Are Social Security payments taxed? Ask the Lawyer

Q: I am 62 and thinking about taking Social Security. Once I decide, by or before age 70, are the payments taxed? Didn’t we already pay taxes on the income the benefits are based on?

G.N., Northridge

A: The Social Security payments that will be made to you are primarily based on your work earnings history. Social Security benefits, while you work, are deducted from your paycheck through FICA. Yes, most, if not all, pay taxes on their earnings.

To qualify for Social Security, you generally need 40 work credits, which is about 10 years of work. The payment amount is derived from the highest 35 years of indexed earnings. The amount can differ depending upon when you choose to take it, with usually less at 62 than if you take it later (up to the age of 70).

You ask about the benefits being taxed when paid to you, and indeed, they may be subject to federal income tax if your overall income is above certain thresholds; so not everyone pays taxes on their benefits. This year, for example, if you file your federal tax return as a single person and your income is anywhere from $25,000 to $34,000, you are taxed on up to 50% of your benefit; if your income is greater than $34,000, you pay tax on up to 85% of your benefits.

If you are married and filing jointly, with income from $32,000 to $44,000, then up to 50% of your benefits are subject to tax. If your income is above $44,000, you pay tax on up to 85% of your benefits.

Q: One further question: Does California tax Social Security benefits? Do any states? I ask because we have been thinking about moving.

G.N., Northridge

A: No, California does not tax Social Security benefits, which extends to retirement, survivor and disability benefits. In fact, most states do not tax social security benefits. Research indicates these ones do, but you would want to review each state’s rules and thresholds: Colorado, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont and Connecticut.

Intro to Social Security

Here is an instructive link that addresses a number of issues related to Social Security benefits: ssa.gov/section218training/basic_course_3.htm.

Ron Sokol has been a practicing attorney for more than 40 years, and has also served many times as a judge pro tem, mediator, and arbitrator. It is important to keep in mind that this column presents a summary of the law, and is not to be treated or considered legal advice, let alone a substitute for actual consultation with a qualified professional.