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Taxation of Social Security Benefits

How are Social Security benefits taxed?

Up to 85 percent of Social Security benefits are subject to federal and state income tax, depending on the taxpayer's income. Benefits subject to federal and state tax include retirement, survivor, and disability benefits, but not supplemental security income (SSI) payments, which are not taxed. The amount of benefits included in taxable income depends on the taxpayer's provisional income.

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What is provisional income?

Provisional income is the income measure used to determine the amount of Social Security benefits included in taxable income. Provisional income equals adjusted gross income excluding Social Security benefits, plus tax-exempt interest (e.g., from municipal bonds) and one-half of Social Security benefits.

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How much Social Security benefits are taxed?

Taxayers with Social Security benefits complete a federal worksheet to determine how much of their benefits are subject to tax. The following table shows income levels at which Social Security benefits are fully exempt, subject to inclusion in taxable income at the 50 percent rate, and subject to inclusion in taxable income at the 85 percent rate for a married couple and a single filer.

Taxation of Social Security Benefits
Married couple Single filer
Social Security exempt Provisional income less than $32,000 Provisional income less than $25,000
Social Security included in taxable income at up to 50% rate (first tier) Provisional income between $32,000 and $44,000 Provisional income between $25,000 and $34,000
Social Security included in taxable income at up to 85% rate (second tier) Provisional income over $44,000 Provisional income over $34,000

Social Security benefits are excluded from taxable income for beneficiaries with provisional income below the first tier threshold ($32,000 for married couples and $25,000 for other filers).

The amount included in taxable income for beneficiaries with provisional income over the first tier threshold, but less than the second tier threshold, equals 50 percent of provisional income over the first tier threshold, up to at most 50 percent of benefits.

The amount included in taxable income for beneficiaries with provisional income over the second tier threshold equals 85 percent of provisional income over the second tier threshold, plus 50 percent of provisional income between the second and first tier thresholds, up to at most 85 percent of benefits.

Social Security income included in taxable income is taxed at the same rate as other kinds of income–5.35 percent, 7.05 percent, 7.85 percent, or 9.85 percent depending on the total amount of taxable income. See more information on income tax brackets.

The following tables show examples of how Social Security benefits are taxed.

Example 1: Single retiree, annual Social Security benefits of $15,000 (close to average amount)
Social Security benefits $15,000 $15,000 $15,000
Other taxable retirement and wage income 10,000 25,000 50,000
Provisional income 17,500 32,500 57,500
Amount of Social Security included at 50% rate 0 3,750 4,500
Amount of Social Security included at 85% rate 0 0 8,250
Total Social Security subject to tax 0 3,750 12,750 (85%)
Amount of Social Security exempt from tax 15,000 11,250 2,250
Example 2: Married couple, annual Social Security benefits of $25,000 (close to average amount)
Social Security benefits $25,000 $25,000 $25,000
Other taxable retirement and wage income 10,000 25,000 50,000
Provisional income 22,500 37,500 62,500
Amount of Social Security included at 50% rate 0 2,750 6,000
Amount of Social Security included at 85% rate 0 0 15,250
Total Social Security subject to tax 0 2,750 21,250 (85%)
Amount of Social Security exempt from tax 25,000 22,250 3,750

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How much does it cost the state to forego revenues from taxing Social Security benefits?

Minnesota conforms to federal law in excluding all or part of Social Security benefits from income tax. The Minnesota Department of Revenue's Tax Expenditure Budget for 2014-2017 shows an estimated cost in foregone tax revenues of $252.6 million in fiscal year 2015 and $263.3 million in fiscal year 2016 as a result of conforming to federal tax treatment of Social Security benefits.

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What is the tax treatment of Social Security benefits in other states in 2014?

  • Nine states do not have an income tax or have a tax limited to specific kinds of unearned income.
  • Twenty-nine states with an income tax exempt Social Security benefits from taxation.
  • Three states exclude a portion of Social Security benefits that are subject to tax at the federal level.
  • Two states provide a general retirement income exclusion that may result in the exclusion from taxation of part or all of Social Security benefits.
  • One state subjects Social Security benefits to income tax on the same basis as the federal government, but uses a slightly different income measure to determine the amount of benefits subject to tax.
  • Seven states apply the state income tax to Social Security benefits that are taxable at the federal level.

Nine states do not have an income tax or have a tax limited to specific kinds of unearned income. The nine states: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

Nine states that do not have an income tax

Twenty-nine states with an income tax exempt Social Security benefits from taxation. The 29 states: Alabama, Arizona, Arkansas, California, Delaware, District of Columbia, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Virginia, and Wisconsin.

29 states that exempt Social Security benefits from taxation

Three states exclude a portion of Social Security benefits that are subject to tax at the federal level or provide a full exclusion to taxpayers meeting income requirements. The three states: Connecticut, Kansas, and Missouri.

3 states that exclude a portion of Social Security benefits

Two states provide a general retirement income exclusion or credit that may result in the exclusion from taxation of part or all of Social Security benefits or in a credit against taxes otherwise due on Social Security benefits. The two states: Colorado and Utah.

3 states that provide a general retirement income exclusion or credit

One state, Montana, subjects Social Security benefits to income tax on the same basis as the federal government, but uses a slightly different income measure to determine the amount of benefits subject to tax.

One state that subjects Social Security benefits to income tax

Seven states apply the state income tax to Social Security benefits that are taxable at the federal level. The seven states: Minnesota, Nebraska, New Mexico, North Dakota, Rhode Island, Vermont, and West Virginia.

Six states that apply the state income tax to Social Security benefit

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June 2015

House Research Department  ♦  600 State Office Building, Saint Paul, MN  55155  ♦  House.Research@house.mn