Income Tax on Social Security Benefits Getting New Attention in Congress
It’s still early in the 119th Congress, but there’s a flurry of new attention being placed on the nagging issue of taxing Social Security benefits. Yesterday, Representative Thomas Massie (R-KY) reintroduced Senior Citizens Tax Elimination Act (see washingtontimes.com post here) intended to eliminate the inclusion of these benefits as taxable income on federal tax returns. Likewise, Sens. Roger Marshall and Marsha Blackburn introduced “Retirees First,” a bill (see ksn.com post here) that would increase the thresholds for including Social Security benefits in the federal income tax liability calculation.
Rescuing Social Security beneficiaries from this level of taxation has been a recurring topic for decades without resolution. What was initially intended to impact a small percentage–less than 10% by some estimates–of beneficiaries now affects about 60% of all who receive retirement benefits. Here’s a bit of history on the topic:
In 1983, as part of the Social Security Amendments passed to avert a solvency crisis, Congress required all retirees to pay income taxes on 50% of their benefits if their incomes reached a minimum threshold.[1] The 1983 decision, however, did not call for adjusting the taxation thresholds, a move apparently designed to pull more and more people into tax liability. By 1993, when the Omnibus Budget Reconciliation Act of 1993 (OBRA) put new and higher taxation thresholds for Social Security, the slice of beneficiaries paying federal income tax on their Social Security proceeds had grown to 18%. In 2015, the Social Security Administration estimated that nearly 60% of retiree households are subject to this income tax levy today.[3] The thresholds adopted via OBRA 1993 called for 85% of a retiree’s benefits to be taxed if income exceeded $34,000 for an individual and $44,000 for a married couple filing a joint return. These thresholds remain in effect today, having never been adjusted to account for inflation and the corresponding rise in wage levels. As a result of the thresholds being frozen in place, what was once a high income for the average retiree is now low enough that a substantial percentage of retiree households pay taxes on their Social Security benefits.
Total 2023 tax revenues from this provision were $50.7 billion, or 3.8% of the total revenue for the OASI and DI Trust Funds that year. Total elimination of federal income tax on Social Security benefits would result in a substantial loss of revenue for the program; updating the 40-year-old thresholds would lessen this impact substantially.
Whether any of the new bills to address this topic advance in Congress is an item of interest to most current and future retirees, so we’ll be paying close attention to their progress in the months ahead. Stay tuned to this website for further updates.
[1] Social Security Administration, Research Note #12: Taxation of Social Security Benefits, https://www.ssa.gov/history/taxationofbenefits.html
[2] ibid.
[3] Social Security Administration, Income Taxes on Social Security Benefits, https://www.ssa.gov/policy/docs/issuepapers/ip2015-02.html