The Myth of High Income Taxes on Social Security Income

Good to Know

You and your clients are planning their after-tax retirement income. Your client is apprehensive about how much of their retirement income will be siphoned off by Federal income tax in retirement. For many, if not most, clients you have great news. The combination of Social Security income (SSI) tax breaks and standard deductions can result in Federal income taxes as low as 4% in retirement for clients with a six-figure income in retirement. We’ll illustrate this dynamic with a quick case study, but first, here’s the caveat.

This article is intended to raise awareness. It is not intended to provide nor should it be used to provide retirement, tax, or financial advice of any kind. A credentialed, experienced retirement and tax professional should be consulted to address the issues raised herein.

We’ll illustrate this dynamic with a quick example, but first here’s the caveat.

Fact Pattern

Your married clients Jill and Jack, both age 70, file as married filing jointly. Their Social Security retirement income is higher than average because they delayed claiming Social Security retirement income until their age 70 to capture delayed claiming credits.1 They present the following information:

2023 Income
Income Source Jill Jack Total
Social Security $38,000 $36,000 $72,000
Portfolio and Pension $20,000 $18,000 $38,000
Total Gross Income $58,000 $52,000 $110,000

Now let’s identify their standard deduction


Standard Deduction

Standard Deduction
Basic Standard Deduction $27,700
Additional Std. Dedtn. 2 $3,000
Total $30,300

Social Security Income Tax Break

We now dispel the myth that 85% of Social Security benefits are taxable for most clients. The couple is entitled to exclude $40,500 of their SSI benefits from their taxable income. Only $31,500 of their Social Security income must be included in taxable income, based on an IRS online calculator.


Our hypothetical couple, Jack and Jill, would pay an average Federal income tax rate of less than 4% based on the fact pattern illustrated herein. State taxes3 may not be a significant factor in most states but should be evaluated as well.

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1 Delayed claiming credits add 8% to a taxpayer’s Social Security Retirement benefits for each year claiming is delayed from their normal retirement age to age 70.

2 This couple qualifies for the age-related additional standard deduction.

3 Nine states levy no income tax and most other states have income tax rates of about 75% less than the Federal rate. A relatively few states levy income taxes of about 50% less than the Federal rate.