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You earned it, you keep it
Is there a possibility of seeing another increase in your monthly Social Security check besides a hefty COLA increase? What is it? According to the Social Security Administration, around 56 percent of recipients pay federal taxes on a portion of their Social Security benefits. Legislation introduced by the rep. Angie Craig (D-MN) called the “You Earned It, You Keep It Act” that would eliminate taxes on Social Security benefits. Keith Speights gives a brief overview of the bill and the changes of passing into law. Read Mr. Speights’ article here…
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Seniors do not need to pay income tax on their Social Security. We work and paid in the last 50 years. Now that we can collect, we were barely making our living expenses. So, we decide to go back to work part time to make ends meet. Now we have a huge tax bill to pay. So, either you work and pay, or you don’t work and lose everything.
John,
While we agree that seniors collecting Social Security shouldn’t need to pay income tax on their benefits, current law nevertheless says that SS benefits are subject to income tax if the income tax filer’s total income from all sources (called Modified Adjusted Gross Income, or “MAGI”) exceeds certain thresholds for your income tax filing status (married or individual). If you file as “married/jointly” and your MAGI is over $32,000, or if you file taxes as a single and your MAGI is over $25,000, then 50% of the SS benefits you received during the tax year are subject to income tax (at your normal IRS tax rate). However if your MAGI as a married filer exceeds $44,000 or as a single filer exceeds $34,000, then up to 85% of the SS benefits you received during the tax year becomes taxable income. FYI, AMAC lobbies for the elimination of income tax on Social Security benefits, or at a minimum, increasing the thresholds at which benefits become taxable for inflations (the thresholds haven’t been increased since income tax on Social Security benefits was enacted decades ago. AMAC continues to push for elimination of income tax on Social Security benefits. The recently introduced “you earned it, you keep it” bill is a positive development.
Russell Gloor
Certified Social Security Advisor
The AMAC Foundation
Why are they paying taxes on their Social Security. I never paid taxes on my Social Security. Why are some paying taxes and others are not. I’ve been on Disability SSI for over 20 years and I don’t have any other income as I am unable to get a job as my condition prevents me from doing so. I hope they don’t start taking taxes from me, I am struggling to stay as active as I can and that would really hurt.
Thank You
John,
Whether Social Security benefits are taxable depends on one’s combined income from all sources. The IRS uses a measure called “Modified Adjusted Gross Income” or “MAGI” to see if one’s Social Security benefits are taxable. MAGI includes your income from all sources, but only 50% of your received Social Security benefits. If you file your taxes as a single and your MAGI is more than $25,000 then some of your Social Security benefits will be taxable; if you file “married/jointly” the threshold is higher – $32,000. If your MAGI exceeds the threshold, 50% of your Social Security benefits become taxable, but if you exceed a second threshold ($34,000 for a single filer and $44,000 for married) then up to 85% of Social Security benefits received during the tax year become taxable income (at your standard IRS tax rate).
If you are receiving Social Security Disability Insurance (SSDI) benefits and that provides the majority of your income (and you are under the MAGI threshold for your IRS filing status), then you aren’t required to pay income taxes on your Social Security benefits. It is only those with a combined income from all sources which exceeds the MAGI threshold who pay income tax on their Social Security benefits.
Russell Gloor
National Social Security Advisor
The AMAC Foundation
Great point $25,000 and they start taxing your Social Security. Based on 1984 income and cost of living. Raising that income limit to today’s cost of living would help a lot of senior citizens. So they would not have to pay tax on their social security benefits it would help them to be able to live a comfortable life.
More senior citizens are filing for bankruptcy than ever before. This double taxes does not exist in any other class or product, why is it acceptable to pass it onto the group of citizens that are most fragile and often least able to earn dollars to cover shortfall from government greed. In some states, such as Alaska the elderly are honored and respected for their wisdom, in the United States they are cast aside.
In the near future senior citizens will grow beyond 1/4 of all citizens and yet they have so little voice and double taxation. Then you have Biden proposal to have consumption tax which would further negatively impact seniors that have diligently saved all their lives to keep a roof over their heads only to have them lose it in their senior years. During one’s lifetime they can get Medicaid if their income is low but in retirement you may get little over the poverty level in social security and once you run out of funds they kick you out of your nursing home.
