Q & A

Ask Rusty – My Social Security Income Hurts When I File My Taxes

Dear Rusty: I am getting hammered with taxes on my Social Security (SS). I am retired and draw a meager work pension and SS benefits. When my wife and I filed our joint tax return we owed the IRS a substantial amount of money – they took 85% of my SS in taxes. We are just barely over the minimal amount of income allowed for SS tax exemption. Is there anything I can do so I do not have to pay all this money at once at the end of the year? I didn’t get any tax advice when I started drawing my SS and the guy who prepared our tax return couldn’t have cared less. No one ever told me that I would get double-taxed on the SS that I worked so hard for. Any help or advice is appreciated, I cannot take another hit like this again. Signed: Double-Taxed

Dear Double-Taxed: Unfortunately, taxation of Social Security benefits has been law since 1983 when the law to allow 50% of benefits to be taxed was enacted. In 1993 they added another threshold to allow up to 85% of SS benefits to be taxable. Just to clarify the way it works (not that it will soften the pain), they don’t take 85% of your SS benefits away in taxes – but 85% of your SS benefits becomes part of your overall taxable income at whatever your normal IRS tax rate is for your income level. So, if your IRS tax rate is 10%, that percentage is applied to 85% of your SS benefits received during the tax year (at your income level). 

As for whether there is anything you can do, short of lowering your overall income the answer is no. The IRS determines taxability of your SS benefits based upon something called your “Modified Adjusted Gross Income” or “MAGI” which is your normal Adjusted Gross Income (AGI) from your tax return, plus 50% of the Social Security benefits you received during the tax year, with any non-taxable interest you may have had added back in. With an IRS filing status of “married-filing jointly,” if your MAGI was more than $32,000 then 50% of your SS benefits are included in your taxable income; if your MAGI is more than $44,000 then up to 85% of your SS benefits becomes part of your overall taxable income. And unfortunately, there’s no way around that. FYI, the thresholds for single filers are $25,000 (above which 50% of SS is taxable) and $34,000 (above which 85% of SS is taxable). Below those minimum thresholds for both single and married filers, Social Security benefits aren’t taxable.

To soften the income tax burden when you file your taxes each year, you may want to consider having taxes withheld from your SS benefit payments. That’s easy to do by submitting IRS form W-4V to your local Social Security office. Here’s a link at which you can download and print that form: www.irs.gov/pub/irs-pdf/fw4v.pdf. You will see that you can choose to have any of the following percentages of your SS benefit withheld for Federal Income Tax purposes – 7%, 10%, 12% or 22%. To find the mailing address for your local Social Security office, go to www.ssa.gov/locator.

Comments On This Topic

  1. This is so not fair. I am single and had a similar thing happen for 2019 and 2020. It would benefit everyone if Seniors could earn as much as possible without having their Social Security taxed. We would still be paying into the Social Security fund which would help the fund. I strongly feel all people earning over $100,000 should pay into social security. They can afford it. This would help fund Social Security as well which would help everyone without hurting anyone financially.
    So many Seniors are struggling financially so to be able to earn as much as we can without a portion of our social security being taxed would really help. The poor and middle income seem to get the raw end of the deal in most cases. The AARP person who prepared my 2019 taxes told me it wasn’t worth my working because of what I had to pay. How can we survive?

    • Carole,
      Few would argue that taxing Social Security benefits is fair, including AMAC (the Association of Mature American Citizens) which has, for years, been opposed to taxation of Social Security benefits. Congress enacted taxing of 50% of Social Security benefits in 1983 as part of a reform package which restored Social Security to solvency at the time. When first enacted, 50% of SS benefits were taxable for single tax files who earned more than $25,000 (and for married couples who earned more than $32,000). That remained law until 1993 when Congress added another income threshold for both single and married tax filers. That added new threshold allowing up to 85% of SS benefits to be taxable for single filers who earned more than $34,000 and for married filers earning more than $44,000. Ever since enacted, those laws have been labeled as unfair by many organizations and by those affected because their benefits are taxed. The unfortunate reality is that eliminating taxation of Social Security benefits would exacerbate Social Security’s currently at-risk financial condition, so calls for repeal of taxing Social Security benefits today go largely unheeded. It’s also worth noting that 37 U.S. states do not levy a state tax on Social Security benefits.
      FYI, people now earning over $100,000 do now pay into Social Security through FICA payroll taxes (or self-employment taxes). The 2021 threshold at which SS tax stops being withheld from earnings is $142,800, and this amount goes up each year with changes to the National Average Wage Index. Because of Social Security’s current financial woes (which puts benefits at risk of reduction starting in 2034), increasing (or eliminating) the payroll tax cap is one of many proposals now being evaluated for restoring Social Security to financial solvency. Whether Congress will include that in any future reform legislation is anyone’s guess.
      So, while we agree that taxing Social Security benefits essentially amounts to “double taxation” (because you pay also tax on your earnings to qualify for Social Security), The AMAC Foundation can only provide information on how the current laws work. As unpalatable as some of those laws are, and as unfortunate is the affect on struggling seniors, The AMAC Foundation can only offer guidance on how existing rules and regulations affect those who contact us. However, our sister organization, “AMAC Action” is very well aware that taxation of Social Security is “not fair” and regularly lobbies Congress on that topic.
      Russell Gloor
      National Social Security Advisor
      The AMAC Foundation

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