Many people assume Social Security benefits are tax‑free — but that’s often not the case. Depending on your income, part of your benefits may be taxed. 

However, there are strategies that can help reduce this impact. An Ameriprise financial advisor can work with you to build a tax-efficient retirement income strategy that accounts for how Social Security benefits are taxed and helps you keep more of what you’ve earned. 

Here’s an overview of how Social Security taxes work:

What is the Social Security payroll tax? 

The Social Security payroll tax is a tax levied by the U.S. federal government to fund the payout of the Social Security program. If you’re a W-2 employee, the tax is automatically deducted from your paycheck and typically appears on your pay slip as part of the OASDI tax (Old Age, Survivors and Disability Insurance). 

The total Social Security payroll tax rate is 12.4%, 6.2% of which is paid by the employer and 6.2% by the employee. If you are an independent contractor, you are responsible for paying the full 12.4% on most net earnings (though a partial deduction is available). The payroll tax only applies to wage and self-employment earnings up to a certain limit, which is $184,500 for the 2026 tax year.  

Are Social Security benefits taxed? 

Yes. Social Security benefits are taxed by the federal government if your combined income exceeds certain thresholds. For the 2026 tax year: 

• If you file your federal tax return as single and your combined income is between $25,000 and $34,000, you will be taxed on up to 50% of your benefits. If your combined income is more than $34,000, you will have to pay tax on up to 85% of your benefits. 
• If you’re married and filing a joint return and your combined income is between $32,000 and $44,000, you will have to pay income tax on up to 50% of your benefits. If your combined income is more than $44,000, you will have to pay tax on up to 85% of your benefits. 

The IRS calculates combined income using a formula that takes the total of your adjusted gross income, nontaxable interest income (such as from municipal bonds) and half of your Social Security benefits. 

Learn more: Debunking 7 Social Security retirement myths 

Which states tax Social Security benefits? 

While most U.S. states do not tax Social Security benefits, there are a few exceptions. Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah and Vermont do impose taxes on Social Security, although each has its own rules and thresholds. 

How can Social Security benefits affect my taxes in retirement? 

Retirees can sometimes find themselves pushed into a higher marginal tax rate once they start receiving Social Security benefits due to the increase in income. Taking proactive financial steps prior to collecting Social Security can help you lower your taxable income, reduce how much of your Social Security is taxed and potentially avoid Medicare surcharges.  

How can I lower my Social Security taxes? 

You can lower your Social Security taxes by being strategic about when you first collect the benefit and reducing your overall taxable income. Common strategies to lower taxable income include: 

• Benefit from Roth withdrawals: Distributions from Roth IRAs and Roth 401(k) plans are tax-free, meaning they aren’t considered taxable income when it comes time to file. However, know that taking too much from your Roth IRA early in retirement can create challenges later. If most of your remaining savings are in pretax accounts, you may face higher taxes later when those withdrawals become your primary source of income. 
• Qualified charitable distributions (QCDs): QCDs, which are direct transfers of funds from an IRA to charitable organizations, can help lower your taxable income. You must be 70½ years old to take advantage of QCDs, which are subject to annual limits. 
• Tax-loss harvesting: If you’ve incurred any investment losses, this strategy may allow you to offset some of your capital gains, potentially lowering your tax burden. 
• Use your health savings account (HSA): Taking distributions from your HSA to pay for your health care expenses can help keep your taxes low, as HSA withdrawals for qualifying expenses are not considered taxable income. 

Learn more: How to manage taxes in retirement 

Make the most of your federal benefits 

As part of an overall retirement strategy, an Ameriprise financial advisor can help you consider the impacts of when you take Social Security.