Why you pay income taxes on your Social Security benefits

In 1983 the Social Security law was amended, among other things, to make up to 50% of the Social Security benefit taxable. The taxes paid go into the Social Security trust, not government general revenue. The threshold for taxing benefits – $25,000 was not indexed for inflation.

In 1993 further changes were made so that in some cases up to 85% of the Social Security benefits is taxed. Income taxes paid on benefits between 50% and 85% are allocated to the Medicare Hospital Trust Fund.

The 85% cap comes from data that show on average a beneficiary has paid for roughly 15% of the benefits they collect in a lifetime.

My records show that in my working life from 1959 until 2010 I paid $132,740 in payroll taxes. However, since I began collecting I have receive about $420,000 in benefits and add another $210,000 for my wife who is collecting on my benefits and taxes paid.

The idea that a worker paid for his or her Social Security benefits is not accurate in most cases. And, less that 5% of workers die before collecting benefits. The Social Security Administration estimates that about 56% of recipients owe income taxes on their benefits.


From the Social Security website:

Some of you have to pay federal income taxes on your Social Security benefits. This usually happens only if you have other substantial income in addition to your benefits (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return).

You will pay tax on only 85 percent of your Social Security benefits, based on Internal Revenue Service (IRS) rules. If you:

  • file a federal tax return as an “individual” and your combined income* is
    • between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
    • more than $34,000, up to 85 percent of your benefits may be taxable.
  • file a joint return, and you and your spouse have a combined income* that is
    • between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
    • more than $44,000, up to 85 percent of your benefits may be taxable.
  • are married and file a separate tax return, you probably will pay taxes on your benefits.

Your adjusted gross income
+ Nontaxable interest
+ ½ of your Social Security benefits
= Your “combined income

12 comments

  1. Typical. As usual, no one remembers the self employed – the contractors and gig workers like myself who pay the FULL FREIGHT of social security taxes – because of unfair US regulation. It’s ridiculous that I must pay 100% and someone earning their living working for a company pays 50% for the same retirement benefit.

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  2. A few years ago, I ran my numbers. Adjusting for inflation (2018 Dollars) my total FICA / Medicare taxes paid by myself and employers was $87,000. Since starting SS benefits at 62, my wife (who never worked) and I have collected $74,041 in just 55 months. SS is one of the best government programs ever created. I just wish Congress would fix the coming shortfall.

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  3. Once more.

    Your Social Security OASDI contributions (and mine) were post-tax. So, a la Roth contributions, your benefits (and mine) should be tax-free. You (and I) contributed half of the funding for OASDI benefits – employers nominally paid the other half. But, actually, FICA for employers is a great example of what the economists distinguise as incidence vs. impact. Yes, the employer paid (incidence), but you (and I) suffered the impact through reductions in the wages and other benefits we received. So, no more than 50% of your benefit should be taxable – if who paid what is to be the driver of the decision on taxation of benefits received.

    More importantly to me, I funded everything I received and will receive – in fact, I funded more, much more than I and my spouse will ever receive when you sum up the contributions, the taxes I paid, and the interest earnings foregone – which is no more than an accounting for the time value of money. The first dollar of FICA taxes that I paid in 1968, more than 54 years ago, isn’t the same as the last dollar of FICA taxes I just paid last week in 2022.

    Similarly, if you only look at FICA-Med as funding Medicare, you ignore the fact that ~75% of funding for Medicare Part B and Part D comes from general revenues (mostly income taxes and deficit spending). And, since 1993, when you look at FICA-Med taxes, the cap was removed, so, the funding has become very regressive – those with significant wage income receive the same hospital benefits as the person who paid less than $1,000 in FICA-Med taxes spread over 40 quarters.

    Those who fail to adjust for the economics of sources of taxation/funding are willfully ignoring how Social Security and Medicare actually work. And, those who believe we can improve Social Security and add long term care to Medicare without new long term, dedicated funding sources also willfully ignore the burdens being shifted to those too young to vote and generations yet unborn.

    If we are to calculate returns on this “investment” or purchase of “insurance”, let’s not fool ourselves.

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  4. If you are a 70 year old single and receiving the maximum $4194 monthly benefit in 2022, then only $82 (0.2%) of the $50,328 is taxable for the full year. If you & spouse are a 70 year old couple and each receiving the maximum $4194 monthly benefit based on their own earnings in 2022, then only $11,379 (11.3%) of the $100,656 is taxable for the full year. For the scenario where spouse’s benefit is 50% of higher earner FRA benefit it somewhere between the other two scenarios. In all scenarios the taxable SS income is well below the standard deduction resulting in ZERO tax owed. So taxable SS only leaves less room for your other income to fit into the tax-free standard deduction zone. The higher living folks will owe taxes just as when they were working earning higher wages. If you live a high life style in retirement, then you will be paying taxes – its as simple as that, nothing new.

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    1. You have to explain that again. Where do you get the $82? You can’t look at SS in isolation when it comes to the standard deduction unless a person is living on SS alone.

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      1. It seems unlikely a person who can delay to age 70 or has earned the max SS benefit is living only on SS in retirement.

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      2. Your explanation is needlessly complex , the numbers are slightly off in some cases, but your conclusion is absolutely correct that no taxes are owed. It’s an interesting exercise,but I doubt we could find anyone in this situation . Obviously to get to the maximum SS payment, it means a long history of high paying employment. It’s highly doubtful that this person never saved money in a 401k/IRA, had no pension or any investment accounts.

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  5. I am guessing that the COLAs amount given (over time) does not equal the income taxes paid by most Social Security recipients due to their other income sources and the income tax bracket that they fall under?

    On the surface it seems like skip the COLA and the taxes. If the people keep their tax money then they wouldn’t need COLAs. But then you would need to make COLA income based for the low end earners and I can hear the yelling now.

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  6. That’s a really good return on your payroll taxes thus far. It will continue stacking up in future years. To be fair, you should double the total amount paid in to account for the employer share.

    When I get a coffee and a minute, I’ll look my totals up. Mine will be less as my wife worked and for some years was a teacher not covered under Social Security so that brings the amount payable under my SSN down to myself.

    I have paid the 85% limit tax for years so it is not anything new to me like it it is to some folks who are just starting to cross the threshold.

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    1. I think it’s a pretty good return even considering the employer portion which if it did not exist would not likely have been given to workers anyway. My wife hasn’t been employed since 1970, so her half of my benefit is based almost all on my taxes paid.

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