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Will Your Social Security Benefits Be Taxed -- Again?
Our tax expert explains how Uncle Sam double dips into your Social Security.
User Comments
Posted 3:36 PM EST October 23, 2007
Posted by: richqw
Also, with respect to prior contributions on your behalf, the employee contributions were after-tax (meaning that you paid a tax on the contributions) and the matching employer contributions were before-tax. Therefore, one might say that your total contributions have been 50% taxable.
Posted 3:34 PM EST October 23, 2007
Posted by: richqw
It's amazing that the government can say that the SS system is in trouble, when they take back 15%-40% of the benefits as a tax. Using their logic, they could have 100% tax and still claim that they need to raise contributions to fix the system.
Posted 1:41 PM EST October 21, 2007
Posted by: joetaxpayer
It's not a 'retirement plan' and it's easy to see why we feel it is. Money is withheld each check, and there's some vauge promise to get money back when you retire. If the 13.4% were broken out to understand the survivor benefits and dosability portions, it may make more sense. At 45, if I become disabled, I get a payout, greater than had I put that money away myself. www.joetaxpayer.com
Posted 1:40 PM EST October 20, 2007
Posted by: 3rdof8
It is interesting to read comments by privatizing advocates. I have yet to read a critique that takes into account the disability and family insurance provisions of SS. I suspect that when one takes into account what it would cost (if at all possible) to purchase the same coverage as well as provide retirement benefits that the size of retirement benefit rationale would be much less appealing. This leaves aside the fact that SS is not intended to simply be a retirement income system.
Posted 11:26 AM EST October 20, 2007
Posted by: frankvdk
The most sensible comment I have read below is that there be some sort of indexing of the threshold numbers. Maybe one way to do that is to tie it to the SS taxable income cap which has been increasing every year. Even if we used 50% of the SS cap it would mean a threshold of almost $49,000 instead of the current $32,000. Maybe we should bombard Congress with email on this issue.
Posted 10:15 AM EST October 20, 2007
Posted by: newtbarrett
This isn't the worst part. If you take your SS at 62, you lose $1 of benefits for every $2 of earned income. So, wealthy people who live off dividends can take SS benefits early without losing a nickel. Folks who still need to work, but could benefit from the SS dollars, are penalized if they earn more than a very modest amount of income.What's wrong with this picture?
Posted 10:04 AM EST October 20, 2007
Posted by: newtbarrett
This isn't the worst part. If you take your SS at 62, you lose $1 of benefits for every $2 of earned income. So, wealthy people who live off dividends can take SS benefits early without losing a nickel. Folks who still need to work, but could benefit from the SS dollars, are penalized if they earn more than a very modest amount of income.What's wrong with this picture?
Posted 7:50 AM EST October 20, 2007
Posted by: DKP50
Part II> All this is Just another Reason to PRIVATIZE SS! Take your SS tax your paying, cut it in half and figure out what a 11% APY on it would be worth by Retirement time.. Mine would be DOUBLE what My SS projection w/b. And I'd have over $375,000 in Principal to pass onto my Hiers.. Instead it goes to some Smuck who paid in half as much....SS is A PONZI/ CON GAME..! ;>(
Posted 7:31 AM EST October 20, 2007
Posted by: DKP50
Apples Vs Oranges> Penions vs SS are 2 different animals. For what one gets for being in Public Office in a Pension is about one of the only things making it worthwhile to put up with all the abuse one gets while on the job and afterwards. Much like most of you who are getting Pensions Plus Your SS. Just make sure you Earn the Same Gross Income in Retirement vs your last yr of working and you'll be ok..
Posted 7:53 PM EST October 19, 2007
Posted by: joetaxpayer
rnaguy - of course you make a valid point. If SS benefits were simply 'taxable', the STD deduction and exemption would offset most of it, and then a 10% rate kicks in.The current gragh of marginal rates (as I link to in the first post on this story) create what can only be called a bizzare phanton rate, a single woman with $35K in IRA withdrawals paying 46.25%. That really make economic sense?
Posted 10:02 AM EST October 19, 2007
Posted by: rnaguy
Are you sure this is double taxation? Isn't one taxed on one's earnings after SS withholdings are taken out during employment? Then during retirement one is taxed on SS income, but 7.5% for SS is not taken out? It seems to me that each tax is taken once.
Posted 3:41 PM EST October 18, 2007
Congressmen and Senators do pay into the SS system. Trouble is, their pensions far outweigh their SS benefits, they pay no attention to the SS part.
A remedy (very slight, but a start) is to index the thresholds for taxability of SS benefits. If this had been done from the start in the 80's, the 32,000 and 25,000 thresholds would be double that by now.
A remedy (very slight, but a start) is to index the thresholds for taxability of SS benefits. If this had been done from the start in the 80's, the 32,000 and 25,000 thresholds would be double that by now.
Posted 11:37 PM EST October 17, 2007
Posted by: hcarba
I agree, let have the senate, house, and president be limited to social security benefits for their retirement, and you will see this thing fixed in a New York second. The budget would also be balanced, inflation below 2%, and the dollar would be the strongest currency in the world. Sadly, the American empire has started and will continue its steady decline.
