Every year, more Social Security recipients pay taxes on their benefits. If you haven’t started claiming your benefits yet, you too will probably have to pay taxes on them. However, there is little you can do to avoid it.
Our government passed a law taxing Social Security benefits back in 1984.
If you were a single person with a combined income between $25,000 to $34,000, you could end up paying taxes on up to 50% of your Social Security Benefits. This also applies to married couples filing a joint return with a combined income between $32,000 to $44,000.
That was bad enough, but then they passed another law in 1993 that took it to another level.
They started taxing up tp 85% of benefits for:
- Single people with a combined income in excess of $34,000.
- Married Couples filinf a joint return with comfined income in excess of $44,000.
The formula for “combined income"
Your Adjusted Gross Income
+ Nontaxable Interest
+ ½ of Your Social Security Benefits
= Combined Income
Even tax-free interest from Municipal Bonds is included in the equation.
Why are more people paying taxes on their Social Security benefits than ever before?
The thresholds for Combined Income were never index to inflation.
The income thresholds for Single and Married Couples have been the same for 30 – 40 years. People usually increase their income every year, even in their retirement. And as their income goes up, more people exceed one of those thresholds, and end up paying taxes on their benefits.
When the law was passed starting the taxations in 1984, less than 10% of recipients had to pay taxes on their benefits. And today, it's more than 50%. The percentage of recipients paying taxes on their benefits will continue to rise if they leave those thresholds the same for Single people and Married Couples.
The only thing you could do to not have to pay taxes on your Social Security benefits would be to keep your Combine Income under $2,000 to $3,000 per month. For many people that would be impossible to do and maintain the standard of living they have become accustomed to. That being the case, just accept the fact that you will pay taxes on your Social Security benefits.