The Growing Impact of Benefit Taxation

It’s an annoying part of the Social Security landscape, but also a likely permanent one. We’re talking about the taxation of Social Security payments to beneficiaries with income exceeding limits that haven’t been changed since 1993. This means, of course that the limits have not been adjusted to account for inflation during that 25-year period, resulting in a growing number of folks being subjected to the tax burden. In fact, projections are that the amount of funding brought into Social Security via this tax route (well more than $30 billion projected for 2018) will more than double in just eight years.

To refresh you, for single taxpayers with modified adjusted gross income (MAGI) levels exceeding $34,000, and couples filing joint returns with MAGI exceeding $44,000, as much as 85% of their Social Security benefit is subject to federal income tax. Many folks consider this a form of “double taxation,” since their original contributions to Social Security were made via the Federal Insurance Contributions Act (FICA) tax applied to their paycheck during their working years. Despite these misgivings, the tax on Social Security benefits has become a major source of income for a system dealing with long-term solvency problems, and will likely rise in the years ahead. The Motley Fool’s Sean Williams takes a look at the issue in a post on their website, which you can access here…


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