Edward Cates, Chairman of the Board, TSCL
It’s one of our biggest pet peeves, and a lot of you share it — the taxation of our Social Security benefits. In fact, 57% of participants in recent TSCL surveys report that they are worried that their 2022 Social Security cost–of–living adjustment (COLA) will result in higher taxes this tax season. At least one–out–of–five survey respondents tell us that due to the historically high COLA last year, they may pay tax on their Social Security benefits for the first time this tax season.
According to a background brief from the Congressional Research Service approximately half of all Social Security beneficiaries owe income tax on a portion of their benefits and that number is rising. In 2020, the Congressional Research Service estimated that beneficiaries would pay about 6.6% of their Social Security benefits in federal income taxes — a portion TSCL expects to climb this year as well. This is yet another way that your Social Security benefits lose buying power — because you wind up having to pay more in taxes when your Social Security income grows.
TSCL feels this is double taxation and a gross inequity in our tax code that discriminates against older taxpayers. In fact, the tax on Social Security benefits is one of the most regressive aspects of the U.S. tax code because the income thresholds that determine whether benefits are taxable are fixed and haven’t been adjusted for inflation since the law was first enacted. That means, more older taxpayers pay the tax on their benefits each year. In addition, as COLAs raise Social Security benefit income, the taxable portion of benefits can increase even when other income stays the same.
Social Security recipients can owe taxes on their Social Security benefits when their “combined income” is greater than $25,000 (single filers) or $32,000 (couples filing jointly). Had these income thresholds been adjusted since the tax on Social Security benefits became effective in 1984, the $25,000 level today would be about $73,040 and the $32,000 level would be $93,491.
To end this double taxation, TSCL supports legislation that would adjust income thresholds and/or allow taxpayers to exclude some, or even all, of their Social Security benefits from gross income for tax purposes. TSCL is carefully watching the findings of our latest Senior Survey, which you can take online at https://seniorsleague.org/2023seniorsurvey/, and will be meeting with Members of Congress to convey our support for finding a solution to this growing tax inequity.
Sources: “Social Security Benefit Taxation Highlights,” Congressional Research Service, June 12, 2020.