Hailey
Millions of Americans depend on Social Security as a major source of income in retirement. For some, it’s the only money they receive each month. But what many people forget is that Social Security benefits can be taxed depending on how much total income you earn.
In 2026, new rules could make a big difference for older adults by reducing how many seniors pay taxes on their benefits. Let’s break down how this system works and what will change soon.
How Social Security Benefits Are Taxed
Social Security benefits may be taxed at the federal level if your income is above certain limits. The amount you pay depends on something called your combined income.
This number is calculated by adding your adjusted gross income (AGI), any tax-free interest, and half of your annual Social Security benefits.
For example, if your AGI is $30,000, you earn $1,000 in tax-free interest, and receive $15,000 in benefits, your combined income would be $38,500. Based on that, up to 85% of your benefits could be taxable.
Here’s a simple table that shows how much of your Social Security can be taxed:
| Filing Status | Combined Income | Taxable Portion of Benefits |
|---|---|---|
| Single / Head of Household | Under $25,000 | None |
| $25,000 – $34,000 | Up to 50% | |
| Over $34,000 | Up to 85% | |
| Married Filing Jointly | Under $32,000 | None |
| $32,000 – $44,000 | Up to 50% | |
| Over $44,000 | Up to 85% | |
| Married Filing Separately | Under $25,000 (lived apart) | None |
| $25,000 – $34,000 (lived apart) | Up to 50% | |
| Over $34,000 (or lived together) | Up to 85% |
This means that if your total income is higher, more of your benefits could be taxed.
How to Handle Tax Withholding
If you expect to owe tax on your Social Security benefits, you can choose to have taxes withheld from your monthly payments. The IRS allows you to select a withholding rate of 7%, 10%, 12%, or 22%.
This helps prevent you from getting an unexpected tax bill later. To set this up, you can contact the Social Security Administration directly or manage it through your online account.
The Big Change for 2026
Starting with the 2026 tax year, a new rule known as the One Big Beautiful Bill Act will allow seniors aged 65 and older to claim an additional $6,000 deduction on their taxes. This benefit will last until 2028. For married couples filing together, the total deduction will be up to $12,000.
This new deduction is in addition to the standard senior deduction that already exists. According to government estimates, this change could raise the number of seniors who pay no taxes on their Social Security from about 64% to almost 88%.
In other words, millions of older Americans may soon pay less tax or no tax at all on their benefits.
States That Tax Social Security Benefits
Not all states tax Social Security, but a few still do. Some examples include:
| State | Summary of Tax Rule |
|---|---|
| Colorado | Seniors 65+ can deduct full federally taxed benefits. |
| Connecticut | Benefits exempt if AGI under $75,000 ($100,000 joint). |
| Minnesota | Full exemption under $84,490 ($108,320 joint). |
| Montana | Up to 85% taxed for higher incomes. |
| Utah | Flat 4.5% tax, but credits available. |
| West Virginia | Phasing out tax completely by 2026. |
These state rules show that where you live can also affect how much you pay in taxes on Social Security.
What These Changes Mean for You
If you are nearing retirement or already receiving benefits, these updates could save you money. The new senior deduction gives extra relief, especially for people with lower or middle incomes.
Seniors should also check if their state taxes benefits differently, since every state has its own policy.
Social Security remains a crucial lifeline for millions of Americans, and understanding how it’s taxed can help you plan better. The upcoming 2026 rules are good news for older adults, offering a higher deduction that reduces taxable income and increases financial comfort.
Preparing early and knowing how your combined income affects taxation can ensure you keep more of your hard-earned benefits.