USA TODAY International Edition

Social Security tax change sought

Threshold for charges has never been adjusted

- Medora Lee

If you feel like your Social Security benefits aren’t going very far despite big cost- of- living increases the past few years, there’s a reason for it, and inflation’s only a part of the explanatio­n.

The government regularly adjusts many things for inflation: federal tax brackets; contributi­on limits for retirement accounts; the size of the standard deduction; Social Security’s costof- living adjustment, or COLA, among others.

But one thing that has never been adjusted for inflation is the federal income threshold to determine if you’ll have to pay taxes on your Social Security benefit. That means with each passing year, an increasing proportion of seniors have been reaching those low thresholds and having to pay taxes on their benefits.

“This is a stealth tax,” said Jordan Gilberti, senior lead planner and certified financial planner at financial advisory Facet. “Everyone knows Social Security gets taxed, but rarely do they see how it’s taxed. People’s jaws would fall to the ground.”

How is Social Security taxed and what are the tax thresholds?

Depending on your so- called provisiona­l income, up to 85% of your Social Security benefits can be taxed. Provisiona­l income includes your gross income, excluding Social Security benefits, plus any tax- free interest you received like from a municipal bond holding and 50% of your Social Security benefits.

If you’re single and this total is less than $ 25,000, or if you’re filing jointly and it’s less than $ 32,000, none of your Social Security is federally taxed.

If it’s between $ 25,000 and $ 34,000 for single filers or $ 32,000 and $ 44,00 for joint filers, up to half your Social Security is taxed. These thresholds have remained the same since taxes on Social Security benefits were introduced in 1984.

And up to 85% is taxed for anything above $ 34,000 for single filers and $ 44,000 for joint filers. These thresholds were added in 1993.

For example, if you have $ 50,000 in income and get $ 1,500 a month from

“This is a stealth tax. Everyone knows Social Security gets taxed, but rarely do they see how it’s taxed. People’s jaws would fall to the ground.”

Jordan Gilberti certified financial planner

Social Security, you’ll pay taxes on 85% of your $ 18,000 in annual benefits, or $ 15,300.

You can file quarterly estimated tax returns with the IRS or ask Social Security to withhold federal taxes from your benefit payment.

What’s wrong with these Social Security tax thresholds?

With such low- income thresholds, a larger proportion of beneficiaries owe taxes on Social Security every year. In 1984, the average monthly check for an individual was $ 314 and $ 472 for joint filers. In 2023, it’s $ 914 and $ 1,371, respective­ly.

The percentage of all tax returns with taxable Social Security benefits grew to 33% in 2017 from 7.4% in 1999, and the Congressio­nal Budget Office predicts that it will grow to more than 50% by 2046. Additional­ly, since 1984, the proportion of beneficiary families whose benefits are taxed has risen over time from less than one in 10 to more than half, the Social Security Administra­tion says.

If Social Security income thresholds were indexed to inflation, Johnson estimates the first thresholds of $ 25,000 for individual­s and $ 32,000 for joint filers would be $ 73,000 and $ 93,200, respective­ly. At those levels, a lot fewer Social Security beneficiaries would probably owe tax on their benefits, she said.

The scorching hot inflation from the past couple of years made things worse too. Many seniors had to tap retirement funds or take part- time jobs to make ends meet, which boosted their income and meant they will likely have to pay taxes on their Social Security.

“Seniors view this as discrimina­tory, double taxation,” said Mary Johnson, a policy analyst at The Senior Citizens League advocacy group.

A recent survey by the league showed 58% of seniors want these thresholds adjusted for inflation, “and quite a few are in favor of getting rid of the tax altogether,” not that Congress has ever asked seniors what they want.

“When they’re considerin­g changes to Social Security and Medicare, they’ve never, ever turned to senior constituen­ts or advocates as individual­s to sit on commission­s or in on negotiatio­ns,” Johnson said. “We’ve never been invited to the table.”

Why hasn’t the government adjusted for inflation?

“To be responsibl­e about it, there would be a need to find revenues to replace what would be lost,” Johnson said. This year, she estimates Social Security would receive $ 48.8 billion in revenue from taxing Social Security benefits.

The Social Security and Medicare Boards of Trustees already predict Social Security trust fund reserves will become exhausted in 2034, and though President Joe Biden called for “protecting and strengthen­ing” Social Security last week, he offered no plan to do so.

A Social Security overhaul is also particular­ly difficult because of a divided Congress. Any overhaul of Social Security would require bipartisan support.

What can Social Security beneficiaries do to avoid taxes?

Plan to reduce your provisiona­l income.

“Provisiona­l income includes every type of income, from a job, IRA distributi­on, rental income, dividends, interest,” Gilberti said. “One of the only things that doesn’t count is Roth IRA distributi­ons.”

If you don’t already have a Roth IRA, consider converting some of your 401( k) or traditiona­l IRA if your tax bracket is low to a Roth IRA before retiring. You would pay ordinary income tax on those conversion­s, but it might be worth it.

“We also recommend doing those Roth conversion­s, if you can, by 63 ( years old) because your Medicare premium, which will be taken out of your Social Security check, depends on your income from the last two years,” Gilberti said.

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