Half of all Social Security households can pay tax on benefits, but uncertainty is worse than ever, Senior League survey finds

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According to a national survey by the Senior Citizens League (TSCL), nearly half of all households that receive Social Security benefits could pay taxes this year on a portion of their benefits. “To make matters worse, the survey indicates that retired and disabled taxpayers are more uncertain than ever about their tax liability this year,” said Mary Johnson, Social Security analyst for the Senior Citizens League.

About half of survey participants (51%) said they did not expect to pay tax on their benefits. “It’s pretty much in line with what we expected,” Johnson notes. The other half, however, were much more conflicted than usual over whether or not their benefits would be taxable.

Early survey results indicate that less than a quarter of survey participants (24%) said they should definitely pay tax on their benefits, compared to 47% who said they would pay tax on benefits. Social Security in a survey conducted after tax season, the latest to fall. There is also considerable uncertainty about the potential amount of tax on social security benefits. About 42% of those who thought they would have to pay tax on benefits thought their tax liability would be higher than last year. Fifty-three percent, however, were unsure whether the amount would be higher or lower.

In 2020, the Congressional Research Service estimated that the average amount of federal income taxes owed on Social Security benefits would be about 6.6% of Social Security benefits. Although the tax varies by income, affected households had to pay, on average, about $3,211.

Unlike federal income taxes, income from the taxation of Social Security benefits is credited to the Social Security and Medicare trust funds. “Even more unlike other federal income taxes, Congress has never adjusted the income thresholds that subject Social Security benefits to taxation since the tax took effect in 1984,” Johnson notes.

The lack of adjustment has led to both an increasing number of Social Security beneficiaries paying tax and an increasing amount of their benefits being subject to tax. When benefit tax came into effect, less than 10% of recipients paid tax on their benefits. In 2015, research by the Social Security Administration predicts that up to 56 percent of households receiving Social Security benefits will pay taxes on a portion of their benefits in future years.

Up to 85% of social security benefits can be included in the taxable income of recipients whose “provisional” income exceed income limits. Provisional income is determined by adding adjusted gross income, plus otherwise tax-exempt income, plus 50% of social security benefits. (AGI + tax-exempt income + 50% of Social Security benefits = temporary income). Social Security benefits are taxable for single filers with provisional incomes over $25,000 and married couples filing jointly with provisional incomes over $32,000. “If these income thresholds had been adjusted for inflation since 1984, the $25,000 level today would be around $68,400 and the $32,000 level would be $87,550,” says Johnson. .

Social Security trustees estimated in the annual report 2021 that the Social Security Trust Fund will receive $34.5 billion in revenue from the taxation of Social Security benefits in 2021 and that will grow to more than $45 billion for 2022. “This big jump is primarily due to the number increasing number of new retirees with higher incomes and does not take into account the impacts of the 5.9% cost-of-living adjustment received in 2022, as this affects taxes paid in the 2023 tax season,” notes Johnson.

Johnson recommends that Social Security recipients remember to check the impact of this year’s 5.9% COLA on next year’s estimated tax liability. “It may be better to have tax deductions throughout the year to avoid a big bill at tax time or worse, an underpayment penalty,” Johnson says.

Social Security recipients can request that money be withheld from Social Security benefits by depositing Form W-4V with the Social Security Administration, requesting that 7%, 10%, 12% or 22% of their monthly benefit be withheld for tax purposes. Retirees may also have taxes withheld from other income, such as IRA withdrawals or a pension. Finally, some taxpayers may choose to send quarterly estimated tax payments to the IRS with Form 1040-ES.

The Senior Citizens’ League is working for the passage of Social Security legislation that would adjust the income thresholds that subject Social Security benefits to taxation. “This benefit tax was never intended to affect low- and middle-income American retirees and disabled people,” Johnson said.

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With 1.2 million supporters, the Senior Citizens League is one of the largest nonpartisan seniors groups in the country. Its mission is to promote and assist members and supporters, to educate and alert older adults about their rights and freedoms as American citizens, and to protect and defend the benefits that older adults have earned and paid. The Senior League is proud to be affiliated with the Association of Enlisted Retirees. To visit http://www.SeniorsLeague.org for more information.

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