Federal Tax on SS

[pb4uski]

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

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.

There is nothing to fix. It is working as designed and as it should be.

 

[GenXguy]

There is nothing to fix. It is working as designed and as it should be.

It appears many people are in disagreement with that viewpoint.

You mentioned what Congress had intended, but even if that were the case, do you think t hey always make the correct decisions? They are always having to update laws they previously passed.

 

[NomDeER]

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. 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.

This isn't really accurate. You don't have to pay income tax on up to to those percentages. Rather "up to" that percentage of income is "taxable income." That's a key distinction between paying taxes versus taxable income because you still have to apply the deductions (including standard deductions for most poor people and applicable additional deductions for being older) to the taxable income.

Plus, the "up to" is going to result in lower amounts if you are lower in the particular category as is explained here: How Are Social Security Benefit Taxes Calculated?

The reality is that if you are a poor person surviving primarily on Social Security, you will pay no taxes or close to no taxes on your Social Security. Even before the new deduction for people 65+, only about half of people receiving Social Security were paying taxes on Social Security. (That's why the new 6K deduction isn't going to benefit very many poor old people; it's going to benefit middle class old people.) I have a lot of issues with our tax system and how it often benefits more affluent people, but Social Security taxes are not a major place where poor people are being screwed.

 

[GenXguy]

This isn't really accurate. You don't have to pay income tax on up to to those percentages. Rather "up to" that percentage of income is "taxable income." That's a key distinction between paying taxes versus taxable income because you still have to apply the deductions (including standard deductions for most poor people and applicable additional deductions for being older) to the taxable income.

It's still going to be "up to" those percentages. So, it is technically accurate. I even ran it through ChatGPT:

"Yes — you’re right. Your statement is technically correct because you used the phrase “up to.”"

Also, the $6000 deduction is only temporary. If you're following this issue of the thresholds not being indexed to inflation, you would understand it becomes a bigger problem over time. That $6000 deduction will be history.

 

[NomDeER]

So tax the poor, more, huh?

It's still going to be "up to" those percentages. So, it is technically accurate.

Sure, it's technically accurate. And that accuracy is very relevant. It means that a lower percentage than the "up to" percentage will be applicable in the majority of cases. And that also makes it more likely that the Social Security will not be taxed or will not be taxed very much. And isn't your primary claim that poor people are being screwed by having to pay so much in taxes on Social Security? That simply isn't happening.

Also, the $6000 deduction is only temporary. If you're following this issue of the thresholds not being indexed to inflation, you would understand it becomes a bigger problem over time. That $6000 deduction will be history.

Yes, that $6000 will be history. The other deductions will not. Eliminating the $6000 deduction will generally not impact the taxes that poor people pay on Social Security, which is the group you purport to be concerned about. That is because most poor people already were not paying taxes on Social Security before the 6k deduction was added. As I said, even before this additional 6k deduction, half of people receiving Social Security were not paying taxes on their Social Security.

The 6k deduction generally benefits middle class people (as well as richer people who choose to withdraw from Roths during this period), not poor people surviving on Social Security. Are you now concerned that older couples with incomes of $150k (which doesn't even include the non-taxable portion of Social Security) eventually will lose their 12k in additional deductions? Are these the people you consider "poor" and are so concerned about? Personally, I'm all for eliminating that tax break and don't think it ever should have been adopted.

 

[GenXguy]

Sure, it's technically accurate. And that accuracy is very relevant. It means that a lower percentage than the "up to" percentage will be applicable in the majority of cases. And that also makes it more likely that the Social Security will not be taxed or will not be taxed very much. And isn't your primary claim that poor people are being screwed by having to pay so much in taxes on Social Security?

