In honor of Tax Day April 18th this year, we’re revisiting a topic we blogged about back in 2014: the taxation of Social Security benefits.
Social Security Act of 1983
Prior to 1983, Social Security Benefits were expressly excluded from federal income taxation under Treasury Department Tax Rulings. This all changed with the amendments to the Social Security Act in 1983. Following a recommendation by the 1979 Advisory Council and the Greenspan Commission, taxation of Social Security benefits became possible if you exceeded certain income thresholds. Beginning in 1983 if your combined income exceeded $25,000 for an individual or $32,000 for a married couple filing jointly up to 50% of your SS benefit was subject to your marginal tax rate. So for the first time in history SS benefits became subject to taxes.
Omnibus Budget Reconciliation Act of 1993
The 1993 Omnibus Budget Reconciliation Act (the OBRA) contained a provision that altered this rule and created a second threshold that would subject up to 85% of your SS benefit to taxation if your combined income exceeds $34,000 for an individual or $44,000 for a married couple filing jointly. The exact amount subject to taxation has a few moving parts to it so if you would like to know your exposure to these taxes, please contact us and we can discuss your specific situation.
Not Indexed for Inflation
One thing to note is that these thresholds are not indexed for inflation. They are still the same amounts as when they started in 1983 and 1993. This has the effect of capturing more and more people within the taxation net each year. In 1983 only about 10% of all benefit recipients were subjected to taxes on benefits, but currently that number is over 30% and will continue to rise.
These adjustments along with others were meant to extend the solvency of the SS system. The estimated time frame for severe financial trouble within the SS system has evolved with these changes. In the 1970s it was expected that SS would run short of money as early as August 1983, but current estimates predict that situation to now be somewhere after 2030.
For more information on this topic, please use the play button below. And as always, please do not hesitate to contact us if you have any questions.
Podcast: Play in new window | Download
Commenti