Life changes
Started Social Security? How Your Benefits Are Taxed
Social Security can be tax-free, partly taxable, or mostly taxable on your federal return, depending on everything else you earn. South Carolina does not tax it at all.
Reviewed by LaToya Clark-Thompson, FounderLast updated
What changes on your return
Each January the Social Security Administration sends Form SSA-1099. Box 5 shows your net benefits for the year, after subtracting any repayments. Medicare premiums deducted from your checks are shown separately and can count as medical expenses if you itemize. Any federal tax withheld appears in Box 6.
Whether benefits are taxed depends on what the IRS calls your combined income: your other income, plus tax-exempt interest, plus half of your benefits. Below a base amount, none of your benefits are taxable. Above it, part becomes taxable, and above a second threshold a larger part does, up to a cap. Benefits are never fully taxable federally. The thresholds are set by law and depend on filing status.
Why other income matters so much
An IRA withdrawal, a pension, part-time wages or a big capital gain does more than add its own tax. It can also make more of your Social Security taxable at the same time. That is why the order you draw from accounts, and when you sell investments, deserves a plan rather than a guess. Married couples who file separately and lived together during the year face the least favorable rules.
Benefits paid to a child are the child’s income, not yours, even if the check comes in your name as representative payee.
South Carolina
South Carolina does not tax Social Security benefits. The state return starts from federal adjusted gross income and subtracts the taxable Social Security included in it. Combined with the state retirement income deduction (see you retired), many retirees owe little or no SC income tax, though this depends on what else they earn.
Withholding, lump sums and mistakes
- Federal tax is not withheld from benefits unless you ask. Use Form W-4V, which offers a few flat withholding choices, or make quarterly estimated payments
- If you received a lump-sum back payment covering earlier years, a special IRS method can figure the taxable amount as if it had been paid in those years, which can lower the tax
- If you repaid benefits, the SSA-1099 shows it; large repayments have their own treatment
- Starting benefits before your full retirement age while still working can lead the SSA to hold back benefits under the earnings test. That is a Social Security rule, not a tax one, but it changes what appears on the SSA-1099
The most common mistake is assuming benefits are always tax-free (federally they often are not) or always taxable (often they are not). Another is entering the gross benefit instead of the net amount in Box 5.
Next step
Bring your SSA-1099, every 1099-R, any wage or brokerage forms and last year’s return. We prepare the return through our tax preparation service and, if you want, look ahead with tax planning so IRA withdrawals and sales are timed with your benefits in mind. The retirement tax planning article is good background reading.
Frequently asked questions
Is Social Security taxable in South Carolina?
No. South Carolina does not tax Social Security benefits. Your SC return begins with federal adjusted gross income and then subtracts whatever portion of your benefits was taxable on the federal return. You may still owe SC tax on other income, such as wages or retirement distributions above the state retirement income deduction.
How much of my Social Security is taxable federally?
It depends on your combined income, which is your other income plus tax-exempt interest plus half of your benefits. Below a base amount for your filing status, nothing is taxable. Above it, part of the benefits become taxable, and above a second threshold a larger part, but never the full amount. The worksheet in the Form 1040 instructions does the calculation.
Should I have taxes withheld from my Social Security?
If you have other income such as a pension, IRA withdrawals or part-time wages, withholding is often a good idea, because part of your benefits may become taxable and nothing is withheld by default. You request it with Form W-4V, choosing from a few flat rates. Estimated payments work too, but withholding is easier to keep up with.
How is a Social Security lump-sum back payment taxed?
The full payment is reported on the SSA-1099 for the year you received it, but the IRS lets you figure the taxable part as if each portion had been received in the year it belonged to. If that gives a lower result, you use it. You do not amend the earlier returns. IRS Publication 915 explains the method.
Not the question you had? The full tax FAQ covers more ground, and our client reviews say what the work is actually like.
Related pages
You retired
Pensions and IRAs on a 1099-R, required distributions, withholding and SC’s retirement deduction.
Learn moreYou had big medical expenses
When medical bills are deductible, what counts, and how HSAs and insurance fit in.
Learn moreYou received an inheritance
Inherited cash, IRAs, homes and estate K-1s. What is taxable and what is not.
Learn moreYour spouse passed away
The final joint return, surviving spouse status, inherited accounts and what to gather.
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