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Canadian & U.S. Taxation of Social Security – 2025 Claiming Strategies for Couples

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For Canadians and Americans alike, Social Security is often a cornerstone of retirement income planning. While Canadians may be more familiar with the Canada Pension Plan (CPP) or Old Age Security (OAS), many cross-border families rely on U.S. Social Security benefits either directly from their own contributions or indirectly through spousal or survivor benefits.

Understanding how Social Security is taxed — both in the United States and in Canada under the bilateral tax treaty — is critical to optimizing after-tax retirement income. But taxation is only part of the picture. The timing of when benefits are claimed, and which spouse claims first, can have a profound impact on lifetime income and survivor protection.

In this blog, we examine the 2025 tax rules for Social Security, explore claiming strategies for different types of married couples, and highlight planning opportunities for cross-border high-net-worth families.

couples social security tax

U.S. Taxation of Social Security Benefits in 2025

Federal Taxation

Since 1984, Social Security benefits have been taxable above certain thresholds. These thresholds, however, have never been adjusted for inflation, meaning that an increasing number of retirees are subject to tax each year.

  • Provisional income = Adjusted Gross Income (AGI) + tax-exempt interest + 50% of Social Security benefits.
  • For 2025:
    • Single filers:
      • < $25,000 → no tax on Social Security benefits
      • $25,000–$34,000 → up to 50% taxable
      • $34,000 → up to 85% taxable
    • Married filing jointly:
      • < $32,000 → no tax on Social Security benefits
      • $32,000–$44,000 → up to 50% taxable
      • $44,000 → up to 85% taxable

Because the top threshold is only $44,000 for couples, virtually all dual-income households with pensions, investment income, or required minimum distributions (RMDs) will see 85% of Social Security benefits taxed.

State Taxation

As of 2025, 10 states tax Social Security in some form: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, and Utah. Each applies its own exemptions or phaseouts. High-net-worth families considering retirement migration should factor state taxation into their decisions.

Changes to US Taxation under the One Big Beautiful Bill Act (OBBBA)
The recently enacted OBBBA, signed into law on July 4, 2025, introduces a temporary measure impacting the taxation of Social Security benefits for many retirees by providing a new tax deduction specifically for individuals aged 65 and older. This deduction, set at $6,000 per individual (up to $12,000 for married couples both over 65), reduces taxable income, which can include a portion of their Social Security benefits. The deduction phases out for higher earners:

  • For single filers, the deduction begins to phase out at a modified adjusted gross income (MAGI) of $75,000 and is completely eliminated at $175,000.
  • For married couples filing jointly, the phase-out starts at $150,000 MAGI and is fully phased out at $250,000.

This enhanced deduction is a temporary provision, effective from tax year 2025 through 2028. After 2028, retirees may face a return to the previous tax rules unless the provision is extended by future legislation.

Canadian Taxation of U.S. Social Security Benefits

The Canada–U.S. Tax Treaty governs how Social Security benefits are taxed for Canadian tax residents:

  • Automatic exemption rule: Canadian residents include only 85% of their U.S. Social Security benefits in taxable income, with an automatic 15% tax-free portion.
  • Canada then taxes the remaining 85% at the recipient’s marginal tax rate.
  • U.S. withholding tax for Canadian tax residents should be reduced to 0%, with taxation occurring solely in Canada.

This treaty relief makes Social Security comparatively favorable for Canadians compared with the full taxation that applies to CPP or OAS at higher income levels.

If you report Social Security benefits on your Canadian T1 and would be entitled to the 15% deduction on line 25600, it is not uncommon to receive a Review Letter from CRA to support this deduction.

Claiming Basics for 2025
  • Full Retirement Age (FRA): For those born in 1960 or later (turning 65 in 2025), FRA = 67.
  • Early retirement: As early as 62, but at a 30% reduction if FRA = 67.
  • Delayed Retirement Credits (DRCs): Benefits grow by 8% per year (two-thirds of 1% per month) between FRA and age 70.
  • Maximum benefit: At age 70 in 2025, the maximum monthly benefit is ~$4,870 USD.
Married Couples With Similar Incomes

When both spouses have comparable earnings histories, each will qualify for substantial benefits on their own record. Spousal benefits (50% of the other spouse’s FRA benefit) may be irrelevant if each spouse’s benefit is higher.

Strategy 1: Staggered Claiming for Longevity Insurance

  • One spouse claims at FRA (67) to provide household cash flow.
  • The other delays until 70, maximizing the survivor benefit.
  • This balances immediate income needs with long-term protection.

Strategy 2: Both Delay to 70

  • Best suited for high-net-worth couples who can draw on investment portfolios to bridge the gap.
  • Maximizes lifetime guaranteed income and survivor benefits.
  • But may expose couples to higher Medicare Part B/D surcharges (IRMAA) due to Required Minimum Distributions stacking later in retirement.

