Federal Tax on SS

12% tax bracket is a great place to be. I did some preliminary calculations yesterday and found if you are age 65 or older, the 12% tax bracket extends to an AGI of $150K (MFJ, both collecting SS)
 
On the topic of SS taxes, there's a flaw in how taxes are calculated for Social Security benefits that results in after-tax "net" SS benefits being "cut" every year and have been for years, but most people aren't aware of this.

The SS formula for determining how much of your SS benefits are taxed is NOT indexed to inflation, so that threshold has not increased since it was first introduced in 1983. For a single person, if your income combined with half your SS benefits exceeds $25,000, you have to pay income tax on up to 50% of your SS benefits. If it exceeds $34,000, you have to pay income tax on up to 85% of your SS benefits. $25K in 1983 is worth a lot more than $25K in 2018. Since your retirement distributions and SS benefits will be adjusted with inflation, but NOT the $25,000/$34,000 thresholds, a greater percentage of your SS benefits will become taxable as each year passes (for married filing jointly, the thresholds are $32,000/$44,000.) It's a built-in tax increase, reducing "net" SS benefits, hurting seniors further. The greater your combined income and SS/2, the more you will be affected by this up to a max of 85% of your benefits being taxed! It's absurd, and those thresholds should be increased to reflect inflation since 1983.

The ways it is, you should play it safe by estimating that 85% of your SS benefits well into the future will be taxable. More information about this can be found in these references:

www.fool.com

This 33-Year-Old Social Security Rule Is Wreaking Havoc on Seniors' Retirement Income | The Motley Fool

If lawmakers addressed this issue, millions of seniors would probably see an immediate boost in their annual income.
www.fool.com www.fool.com
www.foxnews.com

Double Whammy: the Taxation of Social Security Benefits

This week, Gail explains how the government takes away a piece of your Social Security benefits.
www.foxnews.com www.foxnews.com

I'm not one to support tax increases, but I would be open to paying higher FICA taxes to help shore up SS to prevent cuts to benefits and to prevent increasing the FRA for people within a decade of collecting SS.

At some point, the FRA will need increased for younger workers (perhaps those under 60 today) also as lifetime durations increase over time.
 
The legislation to adjust SS benefits to inflation was passed in 1972, and the first COLA was 1975.

The first legislation to tax SS benefits was 1983, effective 1984, and the increase to 85% for higher incomes 1993. In other words, the law makers knew exactly what they were doing when they did not inflation adjust those thresholds - it was deliberate.
 
GenXguy said:
On the topic of SS taxes, there's a flaw in how taxes are calculated for Social Security benefits that results in after-tax "net" SS benefits being "cut" every year and have been for years, but most people aren't aware of this.

The SS formula for determining how much of your SS benefits are taxed is NOT indexed to inflation, so that threshold has not increased since it was first introduced in 1983. ...
Click to expand...

Not a flaw at all. It was intentional so that eventually many/most would be at 85%.
 
GenXguy said:
I'm not one to support tax increases, but I would be open to paying higher FICA taxes to help shore up SS to prevent cuts to benefits and to prevent increasing the FRA for people within a decade of collecting SS.


As a retiree I would absolutely support higher FICA taxes. LOL
Click to expand...
 
Thank you to EVERYONE who posted...I'm am much more educated with the process and why things are the way they are. Quick follow up: Do most of you have fed taxes taken out of your SS payment automatically? Or do you make "educated guess" payments throughout the year? Or just pay when you file? Does one have any advantage over the other?
 
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I have my spreadsheet to figure out my taxes for the year. SS withholding is simply one way to hold some of the taxes that I need to pay. It is not an "educated guess" but rather actual calculation of my tax obligations for the year.
 
Car-Guy said:
Agree, agree, agree.... When I first heard this I was ecstatic. (well pleasantly surprised) but then I read the details. Can't trust anything anyone says anymore. Why not say something like, for many more, their SS won 't be taxed.

Again, those of us with a few extra dollars carry more of the burden.
Click to expand...

When I first heard this I assumed it was a big fat lie - it's a pretty safe bet these days to assume that.

It also cuts down on any disappointment that might otherwise crop up.
 
jimbohoward69 said:
Thank you to EVERYONE who posted...I'm am much more educated with the process and why things are the way they are. Quick follow up: Do most of you have fed taxes taken out of your SS payment automatically? Or do you make "educated guess" payments throughout the year? Or just pay when you file? Does one have any advantage over the other?
Click to expand...

We withhold nothing until December of the year. I generally take a large withdrawal withholding 99% of it. The only reason for 99% is it's the max Fidelity allows.
 
