RebelCapitalist: Financial Information for the Rest of Us | Taxation of Social Security Benefits

Taxation of Social Security Benefits

Feb 02, 2010 | By: Escortrider | Tags: social security, income tax

Before the 1984 tax year, Social Security benefits were not subject to federal income taxes. The legislation establishing taxation of these benefits (passed in 1983) established income triggers to protect the lowest income seniors from having to pay income tax on their benefits. These triggers work as follows: Add half your Social Security benefits plus ALL other income. If this amount is greater than $25,000 for single taxpayers or $32,000 for married filing jointly, then some of the S.S. benefits (up to 85% of them) are taxable.

Well, guess what? These triggers have NEVER been adjusted for inflation! My modest proposal is that it’s time to do so, as a way of helping the very lowest income seniors.

Of course, this would slightly reduce federal income, but the small extra amounts going into the pockets of low-income seniors would be an excellent stimulus because it would probably all get spent on basics. By contrast, the $250 payment that all social security recipients received in May, 2009 was not means tested and it went to plenty of people who didn’t need it at all. To compound the absurdity, the Social Security Administration already has on file the adjusted gross income of all benefit recipients 65 and older because they use this to determine the amount of the Part B Medicare premium.

Bottom line: While the $250 giveaway was designed to reduce political heat, it was basically irrational, but the more effective help for truly needy seniors in the form of inflation indexing of the income tax triggers goes unconsidered.