How an Outdated Social Security Rule Means Higher Income Tax For Seniors - Motley Fool

Levying income tax on Social Security benefits is often viewed as unfair because SS benefits are earned by contributing money already taxed. Nevertheless, Congress first enacted taxation of Social Security benefits in 1983 making half of SS benefits taxable for a single person with provisional income over $25,000 and for a married couple with a combined income over $32,000. Then again in 1993, Congress added additional income thresholds which allowed for up to 85% of Social Security benefits to be subject to income tax. But here’s the real rub – the taxation thresholds set 30 – 40 years ago have never changed. Unlike most Social Security factors which automatically adapt to inflation or changes to the national wage index, the thresholds at which Social Security benefits become taxable are the same today as they were decades ago. So as wages and income have increased over time, more and more seniors are seeing a sizable chunk of their Social Security benefits taken away in income taxes. As discussed in this Motley Fool article by Maurie Backman, these taxation thresholds “desperately” need updating, but for now it’s important that seniors planning for retirement understand how taxation of Social Security benefits works, which is explained in this article.

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