How Social Security Is Taxed in 2026. What Retirees Need to Know
Many retirees are surprised to learn that Social Security benefits can be taxable. After all, you paid into the system for decades. But once benefits start, the IRS may treat a portion of them as taxable income depending on your total income.
I’ve found that understanding how this works can prevent surprises and help retirees keep more of what they receive. The rules aren’t new, but they’re often misunderstood and because the thresholds haven’t changed in decades, more retirees are affected every year.
Let’s break it down clearly.
How Social Security Taxation Works
Social Security benefits can be taxed at the federal level based on something called provisional income. This determines how much of your benefit is included in your taxable income.
Here’s the key point: you are not taxed on 85% of the benefit as a tax rate. Instead, up to 85% of your benefit can become taxable income, which is then taxed at your normal tax bracket.
Many people confuse this and think Social Security is taxed at 85%. It’s not.
What Counts as Provisional Income
Provisional income is calculated as:
• Your gross income (excluding Social Security)
• PLUS any tax-free municipal bond interest
• PLUS half of your Social Security benefits
That total determines whether 0%, up to 50%, or up to 85% of your benefit becomes taxable.
Current Federal Thresholds (Still Not Indexed to Inflation)
These thresholds are current and remain unchanged for 2026 because Congress has never indexed them for inflation.
For single filers:
• Under $25,000 → 0% of benefits taxable
• $25,000–$34,000 → Up to 50% taxable
• Over $34,000 → Up to 85% taxable
For married filing jointly:
• Under $32,000 → 0% taxable
• $32,000–$44,000 → Up to 50% taxable
• Over $44,000 → Up to 85% taxable
Because these thresholds were set in the 1980s and 1990s, more retirees cross them today simply due to inflation and higher benefit amounts.
Example Calculation
Let’s say someone has:
• $20,000 pension income
• $20,000 Social Security
• $5,000 tax-free municipal bond interest
Provisional income =
$20,000 + $5,000 + $10,000 (half of SS) = $35,000
For a single filer, that lands above $34,000, meaning up to 85% of the Social Security benefit may be taxable.
That does not mean 85% is taxed it means up to 85% becomes part of taxable income.
Why Some Retirees Pay Little or No Tax
Retirees living primarily on Social Security often pay little or no federal income tax. If Social Security is your main income source, provisional income may stay below thresholds.
For example, a single filer with $10,000 from a pension and $30,000 from Social Security may still owe little or no federal tax depending on deductions and filing status.
But even small increases IRA withdrawals, capital gains, or higher benefits can push provisional income higher.
State Taxes on Social Security (Updated)
Most states do not tax Social Security benefits.
As of 2026, only nine states tax Social Security in some form:
• Colorado
• Connecticut
• Kansas
• Minnesota
• Montana
• New Mexico
• Rhode Island
• Utah
• Vermont
Missouri and Nebraska have largely phased out their taxation for most residents, which is why the list is now smaller than in past years.
Even among the states that tax benefits, many offer income-based exemptions or deductions that reduce or eliminate the tax for middle-income retirees.
And yes, large states like California, Florida, and Texas do not tax Social Security.
Why Social Security Can Be Tax-Efficient
Compared to IRA or 401(k) withdrawals which are fully taxable Social Security can be relatively tax-efficient. Even in the highest range, only part of the benefit is counted as taxable income.
This is why smart withdrawal planning matters. Coordinating IRA distributions, Roth withdrawals, and Social Security timing can help manage taxes.
The Big Planning Takeaway
The taxation of Social Security isn’t meant to punish retirees it’s a formula based on total income. But because thresholds are frozen in time, planning becomes more important.
Understanding provisional income helps retirees:
• Avoid unexpected tax bills
• Coordinate withdrawals
• Improve after-tax income
• Make smarter claiming decisions
Social Security remains one of the most tax-advantaged income sources in retirement when planned correctly.
A little awareness goes a long way toward keeping more of your benefits in your pocket.
You should always consult a financial, tax, or legal professional familiar about your unique circumstances before making any financial decisions. This material is intended for educational purposes only. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns.
Past performance does not guarantee future performance. Future returns may be lower or higher. Investments involve risk. Investment values will fluctuate with market conditions, and security positions, when sold, may be worth less or more than their original cost.