No, go back and read my post - the one I linked to multiple times. It never once uses the word "poor". Otherwise, you are making a straw man argument against something that wasn't stated in that post. It's about what amounts to an effective tax increase on social security benefits every year since the thresholds aren't increased with inflation. It's explained in detail in my earlier post. These people aren't all poor, but over many years, it will tax more and more of them more. All I'm suggesting is the same thing that various legislators have proposed in the past - to index them to inflation.

 

[Original Wally]

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.

Ditto. I track the div/int as it comes in, and how it is going in relation to prior years.
The goal is to keep the unknowns to a mimmum

 

[pb4uski]

It appears many people are in disagreement with that viewpoint.

You mentioned what Congress had intended, but even if that were the case, do you think t hey always make the correct decisions? They are always having to update laws they previously passed.

Congress decision was based on a recommendation from a notable committee that studied the issue of taxation of social security and recommended that the taxation of SS be aligned with the taxation of similar contributory benefits like contributory defined benefit pension plans, non-qualified life annuities and the like that do not tax basis. The SSA actuaries indicated that on average 16% of SS benefits received were basis and 84% was growth so 85% taxable became the target.

However, in order to get the votes needed for passage they had to make it more friendly for lower income recipients, so that is what they did. By not indexing the hurdles, eventually everyone will be at 85% so the concession to get the votes needed for passage will be gone, as it should be.

You just want to perpetuate a tax break for the poor that they never should have received to begin with.

 

[pb4uski]

...Personally, I'm all for eliminating that tax break and don't think it ever should have been adopted.

+1. The temporary 65+ deduction was premised on a view that there should be no taxes on SS which was a populist gambit to attract votes used by both parties that is intellectually corrupt.

 

[VanWinkle]

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:

https://www.marketwatch.com/story/people-who-saved-for-retirement-are-being-punished-by-social-security-taxes-2019-01-07

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

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

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.

Thank you for your sensible explanation of how the SS tax law is a built in tax increase every year due to inflation. Some people think it is fair and just that we continue to receive an increase in taxes each year we are retired with SS benefits.

 

[VanWinkle]

Congress decision was based on a recommendation from a notable committee that studied the issue of taxation of social security and recommended that the taxation of SS be aligned with the taxation of similar contributory benefits like contributory defined benefit pension plans, non-qualified life annuities and the like that do not tax basis. The SSA actuaries indicated that on average 16% of SS benefits received were basis and 84% was growth so 85% taxable became the target.

However, in order to get the votes needed for passage they had to make it more friendly for lower income recipients, so that is what they did. By not indexing the hurdles, eventually everyone will be at 85% so the concession to get the votes needed for passage will be gone, as it should be.

You just want to perpetuate a tax break for the poor that they never should have received to begin wit

No, go back and read my post - the one I linked to multiple times. It never once uses the word "poor". Otherwise, you are making a straw man argument against something that wasn't stated in that post. It's about what amounts to an effective tax increase on social security benefits every year since the thresholds aren't increased with inflation. It's explained in detail in my earlier post. These people aren't all poor, but over many years, it will tax more and more of them more. All I'm suggesting is the same thing that various legislators have proposed in the past - to index them to inflation.

These taxes are affecting the middle income couples much more severely than the poor. If 2 single SS earners live together, they get 50,000 to 68,000 before SS accelerates to 85% taxable. If they marry, it is reduced to 32,000 and 44,000 when SS becomes 85% taxable. Just one of several marriage penalties that show up in our tax code.

 

[MRG]

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.

Sorry to confuse.. its really simple.

We take our guesstimate out of our Fidelity account. Fidelity allows a max of 99% for a distribution to be taken in taxes.

We also have money at Vanguard that we take distributions from but have zero taxes withheld from those funds.

 

[Montecfo]

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...

Right. Actually poor people in America pay zero federal income tax.

 

[braumeister]

When people simply bicker back and forth, prolonging a thread beyond its usefulness, they are often left without an audience, making it even more pointless.

