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How Are Social Security Benefit Taxes Calculated? 

A Formula for Determining Taxable Social Security

Many people—and even financial planning software—assume that once income exceeds $34,000 for single filers or $44,000 for married couples filing jointly, 85% of Social Security benefits will automatically be taxable. That assumption is often incorrect. While 85% is the maximum portion of benefits that can be taxed, the actual taxable amount depends on a defined calculation.

To illustrate how this works, consider a married couple filing jointly with $75,000 of total income. Their income consists of $30,000 of Social Security benefits and $45,000 of IRA withdrawals. Because all non–Social Security income is fully taxable, and the IRA withdrawals alone exceed the second threshold, many advisors would immediately assume the couple’s benefits are taxed at the maximum level.

For married couples filing jointly, Social Security taxation is governed by two provisional income thresholds: $32,000 and $44,000. Crossing these thresholds does not automatically result in 85% taxation; it simply determines which portions of the formula apply.

Provisional income is calculated by adding one-half of Social Security benefits to all other taxable income, plus any tax-exempt interest. In this example, half of the couple’s $30,000 Social Security benefit ($15,000) is added to their $45,000 IRA withdrawal, resulting in $60,000 of provisional income.

The taxable portion of Social Security benefits is then determined using the following calculation, shown alongside the example:

Step Rule Example Calculation Result
1 Provisional income equals ½ Social Security plus other taxable income $15,000 + $45,000 $60,000
2 Subtract the first threshold and tax the excess at 50% ($60,000 − $32,000) × 0.50 $14,000
3 Subtract the second threshold and tax the excess at 35% ($60,000 − $44,000) × 0.35 $5,600
4 Add the taxable amounts $14,000 + $5,600 $19,600
5 Compare to the maximum (85% of benefits) 0.85 × $30,000   $25,500

Although 85% of the couple’s Social Security benefits could be taxable, the calculation shows that only $19,600 of their $30,000 benefit is included as ordinary income. In percentage terms, 65.33% of their Social Security benefits are taxable—not the full 85% many would expect.

The broader takeaway is that Social Security benefits carry a meaningful tax advantage relative to other sources of retirement income. Because of this preferential treatment, delaying benefits to create a larger Social Security payment often has a greater positive after-tax impact than most people realize, particularly when compared to increasing withdrawals from tax-deferred accounts.