Underscoring a key issue
The prospects of a significant number of Americans having to pay taxes on their Social Security benefits for the first time in 2024 underscores a key issue.
Since Social Security benefits became taxable at the federal level in 1984, the taxable income thresholds haven’t been adjusted for inflation at all. Of course, Social Security benefits have risen quite a bit during this period thanks to the annual COLAs.
The Senior Citizen League (TSCL) recently pointed out two problems resulting from this issue. First, more retirees must pay taxes on their Social Security benefits over time. Second, the percentage of taxable benefits is likely to grow as retirees’ income increases.
A lower COLA such as the 3.2% increase received in 2024 doesn’t compound these issues as much as a bigger COLA would. However, the fundamental problem won’t go away until income thresholds are indexed for inflation.
Fool.com
I this an actual problem? Is having income a person did not fund considered taxable unfair?
Is it unfair to have taxes grow as income grows?
QUINNSCOMMENTARY 
Given that a 2024 dollar buys much less than a 1984 dollar, it seems reasonable to me that an adjustment needs to be to the threshold. I agree that it is reasonable to have taxes increase as income increases, but presumably the original threshold was picked in the desire to assist people with lower incomes. Why not keep that intent in mind and adjust the threshold for inflation.
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Logically all income levels should have 85% of SS benefit (or amount exceeding what they paid in payroll taxes) as taxable income and then let the income tax brackets and percentages determine taxes owed based on total income.
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The SS Worksheet for lines 6A & 6B (Pg 32 1040 instructions) has $32,000 as the limit for taxing your SS Benefit. If this was established in 1984, then the inflation adjusted 2024 value is $94,989, (196.8%) using an inflation calculator using the Jan 2024 CPI values. This is compared to your total income (wages, interest, dividends, pension, IRA W/D, annuities, capital gains) less adjustments. A normal PSEG retiree would probably exceed this limit. So adjusting for inflation may not matter much for us.
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You need a pretty low income to escape some taxes on SS. Be sure to thank Bill Clinton for this.
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Wrong. From the Social Security website: “The taxation of Social Security began in 1984 following passage of a set of Amendments in 1983, which were signed into law by President Reagan in April 1983. These amendments passed the Congress in 1983 on an overwhelmingly bi-partisan vote.” https://www.ssa.gov/history/InternetMyths2.html#:~:text=The%20taxation%20of%20Social%20Security,President%20Reagan%20in%20April%201983.
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This isn’t a new issue but every year it catches more people crossing the income limits so it gives the Seniors groups something to whine about. They’ve been whining for years. They graduated tax brackets take care of everyone at the lower levels.
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Yes indeed, something being taxable does not mean you actually pay taxes
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Am I correct the federal government workers and politicians are taxed on their annuities but the portion they contributed is not taxable?–sort of like an IRA you contributed to with after tax dollars–interesting topic.
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nobody is taxed on their contributions to a retirement plan of any kind unless they are pretax contributions made by the worker
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