Dear Rusty, Why are my Social Security benefits being taxed at all? The Social Security FICA payroll taxes taken out of my paycheck while I was working were paid with taxable income. Signed, Disgruntled Taxpayer About Federal Taxation of Social Security Bene ts
taxable. As mentioned, the income thresholds for taxing Social Security benefits were established in 1983 and 1993, but those thresholds have never been adjusted for inflation. When taxation of Social Security started in 1984, less than 10 percent of benefi- ciaries paid income tax on their bene- fits, whereas today that percentage is over 50 percent and growing. If you wish to add your voice to those who oppose federal taxation of Social Security benefits, you may wish to contact your Congressional represen- tative to do so. And it is worth noting that, to varying degrees, eleven US states also levy income tax on Social Security benefits. Signed, Russell Gloor This article presents the opinions of the AMAC Foundation Staff and is intended for informa- tion purposes only. It does not represent legal or financial guidance.
That was how it worked until 1993, when a new and different Congress added another threshold which, if exceeded, resulted in up to 85 percent of Social Security benefits received during the tax year becoming taxable. The logic used for the 1993 law was that beneficiaries, on average, would only personally pay for about 15 percent of the lifetime benefits they would eventually receive, leading that Congress to conclude that if your combined income from all sources exceeded the higher threshold ($34,000 for single filers and $44,000 for those filing married/jointly), up to 85 percent of your benefits should be taxable. Please understand that I’m not defending or endorsing those historical Congressional views; I have simply researched why Social Secu- rity benefits are taxable at all, and the above is what I’ve learned from that research. Indeed, the Association of Mature American Citizens (AMAC) has long advocated for eliminating federal taxation of Social Security bene- fits or, at the very least, raising the thresholds at which benefits become
Dear Disgruntled Taxpayer, Many Americans share your belief that federal taxation of Social Secu- rity benefits is unfair because we pay into the program through payroll taxes on our taxable earnings. Unfor- tunately, Congress took a different view in 1983 when taxation of Social Security benefits was first enacted at a time Social Security was having financial issues. Congressional logic back then was that a beneficiary only personally pays 50 percent of the Social Security contributions made, so, since your Social Security entitle- ment was only half paid for by you and the other half by your employer, the portion of your benefit attributable to your employer’s contributions should be taxable. It’s that other half the portion of your benefit which resulted from employer contribution that the 1983 Congress decided should be taxed. So, starting in 1984, if a bene- ficiary’s overall annual income from all sources exceeded $25,000 for a single filer or $32,000 for those filing married/jointly, half of that person’s Social Security benefits became part of their income taxable by the IRS.
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10 • AMAC Magazine
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