 

[target2019]

"Nearly 7% of the top 10% of earners also paid no federal income tax in 2025, typically by using large deductions, business losses, tax-deferred income, or municipal bond interest. About 0.4% of filers making over $1 million paid no federal income tax in 2022."

Interesting facts.

 

[TheWizard]

This isn't really accurate. You don't have to pay income tax on up to to those percentages. Rather "up to" that percentage of income is "taxable income."...

Technically, that percentage of your SS benefit is added into your Adjustable Gross Income.
Your Taxable Income gets computed later after deductions and certain credits are subtracted...

 

[Winemaker]

"Nearly 7% of the top 10% of earners also paid no federal income tax in 2025, typically by using large deductions, business losses, tax-deferred income, or municipal bond interest. About 0.4% of filers making over $1 million paid no federal income tax in 2022."

Interesting facts.

How could they get these statistics? If they didn't pay any income tax, how could they be a top earner? They didn't have any taxable income.

DW and I had income of close to $300k last year, and paid no tax to the Commonwealth of Pennsylvania. They don't tax pensions, distributions, SS, or RMDs.
I wish I could say the same for federal taxes.

 

[TheWizard]

It appears many people are in disagreement with that viewpoint.

You mentioned what Congress had intended, but even if that were the case, do you think t hey always make the correct decisions? They are always having to update laws they previously passed.

Quite correct that Congress can change laws at any time. They changed the law that allowed me to claim my SS Divorced Spouse benefit at age 66 and delay my own benefit to age 70.

But the taxability of SS up to 50% and then up to 85% of your benefit is different. The percentage of income tax proportional to your SS benefit actually gets fed back into the SS and Medicare systems; it's not general tax revenue. This tends to push out the time when SS will be unable to pay its benefit obligations in full.

Congress is kinda sorta on the hook to devise a solution to the SS funding crisis in the next six years or so. I think it's more likely that they will vote to discard the present 50% and 85% dollar thresholds and make 85% of everybody's SS includable in their AGI, as one prong of a complicated solution...

 

[audreyh1]

Another point: although temporary, the OBBBA senior deduction means that only 12% of the households, which are those at the upper end of the income range, will pay taxes on their SS benefits. 88% are paying no federal taxes on their SS benefits.

To me this means the poor and the middle class are not paying taxes on their SS benefits. The poor seniors were already paying 0. The middle class seniors may pay taxes on other income, but the extra senior deduction (which applies to all households 65+ regardless of receiving SS benefits) reduces taxes below what they would have otherwise paid on their SS benefits.

So I don’t get what all the griping is about other than that this is temporary. With SS running into a deficit before long it’s yet another strain on the SS system.

 

[MichaelB]

So I don’t get what all the griping is about other than that this is temporary. With SS running into a deficit before long it’s yet another strain on the SS system.

 

[pb4uski]

Another point: although temporary, the OBBBA senior deduction means that only 12% of the households, which are those at the upper end of the income range, will pay taxes on their SS benefits. 88% are paying no federal taxes on their SS benefits....

That is correct, but it assumes that the standard deduction, the additional standard deduction for over 65 and the new 65+ deduction are all applied to SS first and other income second so there is a little thumb on the scale in the results.

 

[audreyh1]

That is correct, but it assumes that the standard deduction, the additional standard deduction for over 65 and the new 65+ deduction are all applied to SS first and other income second so there is a little thumb on the scale in the results.

That’s right - that’s the magic wand/sleight-of-hand part.

 

[Dtail]

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.

I do this for my mom in Fidelity. It is kind of strange allowing 99% but not 100%.

 

[Dtail]

The folks above who posted this are doing the 99% tax withholding by making IRA withdrawals at the end of the year.

Yes for my mom, it is related to her RMD.

 

[GenXguy]

So I don’t get what all the griping is about other than that this is temporary. With SS running into a deficit before long it’s yet another strain on the SS system.

The $6000 deduction and elimination of WEP/GPO both added another strain to the SS system.