. Between $32,000 and $44,000, you’re looking at the 50% rate. Over $44,000? You guessed it—85% of your benefits are on the table for the IRS.
It’s important to clarify something here. You aren't paying an 85% tax rate. That would be insane. It just means 85 cents of every dollar you get from Social Security is added to your other taxable income (like 401(k) withdrawals or a part-time job) and taxed at your regular marginal rate.
The 2026 "Senior Bonus" Wildcard
There is a bit of fresh news for the 2026 tax year. A new deduction, often called the Senior Bonus Deduction, has entered the mix. It allows eligible taxpayers over 65 to reduce their taxable income by up to $6,000 (or $12,000 for couples).
While this doesn't technically change the Social Security tax rules, it lowers your overall AGI. For some people hovering right on the edge of the $25,000 or $32,000 thresholds, this could be the difference between paying the IRS and keeping every penny of their benefit.
Why State Taxes are a Different Story
This is where things get a little more optimistic. While the federal government is stubborn, states are moving fast.
In the last few years, a wave of states has decided that taxing seniors is bad politics. Missouri, Kansas, and Nebraska all ditched their Social Security taxes recently. West Virginia is the latest to join the club, fully phasing out its tax on benefits starting with the 2026 tax year.
As of right now, only eight states still have some form of Social Security tax:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
Even in these states, it’s not a total loss. Most of them have high income exemptions. For instance, in New Mexico, you won't pay state tax on benefits if your income is under $100,000 as a single filer.
The "You Earned It, You Keep It" Act
You might have seen headlines about a bill called the "You Earned It, You Keep It Act." This is the legislation everyone is hoping for. It proposes a total elimination of federal taxes on Social Security benefits.
To pay for it, the bill suggests raising the cap on Social Security payroll taxes for high earners. Currently, in 2026, you only pay Social Security tax on the first $184,500 of your wages. Anything earned above that is "free." The bill wants to tax earnings above $250,000 to offset the lost revenue from retirees.
Is it law yet? No. It’s still sitting in committee. Betting your retirement strategy on it passing this year is risky at best.
Real-World Ways to Lower the Hit
Since we can't wait for Congress to act, you’ve got to be proactive.
One of the smartest moves is managing your Required Minimum Distributions (RMDs). If you’re over 73 (or 75, depending on your birth year), the government forces you to take money out of your traditional IRA or 401(k). That money counts toward your "combined income."
If you don't need the cash, you can do a Qualified Charitable Distribution (QCD). You send the money directly from your IRA to a charity. The IRS doesn't count it as income, and it doesn't push your Social Security into the taxable zone.
Another trick? Roth conversions. If you move money from a traditional IRA to a Roth IRA before you start taking Social Security, you pay the tax upfront. Then, once you’re retired, Roth withdrawals are tax-free and—this is the kicker—they don't count toward the Social Security tax formula.
What You Should Do Right Now
Don't wait for a surprise in April.
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- Run the math early: Grab your 1099-SSA and your last tax return. Use the "Combined Income" formula: $AGI + Tax-Exempt Interest + (0.50 \times Social Security Benefits)$.
- Adjust your withholding: If you realize you're going to owe, you can file a Form W-4V with the Social Security Administration. You can ask them to withhold 7%, 10%, 12%, or 22% of your monthly check so you don't get hit with a massive bill (and potential penalties) later.
- Review your state residency: If you live in one of the eight "taxing" states, check if you qualify for their specific age or income exemptions. Many people pay state tax they don't actually owe because they don't claim the right credits.
- Talk to a pro about Roths: If you’re still a few years from retirement, shifting your tax burden now could save you tens of thousands of dollars in Social Security taxes over a twenty-year retirement.
The reality is that for about 40% of beneficiaries, Social Security is still taxed. Understanding your "combined income" is the only way to make sure you aren't part of that group unnecessarily.