Many people think they “paid for” their Social Security benefits and then it is double taxation to pay again. Not according to Social Security
“In 1993, SSA’s Office of the Chief Actuary estimated that the payroll tax contributions of current and future workers would equal less than 15% of the present value of their lifetime benefits (Goss 1993). Therefore, if the ratio of lifetime contributions to benefits is less than 15%, then up to 85% of benefit income can be taxed without risk of double taxation.”
Of course this math works for everyone, but Congress saw fit not to apply it to all income levels.
Taxation of up to 50% of benefits began in 1983 (employees pay 1/2 the payroll tax) and was later raised to 85%, the extra amount collected in taxes goes to fund Medicare.
The income at which taxation begins is not indexed for inflation so over time more seniors will be paying income taxes. In 1984 10% of beneficiaries paid income tax on a portion of their benefits. Today more than 52% pay income tax on their Social Security benefit.
Categories: Social Security