Social Security and Taxes: What Charlotte-Area Retirees Should Know

Many people assume Social Security benefits arrive tax-free. For a lot of retirees, that is not quite true. Depending on your other sources of income, a portion of your Social Security benefit can be subject to federal income tax. The good news for those of us in Charlotte and across North Carolina: the state does not tax Social Security benefits at all. But the federal side of the equation still deserves attention, especially as you make decisions about when to claim benefits and how to draw down other accounts in retirement.

Understanding how this works can help you avoid an unpleasant surprise at tax time, and it can also open the door to smarter planning around Roth conversions, required minimum distributions (RMDs), and the order in which you tap your accounts.

• A portion of your Social Security benefit may be subject to federal income tax depending on your "combined income."
• Combined income generally includes your adjusted gross income, any nontaxable interest, and half of your Social Security benefits.
• North Carolina does not tax Social Security benefits at the state level, which is a meaningful advantage for retirees here.
• The specific income thresholds that determine how much of your benefit is taxable are set at the federal level and can change. Confirm the current figures with a tax professional or the IRS each year.
• Decisions about claiming age, Roth conversions, and RMD timing can all influence how much of your Social Security ends up taxable.

At the federal level, whether your Social Security benefit is taxed (and how much of it) comes down to a calculation referred to as "combined income" (sometimes called provisional income). In broad terms, this figure is calculated by adding together:

• Your adjusted gross income (AGI)
• Any tax-exempt interest you received (for example, from municipal bonds)
• Half of your annual Social Security benefit

Once that combined income number is calculated, it is compared against a set of income thresholds. Depending on where your combined income falls relative to those thresholds, anywhere from none to up to 85% of your Social Security benefit may be included as taxable income on your federal return.

We intentionally are not citing specific dollar thresholds here, because these figures are set by federal law and are the kind of detail that should be confirmed directly with the IRS or a tax professional at the time you are doing your planning, rather than relied upon from an article that may be read months or years after publication.

Here's where being a North Carolina resident works in your favor. Unlike some states, North Carolina does not tax Social Security benefits at the state level. That means the only tax exposure on your benefit comes from the federal calculation described above. If you have spent time in a state that does tax Social Security, this is one of the quieter perks of retiring in the Charlotte area.

The taxation of your Social Security benefit is not just about the benefit itself. It is about everything else showing up on your tax return in the same year. A few planning levers worth thinking through:

• Assuming Social Security is always tax-free, and being caught off guard at filing time.
• Making a large Roth conversion or an unusually large withdrawal without checking how it interacts with combined income for that year.
• Overlooking the interaction between RMDs and Social Security once RMDs begin.
• Relying on outdated dollar thresholds instead of confirming current federal figures each year.
• Treating Social Security, retirement account withdrawals, and tax planning as separate decisions instead of connected pieces of the same plan.

A properly structured financial plan looks at Social Security, retirement account withdrawals, and tax coordination together, not in isolation. In our experience, retirees who plan claiming age, RMD timing, and Roth conversions as part of one coordinated strategy tend to keep more of what they have saved. Every family's situation is different, and the right approach depends on your full financial picture. If you would like to talk through how your Social Security benefit fits into your broader tax and retirement plan, schedule a call with us.

Is Social Security ever completely tax-free at the federal level? Yes. If your combined income falls below the applicable threshold for your filing status, none of your benefit is taxed. Confirm the specific thresholds with the IRS or a tax professional for the current tax year.

Does North Carolina tax Social Security benefits? No. North Carolina does not tax Social Security benefits at the state level.

What counts toward "combined income"? Your adjusted gross income, any nontaxable interest, and half of your Social Security benefit for the year.

Can up to 85% of my benefit really be taxed? For higher combined income levels, up to 85% of your benefit can be included as taxable income at the federal level. The exact percentage depends on where your combined income falls.

Does a Roth conversion affect my Social Security taxation? It can. A Roth conversion adds to your adjusted gross income in the year of the conversion, which can increase your combined income and potentially increase the taxable portion of your Social Security benefit for that year.

How do RMDs interact with Social Security taxation? RMDs are included in your AGI, so once they begin, they can raise your combined income and affect how much of your Social Security is taxable.

Does my claiming age change how my benefit is taxed? Claiming age changes the size of your benefit and the years in which you receive it, both of which affect your combined income calculation over time.

Where can I confirm the current income thresholds? Check directly with the IRS or speak with a tax professional, since these figures are set by federal law and can be updated.

Should I coordinate my Social Security decision with my tax planning? Yes. Because claiming timing, withdrawals, and conversions all affect combined income, coordinating these decisions as part of one plan tends to produce better outcomes than treating them separately.

Does Cannon Advisors help with this kind of coordination? Yes. We work alongside Cannon Tax & Accounting to help connect the dots between investment, withdrawal, and tax decisions so nothing falls through the cracks.

For current information on Social Security taxation and income thresholds, consult the IRS or a qualified tax professional.