(Washington, DC) – The percentage of retired households that expect to pay tax on their Social Security benefits has experienced a rare decline this tax season, but that appears to be due to a much higher level of uncertainty than usual ahead of this tax season according to a new survey by The Senior Citizens League (TSCL). “This could potentially mean lower than expected tax revenues for the Social Security and Medicare Trust Funds,” says Mary Johnson, a Social Security and Medicare policy analyst for The Senior Citizens League
Some 48 percent of participants in The Senior Citizens League latest survey, reported that they expect to pay income taxes on a portion of their Social Security benefits for the 2020 tax year. That’s down from 53 percent who reported paying income taxes on their Social Security benefits for the 2019 tax year. But that wasn’t the only change. Far fewer retirees also indicated that they would not pay tax on their Social Security benefits — 32 percent for 2020 tax year versus 41 percent for the 2019 tax year.
“This leaves 20 percent of survey participants who just aren’t sure if their Social Security benefits will be taxable this tax season or not, more than triple the 6 percent who were uncertain about the 2019 tax year,” Johnson says. The survey, which was conducted online from mid-January through February, had more than 864 participants.
This tax season is likely to be more uncertain for taxpayers of all ages due to the impact of COVID-19 on business closures, loss of income from earnings and wages, a temporary waiver of minimum distributions from retirement accounts, high medical costs for some people, confusion over tax treatment of working from home, and how stimulus payments and program benefits such as unemployment should be treated for tax purposes.
“If more retired taxpayers aren’t paying taxes on their Social Security benefits, that’s good news for their tax liability, but would also mean their adjusted gross income was lower than in 2019,” says Johnson. “And that could mean those households might be living too close for comfort to the federal poverty level,” she adds.
Unlike income tax brackets that are adjusted for inflation, the income thresholds that subject Social Security benefits to taxation have never been adjusted since Social Security benefits became taxable in 1984. When the law was first passed, less than 10 percent of all Social Security recipients were estimated to have incomes high enough to be affected by the tax on benefits. But today, even retirees with very modest incomes can be affected by the tax.
Up to 85 percent of Social Security benefits can be subject to taxation if an individual has a combined income of $25,000 or more, and married couples filing jointly have a combined income of $32,000 or more. Had income thresholds been adjusted for inflation, they would be $64,176 for individuals, and $82,145 for joint filers in for the 2020 tax year. “Combined income” is determined by adding one’s adjusted gross income, plus any tax - free interest income, and one - half of Social Security benefits.
The revenues from taxation of benefits are earmarked for funding Social Security and Medicare benefits. “Those revenues take on added importance for the 2020 tax year, as the coronavirus takes a significant toll on Social Security and Medicare payroll tax revenues,” Johnson says.
According to the Congressional Budget Office’s (CBO) recent baseline data for the Social Security Trust Funds, Social Security is expected to receive about $987 billion in payroll tax revenues in 2021. The CBO further estimates that the Trust Fund would receive $42 billion in revenues in 2021 from the taxation of Social Security benefits.
The Senior Citizens League supports legislation that would raise the income thresholds that subject Social Security benefits to taxation.
To learn more and participate in surveys visit www.SeniorsLeague.org.
With 1.2 million supporters, The Senior Citizens League is one of the nation’s largest nonpartisan seniors’ groups. Its mission is to promote and assist members and supporters, to educate and alert senior citizens about their rights and freedoms as U.S. Citizens, and to protect and defend the benefits senior citizens have earned and paid for. The Senior Citizens League is a proud affiliate of The Retired Enlisted Association. Visit www.SeniorsLeague.org for more information.