Seniors saw a boost in Social Security benefits in 2023 to offset the rising cost of living. But there could be a downside—the increase may result in a higher tax bill this tax season for some taxpayers.

Social Security benefits are designed to supplement income in retirement (and provide specific benefits for people with disabilities, spouses, and dependents). Typically, benefits work out to about 40% of pre-retirement income. However, the actual amount received can vary depending on your lifetime earnings.

As Forbes' Janet Novack reported in 2022, Social Security benefits jumped 8.7% in 2023, the most significant increase since 1981, when double-digit inflation pushed payments up more than 11%. The cost-of-living adjustment (COLA) affected 70 million Americans, including 48 million retired workers and their spouses and dependents, those receiving disability and survivor benefits, and recipients of Supplemental Security Income. The boost meant that the average retired worker was slated to receive $1,827 a month in 2023, up $146 from $1,681 in 2022.

How Social Security Benefits Are Taxed

Once you reach retirement age, whether your Social Security benefits are taxable depends on your filing status and how much other income you receive. Most people who get Social Security do not pay federal income tax on those benefits—according to the Social Security Administration, only about 48% of people pay federal income taxes on their benefits (though other studies like this one suggest that the percentage is higher).

If your only source of income is your Social Security check, your benefits are generally not taxable. You may not even need to file a return.

If you received income from other sources, your benefits would not be taxed unless your combined income exceeds the base amount for your filing status. To determine if that applies to you, you'll need the tax form that reports your total Social Security benefits—Form SSA-1099, Social Security Benefit Statement (noncitizens living outside the U.S. will receive Form SSA-1042S).

Here's the rough formula: add one-half of the total Social Security benefits you received last year to your other income, including any tax-exempt interest and other exclusions from income. Compare that total to the base amount for your filing status. If the total is more than the base amount for your filing status, some of your benefits may be taxable.

The base amounts are:

• $32,000 for married taxpayers filing jointly;
• $25,000 for taxpayers filing as single, head of household (HOH), qualifying widow/widower with a dependent child, or married filing separately who did not live with their spouses at any time during the year; and
• $0 for married persons filing separately who lived together during the year.

Here's a quick example of how that works. Let's say you're a single taxpayer with Social Security benefits of $22,164—the average amount in 2023. Let's say you have $1,000 in dividends, $1,000 in taxable interest, and $6,000 in other income. Your combined income is $19,082 = $11,082 (1/2 of SS benefits) + $8,000 (dividends, taxable interest, and tax-exempt interest). Your Social Security benefits would not be taxable since that total is less than $25,000 (the base amount for your filing status).

Here's another example: Let's say you're a single taxpayer with Social Security benefits of $22,164. Let's say you have $5,000 in dividends, $5,000 in taxable interest, and $4,000 in other income. Your combined income is $25,082 = $11,082 (1/2 of SS benefits) + $14,000 (dividends, taxable interest, and tax-exempt interest). Since that total is more than $25,000 (the base amount for your filing status), part of your Social Security benefits would be taxable.

How The Increase In Benefits Impacts You

Even though the amounts you receive may increase with the cost of living each year, the base amounts for tax purposes have not changed or been adjusted for inflation in years. That means that since your Social Security benefits count towards your combined income, you might get pushed over the base amount even if your other income remains flat.

Here’s how that math works out. Let’s adjust our last example and say that your Social Security benefits were only $20,390 (about the same as benefits before the COLA), and you otherwise had the same income ($5,000 in dividends, $5,000 in taxable interest, and $4,000 in other income). In that event, your combined income would be $24,195 = $10,195 (1/2 of SS benefits) + $14,000 (dividends, taxable interest, and tax-exempt interest). Since that total is less than $25,000, none of your Social Security benefits would be taxable.

The difference between our two examples? Just more in Social Security benefits.

How much of your benefits are taxed may also be affected. The taxable amount depends on the total amount of your benefits plus your other income. As a rule, the higher your total income, the higher the percentage of your Social Security benefits subject to tax.

If you owe tax on your Social Security benefits, typically up to 50% of your benefits will be taxable. However, up to 85% of your benefits can be taxable if your combined income is more than $34,000 ($44,000 if you are married filing jointly) or if you are married filing separately and lived with your spouse any time during the year. Again, since you use Social Security benefits in that calculation, you might have to pay tax on a higher piece of your benefits this tax season even if your other income remained flat.

Notably, no one pays federal income tax on more than 85% of their Social Security benefits.

Changes In 2024

If you owe tax this tax season, you may want to make estimated payments or adjustments to withholding—especially since there is another increase in Social Security benefits in 2024.

You can change your withholding by completing Form W-4V, Voluntary Withholding Request, and returning it to your local Social Security office by mail or in person (you can find the address here). When you complete the form, you will need to select the percentage ( 7%, 10%, 12%, or 22%) of your monthly benefit for taxes of the monthly benefit amount you want to be withheld—flat dollar amounts are not accepted.

More Information

If you want to request a Form W-4V, you can call the IRS at 1.800.829.3676. (If you are deaf or hard of hearing, call the IRS TTY number, 1.800.829.4059.)

For more information, you can consult with your tax professional or check out IRS Pub 915 (the publication also includes worksheets so that you can figure out your taxable benefits).