Will The Social Security Benefits of One in Five Older Adults Become Taxable For First Time In 2022?
By Edward Cates, Chairman of the Board, TSCL
About one-out-of-five Social Security recipients whose incomes are so low that they never had to pay taxes on their Social Security benefits before are worried that their benefits may become taxable for the first time this coming tax season, according to TSCL’s latest Retirement Survey. In 2022 Social Security recipients received a 5.9% cost-of-living adjustment (COLA) which boosted average benefits by about $1,108 for the year. While not a huge sum, even an increase of this size may just be enough to push many older taxpayers over the income thresholds that trigger the taxation of their Social Security benefits.
Social Security recipients can owe taxes on a portion of their Social Security benefits when their “provisional” income is greater than $25,000 (individuals) or $32,000 (joint filers). Unlike income tax brackets which are adjusted for inflation, these thresholds are fixed and have never been adjusted since the law requiring the taxation of Social Security benefits was enacted in 1983. Consequently, a rising number of older taxpayers learn their Social Security benefits are taxable each year as cost-of-living adjustments increase Social Security income above that threshold. To determine whether Social Security benefits are taxable, the taxpayer’s adjusted gross income is added to one-half of Social Security benefits and certain non-taxable interest.
Early results from TSCL’s latest retirement survey suggest that this additional group who might pay the tax on their Social Security benefits for the first time in 2022 could potentially increase the number of those paying taxes on their Social Security benefits in 2022 from about 50% of Social Security households to as many as 58% according to TSCL’s latest Retirement Survey.
The good news is that tax experts are forecasting that income tax brackets, the standard exemption and exemption for age 65 are likely to see a record high adjustment for inflation which may offset much of the tax on benefits.
However, most almost all retirees feel that taxing Social Security benefits is a form of double taxation. TSCL feels that Congress should consider tax measures that would adjust income thresholds to allow Social Security recipients to keep more of their Social Security benefits. TSCL believes that this can be paid for by applying the Social Security payroll tax to all earnings rather than just the first $147,000 in earnings.
Do you think you will pay taxes on your Social Security benefits in 2022? Please let us know by taking TSCL’s new 2022 Retirement Survey. And thanks for your help!