How to Cut Taxes on Social Security Benefits and Keep More in 2026

Here is a number that shocks most retirees: up to 85% of your Social Security benefits can be subject to federal income tax. Not 85% taken away, but 85% of your benefit counted as taxable income on your return. For a couple receiving a combined $45,000 a year in Social Security, that could mean an extra $5,000 or more headed to the IRS annually.

The frustrating part? Many retirees pay more tax on their Social Security than they need to, simply because they do not understand how the taxation formula works or what levers they can pull to reduce it. The rules are quirky, the thresholds have not been updated for inflation since 1993, and even modest amounts of outside income can push you into a higher taxation bracket on your benefits.

The good news is that with the right planning, you can significantly reduce or even eliminate the federal tax on your Social Security income. This guide walks you through exactly how the system works and gives you concrete strategies to keep more of what you have earned.

How Social Security Taxation Actually Works

Before you can reduce your tax bill, you need to understand the formula the IRS uses. It all comes down to one number: your provisional income (sometimes called combined income).

Here is the formula:

Provisional Income = Adjusted Gross Income (AGI) + Tax-Exempt Interest + 50% of Your Social Security Benefits

Your AGI includes everything: pension income, 401(k) and traditional IRA withdrawals, wages, rental income, dividends, and capital gains. Then you add any tax-exempt interest (like income from municipal bonds, which is normally tax-free but counts here). Finally, you add half of your total Social Security benefit.

That provisional income number determines how much of your Social Security gets taxed.

The Two Thresholds That Determine Your Tax

The IRS uses a two-tier system with thresholds that have not changed since 1993:

For Single Filers:

• Provisional income below $25,000: Social Security is not taxed
• Provisional income between $25,000 and $34,000: Up to 50% of benefits are taxable
• Provisional income above $34,000: Up to 85% of benefits are taxable

For Married Filing Jointly:

• Provisional income below $32,000: Social Security is not taxed
• Provisional income between $32,000 and $44,000: Up to 50% of benefits are taxable
• Provisional income above $44,000: Up to 85% of benefits are taxable

Because these thresholds have never been adjusted for inflation, far more retirees fall into the taxable range today than when the rules were created. In 1984, about 10% of Social Security recipients paid tax on their benefits. Today, roughly 56% do.

A Quick Example

Let us say you and your spouse receive $36,000 a year in combined Social Security benefits. You also withdraw $30,000 from a traditional IRA and earn $5,000 in dividends.

Your provisional income: $30,000 (IRA) + $5,000 (dividends) + $18,000 (half of Social Security) = $53,000.

That is well above the $44,000 married threshold, so up to 85% of your $36,000 benefit, or $30,600, gets added to your taxable income. At a 22% marginal tax rate, that is roughly $6,732 in federal tax just on your Social Security.

Now let us look at how to bring that number down.

Reduce Your Provisional Income with Strategic Withdrawals

The single most powerful lever you have is controlling what counts in your provisional income. Every dollar you can keep out of that calculation potentially reduces the tax on your Social Security.

Use Roth Accounts for Tax-Free Income

Withdrawals from Roth IRAs and Roth 401(k) accounts do not count toward your AGI, which means they do not increase your provisional income. This is one of the biggest advantages Roth accounts offer in retirement.

Using the example above, if that couple pulled $30,000 from a Roth IRA instead of a traditional IRA, their provisional income drops to $23,000, which is below the $32,000 married threshold. Result: zero federal tax on their Social Security benefits. That is a $6,732 annual savings from a single change.

If you are still a few years from claiming Social Security, consider doing Roth conversions now. You will pay tax on the converted amount today, but every dollar in a Roth account generates tax-free income later that will not trigger Social Security taxation. The ideal window for Roth conversions is often the gap years between retirement and when you start claiming benefits or taking required minimum distributions.

Tap Taxable Brokerage Accounts Strategically

Withdrawals from a regular taxable brokerage account are not entirely tax-free, but they are often more tax-efficient than traditional retirement account withdrawals. When you sell investments held longer than a year, you pay long-term capital gains rates, which can be 0% for married couples with taxable income up to $96,700 in 2026.

More importantly, only the gain portion counts as income. If you sell $30,000 worth of stock but your cost basis is $20,000, only $10,000 hits your AGI, compared to $30,000 from a traditional IRA withdrawal.

Consider the Withdrawal Sequencing

The order in which you draw from different accounts matters enormously. A common tax-smart sequence in retirement looks like this:

1. First, draw from taxable accounts (lower AGI impact)
2. Next, use traditional accounts up to the edge of a Social Security tax threshold
3. Fill remaining needs from Roth accounts (zero AGI impact)

This is not a one-size-fits-all prescription. Your ideal mix depends on your total income picture, but the principle is clear: manage which dollars show up on your tax return.

Manage Investment Income to Stay Below Thresholds

Dividends, interest, and capital gains all flow into your AGI and push your provisional income higher. Here are specific ways to manage that.

Shift to Tax-Efficient Investments

If you hold dividend-paying stocks or bond funds in a taxable account, those distributions automatically increase your AGI every year whether you reinvest them or not. Consider:

• Moving income-generating investments inside your IRA or 401(k) where the income does not hit your tax return
• Holding growth-oriented index funds in taxable accounts since they generate minimal annual distributions and you control when to sell
• Using tax-managed funds that are specifically designed to minimize taxable distributions

Be Careful with Municipal Bond Income

Here is a trap that catches many retirees off guard. Municipal bond interest is generally exempt from federal income tax, which is great. But it still counts toward your provisional income for Social Security taxation purposes. If you are loading up on muni bonds thinking the income is completely invisible to the IRS, think again. The income will not be taxed directly, but it can cause more of your Social Security to be taxed.

