Ask the Advisor: April 2016

Ask the Advisor: April 2016

Why Are My Social Security Benefits Taxed? This Is Double Taxation!

Q: I’m a divorced retiree and I file taxes as a single household. Can you tell me why my benefits are taxed and how the income threshold that subjects Social Security benefits to tax is set? People who have adjusted gross incomes of $25,000 (individual) can barely cover living expenses, let alone taxes too. Is there anything I can do to reduce this tax?

A: The income threshold that subjects a portion of Social Security benefits to tax was first set by legislation in 1983. Before 1984 Social Security benefits weren’t taxed, but a financial crisis threatened Social Security in the early ‘80s providing the impetus for Congress to impose the new tax in order to beef up revenues. The tax increase was sold to the public as a tax on “high income” beneficiaries, and it was — in 1984. At that time only 10% of Social Security beneficiaries paid the tax. But today, it is different. During the 2015 tax season an estimated 56% of Social Security beneficiary households like yours owe federal income taxes on part of their benefit income, according to the Social Security Administration.

Unlike income brackets that are adjusted annually, the income thresholds that subject Social Security income to taxation are fixed. Because of this, the number of Social Security recipients who are hit by the tax has increased substantially over the years as incomes have grown.

In addition to a growing number of people affected by the tax, those who are affected pay a growing share of their benefits in taxes as well. The Congressional Budget Office estimates that 52 million Social Security beneficiaries paid 6.7% of their Social Security benefits as income tax in 2014, and projects that will rise in the future to 10% or more.

The income thresholds that subject benefits to taxation are based on your Modified Adjusted Gross Income, which includes half of your Social Security benefits and some tax - exempt income. The following chart illustrates the thresholds and the amount of tax on Social Security income.


Filing Status Modified AGI Taxable Portion Of Social Security
Less than $25,000 None
25,000-34,000 Up to 50% of benefit income
More than $34,000 Up to 85% of benefit income
Married, filing jointly
Less than $32,000 None
$32,000-$44,000 Up to 50% of benefit income
More than $44,000 Up to 85% of benefit income


The Senior Citizens League favors legislation that would adjust the thresholds, or repeal the tax altogether and replace it with other sources of revenue. If the thresholds were adjusted to today’s dollars the $25,000 (single) threshold would be about $57,107 and the $32,000 (joint) would be about $73,097.

For some tips on how to reduce taxes on your Social Security Benefits, here’s an article by Emily Brandon, author of Pensionless: The 10-Step Solution for a Stress-Free Retirement. Emily Brandon’s Planning to Retire Blog can be found at: