Why Half of Retirees Now Owe Taxes on Social Security

Photo by Ollyy / Shutterstock.com

Having Social Security taxes taken from your paycheck is bad enough. But for millions of Americans, the obligations don’t end there.

Half of retirees say they paid income taxes on their Social Security benefit income during the 2019 tax year, according to a survey by the Senior Citizens League.

Mary Johnson, a Social Security and Medicare policy analyst for the Senior Citizens League, notes:

“There was no change from previous years in the 50 percent of retiree households who report that they pay tax on a portion of their benefits, despite the 2017 tax reform law.”

As the league points out, the problem is likely to grow worse with time.

Income tax brackets generally are adjusted for inflation each year. But not since 1984 has there been an adjustment to the income thresholds that determine whether or how much of your Social Security benefits are taxable. That was the first year benefits became taxable.

How bad has the problem become since then? Initially, less than 10% of Social Security recipients were expected to owe taxes on their benefits. Now, Uncle Sam is reaching into the pockets of about half of recipients.

Even retirees with modest incomes can become ensnared in these taxes. As the league states:

“Up to 85 percent of Social Security benefits can be subject to taxation if an individual has a combined income of $25,000 and married couples filing jointly have a combined income of $32,000. Had income thresholds been adjusted for inflation, they would be about $62,902 for individuals and $80,515 for joint filers in 2020.”

Your combined income determines whether your Social Security benefits are taxable by the federal government and, if so, to what extent. For a complete definition of combined income, read “9 Social Security Terms Everyone Should Know.”

How to avoid Social Security taxes

You can’t avoid death and taxes, as the old cliche goes. But perhaps we can help you a bit with the latter.

For example, as we have reported, holding municipal bonds — which usually are viewed as tax-friendly — can backfire if you are trying to avoid paying taxes on Social Security income:

“A lot of people turn to municipal bonds as a way to lower their tax bill. Interest earned from these types of bonds typically is not subject to income taxes. However, municipal bond interest is included in the formula that determines whether you will pay taxes on your Social Security benefits.”

For more, check out “5 Ways to Avoid Taxes on Social Security Income.”

Another way to trim your tax bill is to live in a state that does not tax benefits. Learn more about these havens in “26 States That Don’t Tax Social Security Benefits.”

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
9 Products That Will Organize Your Home for Under $45

These clever Amazon finds can help transform a messy nest into the pristine home of your dreams.

These Are the 4 Best Medicare Advantage Plans for 2020

Medicare Advantage customers themselves rate these plans highest.

10 Things That Can Ding Your Social Security Payments

Here are 10 things that could mean less money in your pocket during retirement.

How to Prepare Your Finances for Retirement in 7 Steps

Here is how to get your finances in shape for your golden years, one step at a time.

Never Buy These 12 Things at a Thrift Store

Sometimes a great deal is not worth it — or, even worse, is dangerous.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
9 Mistakes Everyone Makes When Shopping on Amazon

Are you losing money due to any of these missteps?

7 Changes Coming to Social Security and Medicare in 2021

Recently, both Social Security and Medicare made some major announcements about benefits for 2021.

Can a Divorced Widow Claim Her First Husband’s Social Security Benefits?

The rules are complicated when it comes to eligibility for survivors benefits.

Can a Twice-Divorced Woman Claim Social Security Survivors Benefits?

Understanding survivors benefits rules is the key to getting the most from your benefit.

These Are the 10 Worst Cars for Depreciation

Two types of vehicles are especially likely to see steep plunges in value.

9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

10 Things I Always Buy at Trader Joe’s

From snacks to sweets to side dishes, stock your cart with these time-tested favorites on your next TJ’s run.

Longer Trips to This Type of Store May Raise Coronavirus Risk

An airborne-disease expert recommends exiting these stores within 30 minutes.

5 Ways Social Security Will Change in 2021

These adjustments will affect both workers and retirees in the new year.

8 Things You Should Buy at Restaurant Supply Stores

You don’t have to be a chef or a restaurant owner to shop here.

3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

19 High-Paying Jobs You Can Get With a 2-Year Degree

There are easy high-paying majors available in the U.S. — and no bachelor’s degree is required. We’re here to help you find easy degrees that pay well.

Stop Buying These 19 Things Online

The internet has changed how we shop. But for some things, you’re still better off buying the old-fashioned way.

Cut These 11 Expenses Now If You Hope to Retire Early

Like the idea of financial independence? Part of the FIRE equation is cutting costs.

27 Things You Should Never Pay For — and How to Get Them for Free

When you know the tricks, you can save big on all kinds of useful things that others pay for.

4 Tax Credits That Will Be More Generous in 2021

If you are eligible for these tax breaks, they will slash your federal income tax bill — dollar for dollar.

7 Tips for Building an Emergency Food Supply

A pandemic or natural disaster could leave you reliant on your existing emergency food supply. Is your pantry well-prepared for emergencies? Knowing what to stock up on for emergencies can be a difficult task and we’re here to help.

15 Things You Can Get for Free in December

December is here, which means it’s your last chance to take advantage of fabulous freebies in 2020.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.