MRG said:
We withhold nothing until December of the year. I generally take a large withdrawal withholding 99% of it. The only reason for 99% is it's the max Fidelity allows.
Click to expand...
99% of what your estimated SS tax is/was for the year? I'm a tad confused...and how does Fidelity fit into this scenario? Do you keep a separate account that is designated only to pay your yearly SS tax? Sorry...just tryin' to learn.
 
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jimbohoward69 said:
99% of what your estimated SS tax is/was for the year? I'm a tad confused...and how does Fidelity fit into this scenario? Do you keep a separate account that is designated only to pay your yearly SS tax? Sorry...just tryin' to learn.
Click to expand...
The folks above who posted this are doing the 99% tax withholding by making IRA withdrawals at the end of the year.
 
GenXguy said:
Refer to the articles I referenced. So tax the poor, more, huh? :facepalm:

reference: Federal Tax on SS
Click to expand...
You don't understand our progressive income tax system, it seems.
I'm a higher income retiree, in the 24% marginal tax bracket, close to the 32% bracket if I'm not careful.
Poor people are generally in a way lower bracket...
 
GenXguy said:
Ridiculous comment. :uglystupid: I know all about it and have for many years.
Click to expand...
So, you know that lower income people pay less tax - often zero - on their Social Security than others do? That poorer people getting Social Security are paying less taxes on that income even than younger people of comparable incomes?
 
TheWizard said:
So your comment on tax the poor more was an exceedingly bright comment?
Explain further if you choose...
Click to expand...
See this link: Federal Tax on SS There are even articles linked to for reference.
NomDeER said:
So, you know that lower income people pay less tax - often zero - on their Social Security than others do? That poorer people getting Social Security are paying less taxes on that income
Click to expand...
See the link above. It should clear things up for people that don't understand. Too long for me to explain when it's all clearly stated in my earlier post.

If you don't believe it, provide a reference to the contrary.
 
GenXguy said:
See this link: Federal Tax on SS There are even articles linked to for reference.

See the link above. It should clear things up for people that don't understand. Too long for me to explain when it's all clearly stated in my earlier post.
Click to expand...
As we said in that thread, the goal is to get everyone on the same footing eventually, with 85% of their SS included in their AGI.
You do understand that, right?
 
TheWizard said:
As we said in that thread, the goal is to get everyone on the same footing eventually, with 85% of their SS included in their AGI.
You do understand that, right?
Click to expand...
lol You're asking me if I'm the one who understands when I'm the one who posted that info. And it's posted in THIS thread. lol

Federal Tax on SS

12% tax bracket is a great place to be. I did some preliminary calculations yesterday and found if you are age 65 or older, the 12% tax bracket extends to an AGI of $150K (MFJ, both collecting SS)
www.early-retirement.org www.early-retirement.org
There have been bills introduced to fix it going back some years, so some people in government do recognize the problem. Various other members on this forum have mentioned it as well.
 
GenXguy said:
lol You're asking me if I'm the one who understands when I'm the one who posted that info. And it's posted in THIS thread. lol

Federal Tax on SS

12% tax bracket is a great place to be. I did some preliminary calculations yesterday and found if you are age 65 or older, the 12% tax bracket extends to an AGI of $150K (MFJ, both collecting SS)
www.early-retirement.org www.early-retirement.org
Click to expand...
Looks like we're in agreement now with what Congress intended for SS taxation back in the mid 80s.
Good...
 
TheWizard said:
Looks like we're in agreement now with what Congress intended for SS taxation back in the mid 80s.
Good...
Click to expand...
Agreement? :2funny: As far as I can tell, you are completely missing the point of that post, and I haven't agreed with you on anything, yet. Refer to the earlier post - it really shouldn't be that difficult. I didn't write those articles, by the way. They are just references supporting my point, which hasn't been refuted.
 
jimbohoward69 said:
99% of what your estimated SS tax is/was for the year? I'm a tad confused...and how does Fidelity fit into this scenario? Do you keep a separate account that is designated only to pay your yearly SS tax? Sorry...just tryin' to learn.
Click to expand...
99% of the tax on all income. There's really no easy way to figure out the tax on SS separately from the tax on your pension, wages, capital gains, etc.

What people are doing is figuring out how much tax they'll owe on all income for the year and then waiting until December to pay it by taking a distribution from their tIRA and having all of it sent to the IRS (and state if needed).
 
GenXguy said:
See this link: Federal Tax on SS There are even articles linked to for reference.

See the link above. It should clear things up for people that don't understand. Too long for me to explain when it's all clearly stated in my earlier post.

If you don't believe it, provide a reference to the contrary.
Click to expand...
The problem is that the authors of the links that you attached are morons and don't understand what Congress intended to happen. .
 
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