This does not mean municipal bonds are bad. It just means you need to factor in the full picture when calculating your Social Security tax exposure.

Harvest Capital Gains in Low-Income Years

If you have a year where your income is unusually low, perhaps before Social Security kicks in or before required minimum distributions start, that is an excellent time to sell appreciated investments. You can potentially realize gains at the 0% long-term capital gains rate while keeping your provisional income low in future years when those gains would otherwise push your Social Security taxation higher.

Delay or Adjust When You Claim Benefits

The age at which you start Social Security affects not just your monthly benefit amount but also how the taxation math works in the years before and after you claim.

Delay Benefits to Reduce Taxable Years

If you retire at 62 but delay Social Security until 67 or 70, you create a window of lower-income years. During that gap, you can:

• Do Roth conversions at lower tax brackets
• Draw down traditional accounts before Social Security income enters the picture
• Realize capital gains at favorable rates

When your higher Social Security benefit eventually starts, you will have a smaller traditional IRA balance generating required minimum distributions, which means lower provisional income and less tax on your benefits.

Coordinate Spousal Benefits

For married couples, staggering when each spouse claims Social Security can create tax planning opportunities. If one spouse claims early while the other delays, you may be able to keep your combined provisional income below the threshold for several years. Work through the numbers with your specific benefit amounts to find the best combination.

Watch Out for Income Spikes That Trigger the Tax Torpedo

Financial advisors call it the tax torpedo: the range of income where each additional dollar of provisional income causes more than a dollar of additional taxable income because it simultaneously triggers Social Security taxation.

In the phase-in zone between the two thresholds, your effective marginal tax rate can spike dramatically. For every additional $1 of ordinary income, up to $1.85 can become taxable ($1.00 of the income itself plus $0.85 of newly taxable Social Security). If you are in the 22% bracket, that means your effective rate on that dollar is closer to 40.7%.

Common Income Spikes to Plan Around

• Required minimum distributions (RMDs): These mandatory withdrawals from traditional retirement accounts start at age 73 and grow larger each year. They can easily push provisional income well above the 85% threshold.
• One-time events: Selling a rental property, cashing in savings bonds, or receiving a pension lump sum can spike your income in a single year.
• Part-time work income: Even modest wages from a part-time retirement job count fully toward provisional income.

Whenever possible, spread lumpy income across multiple years rather than taking it all at once.

Do Not Forget About State Taxes on Social Security

Federal taxes are only part of the story. As of 2026, most states do not tax Social Security benefits at all. However, a handful still do, and the rules vary widely.

States that tax Social Security benefits (with various exemptions and thresholds) include Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. Rules change frequently, so check your specific state's current policy.

If you are considering relocating in retirement, state-level Social Security taxation is one factor worth weighing. Moving from a state that taxes benefits to one that does not could save you $1,000 to $3,000 or more annually depending on your income level.

Your Action Plan: Steps to Take Right Now

Reducing taxes on Social Security benefits is not something you figure out in April. It requires year-round awareness and planning. Here is a concrete action plan:

If You Are 5 or More Years from Claiming

1. Calculate your projected provisional income using estimated Social Security benefits from your SSA.gov statement, expected retirement account withdrawals, and other income sources
2. Start Roth conversions now if you are in a lower tax bracket than you expect to be in retirement. Convert enough each year to fill up your current bracket without jumping to the next one
3. Reposition investments so that income-generating assets are inside tax-deferred accounts and growth assets are in taxable accounts
4. Model different claiming ages to see how delaying Social Security affects your lifetime tax picture, not just your monthly benefit

If You Are Already Receiving Benefits

1. Run the provisional income calculation with last year's tax return to see exactly where you stand relative to the thresholds
2. Identify your biggest AGI contributors and look for alternatives. Can any traditional IRA withdrawals shift to Roth? Can you reduce taxable investment distributions?
3. Smooth your income across years by avoiding large one-time transactions when possible. If you need to sell an asset, consider an installment sale that spreads the gain over multiple years
4. Check your state to see if you are paying state tax on Social Security benefits and whether you qualify for any exemptions
5. Adjust your tax withholding or estimated payments once you have a clearer picture. Many retirees either overwithhold or get hit with an unexpected tax bill because they did not account for Social Security taxation

The Annual Checkup

Every November, do a quick provisional income projection for the current year. You still have time to make moves like taking a Roth conversion, harvesting capital gains or losses, or adjusting your final quarterly estimated payment. A single hour of planning can save hundreds or thousands of dollars.

The Bottom Line

The taxation of Social Security benefits is one of the most misunderstood and overlooked areas of retirement tax planning. The rules are not intuitive, the thresholds are outdated, and the interaction between different income sources creates planning opportunities that most retirees miss.

The key insight is simple: it is not just how much income you have in retirement that matters, but what kind of income it is and when you receive it. By managing your provisional income through strategic use of Roth accounts, careful investment placement, and thoughtful timing of withdrawals and benefit claims, you can keep significantly more of your Social Security benefits out of the IRS's reach.

You worked decades to earn those benefits. A little planning ensures you actually get to keep them.