Strategy 3: Coordinated Early Claiming

  • If both spouses have health issues or shorter life expectancies, claiming earlier may make sense.
  • The break-even analysis typically shows that delaying to 70 yields more income if either spouse lives into their early 80s.

Married Couples Where One Spouse Has Little or No Work History
This is a common scenario in cross-border families where one spouse has spent fewer than 10 years in employment.

Spousal Benefits

  • Worth up to 50% of the higher-earning spouse’s FRA benefit, if claimed at the spouse’s FRA or later.
  • Reduced if claimed between 62 and FRA.
  • No growth beyond FRA (unlike retirement benefits).

Survivor Benefits

  • Worth 100% of what the deceased spouse was receiving (including delayed credits), if the survivor claims at FRA or later.
  • Reduced if claimed earlier, as soon as age 60.

Planning Strategy

  • Typically, the higher earner delays to 70 to maximize both their own benefit and the survivor benefit.
  • The lower-earning (or non-earning) spouse may claim as early as 62 to bring some cash flow into the household, since their early claim has no effect on the eventual survivor benefit.
Cross-Border Planning Considerations

Canadians Who Worked in the U.S.

  • Need at least 40 U.S. credits (10 years) to qualify directly.
  • The Totalization Agreement allows Canadians with shorter U.S. work histories to combine CPP credits to qualify.
  • Benefits are still calculated based only on U.S. covered earnings.

U.S. Citizens/Residents in Canada

  • Social Security is taxable only in Canada under the treaty.
  • Couples must still account for OAS clawback, Canadian marginal rates, and provincial tax when coordinating income sources.
Impact of Windfall Elimination Provision (WEP)
  • Canadians receiving CPP and also eligible for U.S. Social Security may see WEP reductions if they have fewer than 30 years of substantial U.S. earnings. However, the WEP reductions were eliminated in early 2025, allowing Canadian tax residents to receive both full CPP and Social Security benefits with no reduction going forward.  See our previous Blog Post entitled Social Security Boost for Cross-Border Workers – Impact of the WEP and GPO Repeal

Tax Planning Opportunities

  1. Income Smoothing: Use RRSP/RRIF/IRA/401(k)/taxable account withdrawals before Social Security begins to reduce later RMDs and keep Medicare surcharges lower.
  2. Roth Conversions: Converting pre-Social Security reduces future taxable income, potentially even lowering the percentage of Social Security subject to tax.
  3. Spousal Timing: For couples with unequal earnings, staggering pension claims creates both immediate cash flow and survivor protection.
  4. Cross-Border Pensions: Coordinate CPP/OAS timing with Social Security to minimize Canadian OAS clawback.
  5. Residency Choice: Retiring in a Canadian province with lower top marginal rates (e.g., Alberta) vs. high-tax Canadian provinces (eg. British Columbia) can materially alter after-tax income.
Case Studies

Case 1: Dual High Earners

  • Both spouses projected FRA benefit: $3,000 USD / month.
  • One claims at 67, other delays to 70.
  • Household benefit at 70: ~$7,120 USD / month.
  • Survivor benefit secured: $3,960 USD / month (inflation-adjusted).

Case 2: One High Earner, One Low Earner

  • Husband FRA benefit: $3,200 USD / month.
  • Wife has little work history → spousal benefit at FRA: $1,600 USD / month.
  • Strategy: Wife claims spousal at 62 ($1,120 USD / month) while husband delays to 70 ($3,968 USD / month).
  • Survivor benefit secured: $3,968 USD / month for wife.

Case 3: Cross-Border Couple

  • Canadian resident couple, one U.S. citizen with 20 years of U.S. earnings.
  • Receives $2,500 USD / month U.S. Social Security.
  • Canadian taxation: 85% included in income, 15% exempt under treaty.
  • Tax planning: draw RRSPs/taxable accounts before age 70, delay CPP to 70, coordinate with U.S. benefits for income smoothing.
Key Takeaways
  • Taxation matters: Up to 85% of Social Security is taxable in the U.S., while Canadians can also benefit from treaty relief.
  • Survivor benefits drive strategy: In most marriages, maximizing the higher earner’s benefit is crucial.
  • Staggered claiming often wins: Provides balance between immediate income and long-term security.
  • Cross-border families need specialized planning: Treaty rules, and differing tax systems and benefits complicate decisions.
  • Early claiming should be a last resort: Unless driven by health concerns or cash flow needs.

Conclusion

Social Security is one of the most valuable, yet misunderstood, retirement assets for Canadian and U.S. families. In 2025, with benefit formulas, tax thresholds, and Medicare surcharges all working against retirees who don’t plan carefully, the right claiming strategy can mean hundreds of thousands of dollars more in lifetime, after-tax income.

At Cardinal Point Wealth Management, we help cross-border families navigate these complexities. Whether you’re deciding when to claim, how to integrate benefits with Canadian retirement income, or how to minimize taxes, the right strategy can secure both lifetime income and survivor protection.