CBO describes the rules governing the taxation of Social Security benefits and examines how those rules affect federal revenues, the distribution of taxes among beneficiaries, and the broader economy.
Social Security—the largest single program in the federal budget—has two components. Old-Age and Survivors Insurance (OASI) provides benefits to retired workers, their eligible dependents, and some survivors of deceased workers. Disability Insurance (DI) provides benefits to disabled workers and their dependents.
Unlike most sources of income, which are either fully subject to tax or not subject to tax at all, Social Security benefits are subject to tax on a sliding scale, meaning that the portion of benefits potentially subject to the individual income tax increases as a beneficiary’s income rises. In 2026, income taxes on Social Security benefits will total $120 billion, an amount equal to 7.1 percent of total Social Security benefits received in that year, the Congressional Budget Office estimates.
Revenues from the taxation of Social Security benefits are credited to three trust funds. More than half of those revenues accrue to Social Security’s OASI and DI trust funds (mostly to the former). The remaining revenues are credited to Medicare’s Hospital Insurance (HI) trust fund, which covers inpatient hospital services, care provided in skilled nursing facilities, home health care, and hospice care. Those revenues improve the solvency of the trust funds, but they reduce the net income of beneficiaries and complicate the tax system.
This report describes the rules governing the taxation of Social Security benefits and examines how those rules affect federal revenues and the distribution of taxes among beneficiaries. It also briefly summarizes the broader economic effects of taxing Social Security benefits.
