As you approach retirement, understanding how your Social Security benefits are taxed is crucial. Many retirees wonder whether their benefits will be subject to state and federal taxes, especially in high-tax states like California. Fortunately, California provides some relief when it comes to Social Security taxation. Here’s what you need to know for 2025.
Federal Taxation of Social Security Benefits
While California does not tax Social Security benefits, the federal government does. The amount of your benefits subject to federal income tax depends on your combined income, which includes:
- Your adjusted gross income (AGI)
- Any tax-exempt interest (such as municipal bond interest)
- 50% of your Social Security benefits
Based on your combined income, the IRS applies the following thresholds:
- Single filers
- If your combined income is between $25,000 and $34,000, up to 50% of your benefits may be taxable.
- If your combined income is above $34,000, up to 85% of your benefits may be taxable.
- Married couples filing jointly
- If your combined income is between $32,000 and $44,000, up to 50% of your benefits may be taxable.
- If your combined income is above $44,000, up to 85% of your benefits may be taxable.
These federal tax thresholds have remained unchanged for several years and continue to apply in 2025. (Source: AARP)
Does California Tax Social Security Benefits?
No, California does not tax Social Security benefits—no matter how much you receive. Unlike the federal government, California excludes Social Security income from taxation entirely. This applies to both Social Security retirement benefits and Social Security Disability Insurance (SSDI).
California also does not tax Railroad Retirement benefits, making it one of the more retirement-friendly states in terms of Social Security taxation. (Source: California Franchise Tax Board)
Other Taxes Retirees Should Consider in California
Although Social Security benefits are tax-free in California, retirees still need to be mindful of other state taxes:
- California has high state income taxes, ranging from 1% to 13.3%. Other sources of retirement income, such as 401(k) withdrawals, pensions, and IRA distributions, are fully taxable.
- California has a statewide sales tax of 7.25%, but local jurisdictions can add up to 3.25%, leading to some of the highest sales tax rates in the country.
- Property taxes in California are relatively low compared to other states, thanks to Proposition 13, which limits annual property tax increases. However, home values in California remain high.
How to Minimize Taxes on Social Security Benefits
Since Social Security benefits can be partially taxed at the federal level, here are some strategies to reduce your tax burden:
- Keep Your Combined Income Below the Taxable Thresholds
- If possible, structure your income to stay below the $25,000 (single) or $32,000 (married) threshold to avoid federal taxation on your benefits.
- Withdraw from Roth IRAs Instead of Traditional IRAs
- Withdrawals from a Roth IRA are tax-free and don’t count as taxable income, helping to keep your combined income lower.
- Delay Social Security Benefits Until Age 70
- Delaying benefits not only increases your monthly payments but may help you avoid unnecessary taxation if you withdraw from lower-taxed sources first.
- Consult a Tax Professional
- Everyone’s situation is different. A tax professional can help you create a strategy to minimize taxes on your retirement income.
Final Thoughts
If you’re retiring in California, you won’t have to worry about state taxes on Social Security benefits—but federal taxes may still apply depending on your total income. Knowing how these rules work can help you plan better and potentially lower your tax burden.
For the most up-to-date information, always check with the IRS and the California Franchise Tax Board or speak with a qualified tax advisor. (Source: California Franchise Tax Board)
