The One Social Security Metric that Doesn’t Change - Motley Fool
Most Social Security “metrics” (the various factors which affect your monthly benefit amount and the SS payroll taxes you pay) change each year to account for inflation and changes to the national Average Wage Index (AWI). Inflation, obviously, has an effect on your monthly payment when the annual Cost of Living Adjustment (COLA) is applied to your benefit in December of each year. Changes in the AWI result in updates to other SS factors such as the payroll tax cap, which is the amount of earnings you must pay FICA or self-employment tax on. But there are some Social Security metrics that do not, to the dismay of many, increase as inflation and AWI change annually. Those factors are the thresholds at which Social Security benefits are subject to federal income tax.
When income tax on Social Security benefits was first enacted in 1983, thresholds were set to define when Social Security benefits would become taxable by the IRS. Problem is, the legislation enacted didn’t provide for gradually increasing the thresholds. Neither did additional legislation passed in 1993 to increase the amount of income tax paid on benefits. So still today, the thresholds at which Social Security benefits become taxable are the same as those set decades ago.
The result? When first enacted in 1983, about 10% of all Social Security recipients were required to pay income tax on their benefits, but today, nearly 50% of recipients see their benefits taxed by the IRS. This Motley Fool article by Christy Bieber explains.
As a matter of interest, the Association of Mature American Citizens (AMAC) lobbies Congress to either eliminate income tax on Social Security benefits or, at a minimum, adjust the thresholds for inflation. This proposal is an integral part of AMAC’s ongoing quest to restore Social Security to fiscal solvency, for which AMAC fights daily in Washington, D.C.. AMAC has been discussing and continues to discuss a common-sense solutions with Congressional Representatives in its efforts to protect America’s senior citizens who rely on Social Security.