Posted 11:03 PM EST October 17, 2007
Posted by: genorin
One more thing.This retirement money for these swindlers comes from 'General Funds.' They call this 'Our Tax Dollars at Work'. You and I pay for this. When they retire they will draw MILLIONS. ($$$$$). I will have to live to the age of 140 to get what they get in one year.
Thanks for listening guys!!
Posted 10:54 PM EST October 17, 2007
Posted by: genorin
Screwed AgainSocial Security would be a very good plan if only one change were made. Jerk the Golden Fleece Retirement Plan from under the Senators and Congressmen and put them into Social Security with the rest of us suckers. THEN SIT BACK........ and see how fast they would fix this double and triple taxation problem. BUT, how do we do this??
Posted 7:11 PM EST October 17, 2007
Posted by: joetaxpayer
maritalfinancier - you list all the obstacles, but offer no solution. In the example I offered, by withdrawing more IRA money than is needed (and I suggest Roth conversion for the excess) the SS recipient can avoid the phantom tax rate of 46.25%, instead paying 'just' 25% on the excess. To me, a 20% savings is worth a bit of effort, which, of course, you are welcome to dismiss.
Posted 4:38 PM EST October 17, 2007
Posted by: dearch5
Look. There is a very simple way to solve this problem. Have the senate and congress officials participate in our system. That is right, the very people that create laws to collect from you and I don't participate in 'the system'. If they did I have a feeling things would change.....in a hurry.
Posted 11:22 AM EST October 17, 2007
Posted by: hcarba
Too make matters worse, we are being taxed with inflation. The government is spending money on programs that it doesn't have (ie. they are printing it). This is playing a big role in why the dollar is no longer worth anything abroad. With our current taxation revenues, foreign investors don't believe we can continue spending the way we are on bankrupt programs such as social security and soon medicare/medicaid not to mention the defense budget.
Posted 8:49 AM EST October 17, 2007
Posted by: atpgary
Social Security is nothing more than a gov't sanctioned ponzi scheme designed to fleece the taxpayers. As one of the last baby boomers, I cannot collect my full benefit until age 67 even though I paid into this for over 20 years on the promise of receiving it at 65. Double taxation? I wouldn't expect anything else from a bloated, wasteful gov't that insists it knows how to spend our money better than us...
Posted 8:32 AM EST October 17, 2007
Posted by: Guyinnj10
You missed one major portion of taxation, The yr that SS taxes are taken from your pay they are not deductable from you gross income. Hence one pays income tax on a tax. Basically it's the same as other nondeductable taxes. For some on in the 28 % tax bracket think of the SS tax rate including the medical portion and add 28%... TRIPLE TAXATION
Posted 9:34 PM EST October 16, 2007
Posted by: maritalfinancier
ok joe we get the idea...unfortunately Roth Conversions are a complicated matter and must take careful consideration of present and future potential income, marginal tax rates, discounted cash flow, estate planing and yes...even divorce planning (maritalfinances.com)...that could easily outweigh trying to 'maneuver' out of any social security double taxation. The bottom line is...as has been so colorfully pointed out...the government is picking seniors pockets!Posted 8:43 PM EST October 16, 2007
Posted by: decker070
SS taxation might not be double taxation.SS is composed of tax proceeds, presumably prior to federal taxes being levied. Later, when these proceeds are routed back to us, it is taxed, seemingly just a (unfortunately mandatory) deferred taxation of some portion of our income.If, however, the income basis for federal taxes include that income which is subsequently routed to Soc Security, SS is composed of proceeds which have already been taxed,and the system does indeed involve double-taxation.
Posted 8:28 PM EST October 16, 2007
Posted by: joetaxpayer
Guys - this is not new. But depending on your circumstanses, there are ways to plan ahead and reduce the impact. I don't defend the system, I agree with you both 100%, but if I can help a client maneuver, adjusting their income, they can reduce the impact of this taxation of SS.
Posted 6:32 PM EST October 16, 2007
All politicians are prostitutes and can't wait to get paid twice for nothing. I have been paying taxes on 85% of my social security for so long I can't remember, and now although I always report my tax exempt muni bond income the damn IRS gets the numbers from my funds as if I were going to cheat them. Prostitutes get paid first and so does our corrupt government.
Posted 5:57 PM EST October 16, 2007
Posted by: joetaxpayer
Since many retirees have IRA RMDs as a large portion of their income, well timed Roth conversions before age 70, and further conversion to help time one's income can help avoid this tax in most years. (e.g. maybe 3 years of 4) My article expands on this strategy, and has some beautiful charts. JOE
Posted 5:54 PM EST October 16, 2007
Posted by: joetaxpayer
I wrote about this on my site a few months back, http://www.joetaxpayer.com/ss.html offers some illustrations supporting this article. For a single retiree who otherwise would expect to be taxed at 15%, there's the risk of being taxed as high as 46.25% for a portion of income. What is missed here is the offer of any strategy to avoid this taxation. (continued)
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