Patricia:
Thank you for the comment. In responding to a similar comment last week, I noted that there was legislation pending in the 117th Congress to address this issue (HR 6590 – Senior Citizens Tax Elimination Act) calling for removal of Social Security benefits in an individual’s gross income for federal tax purposes, but it failed to be enacted. AMAC Action supported the bill, but whether the bill will be re-introduced in the 118th Congress is not known at this point.
In any event, much of the debate on this issue revolves around the basic math used by the federal government to asses the tax, with studies indicating that “A worker with average earnings who lives to an average age contributed payroll taxes that equal about 15% of their total expected lifetime benefit amount.” In other words, the tax position is that 85% of the expected benefit was, in effect, untaxed when it was contributed to Social Security. That’s basically the reason for adding a portion of one’s benefit to the adjusted gross income calculation. That aside, a more formidable hurdle to removing this senior tax burden is the fact that, last year, the tax added $37.6 billion to the program, an amount that would need to be offset in order to avoid worsening Social Security’s already precarious financial situation.
AS the 118th Congress unfolds, we expect to see an uptick in attention toward addressing Social Security’s financial future, and it’s possible that this issue may be incorporated into future reform measures.
Again, thank you for the comment.
Gerry Hafer
AMAC Foundation
CONFIDENTIALITY NOTICE: The opinions and interpretations expressed in this message are the viewpoints of the message’s author, a trained advisor accredited under the National Social Security Advisors program of the National Social Security Association, LLC (NSSA). The author, the NSSA, and the AMAC Foundation are not affiliated with or endorsed by the United States Government, the Social Security Administration, or any other state government.
Why should retired people pay taxes twice once while you work and again when you retire
Subhash:
Thank you for the comment. You are referring to the much-debated issue of “double taxation” and the fact that Social Security recipients with incomes above certain thresholds find a portion of their benefits subject to federal income tax. There was legislation, in fact, pending in the 117th Congress to address this issue (HR 6590 – Senior Citizens Tax Elimination Act) calling for removal of Social Security benefits in an individual’s gross income for federal tax purposes, but it failed to be enacted. AMAC Action supported the bill, but whether the bill will be re-introduced in the 118th Congress is not known at this point.
In any event, much of the debate on this issue revolves around the basic math used by the federal government to asses the tax, with studies indicating that “A worker with average earnings who lives to an average age contributed payroll taxes that equal about 15% of their total expected lifetime benefit amount.” In other words, the tax position is that 85% of the expected benefit was, in effect, untaxed when it was contributed to Social Security. That’s basically the reason for adding a portion of one’s benefit to the adjusted gross income calculation. That aside, a more formidable hurdle to removing this senior tax burden is the fact that, last year, the tax added $37.6 billion to the program, an amount that would need to be offset in order to avoid worsening Social Security’s already precarious financial situation.
AS the 118th Congress unfolds, we expect to see an uptick in attention toward addressing Social Security’s financial future, and it’s possible that this issue may be incorporated into future reform measures.
Again, thank you for the comment.
Gerry Hafer
AMAC Foundation
CONFIDENTIALITY NOTICE: The opinions and interpretations expressed in this message are the viewpoints of the message’s author, a trained advisor accredited under the National Social Security Advisors program of the National Social Security Association, LLC (NSSA). The author, the NSSA, and the AMAC Foundation are not affiliated with or endorsed by the United States Government, the Social Security Administration, or any other state government.
I totally agree with Mike this legislation is long overdue. There is no reason to be double taxed on a benefit you earned. Congress should at least update the threshold.
Taxing SS benefits started in 1984 at $25,000 for single and $32,000 for married couples. The problem with these levels was that they were never ever adjusted up with the COLA for that year. So we are using something that is based on values from near 39 years ago !!!!. That is insane. If you took the COLA raise each year since 1983 to last year and applied it to these 2 levels, taxing SS should start somewhere around $65,246 for an individual and $83,515 for a married couple. Our government never made an adjustment to a stagnant law causing the older senior citizens to overpay in taxes for nearly 39 years. This is crazy !!!
Mike,
If it is any consolation, AMAC agrees with your point and has taken a formal position that, at a minimum, the thresholds at which Social Security become taxable should be adjusted for inflation. Our discussions in Washington, D.C. with members of Congress often include a recommendation to reform the law for taxation of Social Security benefits. You may wish to contact your Congressional Representative to share your view on this.
Russell Gloor
National Social Security Advisor
The AMAC Foundation