Monthly Social Security benefits average roughly $1,800, just short of $2,000 for retired workers, and each state has its own laws for taxes on benefits, in addition to federal policies.
For Nebraskans this year is the last time their state will tax their Social Security benefits, which applies to income from 2024. Some states, such as West Virginia, are in the process of phasing out taxes on benefits, while others are introducing legislation to do so.
Even if your state lets you off the hook, the IRS still has federal tax rules regarding Social Security benefits. So how do these work?
First, the IRS calculates your taxes based on your “combined income,” which includes the following:
1) Your Adjusted Gross Income (AGI): This is the total of your wages, self-employment earnings, interest, dividends, and other taxable income, minus certain deductions like IRA contributions or alimony payments.
2) Nontaxable interest: This includes interest from sources like U.S. Treasury bonds or municipal bonds, which are not subject to a direct tax but are included in the calculation of combined income.
3) Half of your Social Security benefits: If you receive Social Security benefits, 50 percent of those benefits are added to calculate your combined income.
a) None of your Social Security benefits are taxable if your combined income is less than $25,000 for individuals, or $32,000 for married couples filing jointly.
b) If your combined income is between $25,000 and $34,000 for individuals, or between $32,000 and $44,000 for married couples filing jointly, up to 50 percent of your Social Security benefits are taxable.
c) If your combined income exceeds $34,000 for individuals, or $44,000 for married couples filing jointly, up to 85 percent of your Social Security benefits may be taxable.
That doesn’t mean your Social Security benefits will be taxed at 85 percent, just that 85 percent of your benefits will be taxed according to the tax bracket you’re in.
Tax brackets range from 10 percent to 37 percent depending on the size of your income. When your income jumps to a higher tax bracket, you don't pay the higher rate on your entire income—you pay the higher rate only on the part that's in the new tax bracket.
Additionally, when calculating your combined income, take into account that the Cost-Of-Living Adjustment (COLA) for Social Security benefits was set at 2.5 percent for 2025.
This slight income increase may place your combined income in a higher tax bracket—it won’t make a huge difference, but this situation can easily be avoided by putting that extra money into a Roth Individual Retirement Account (IRA).
Whatever you put into this account—capped at $7,000 annually or $8,000 for those 50 or older—isn’t counted as taxable income.