In 1984, the United States Tax Code was updated to impose income taxes on Social Security beneficiaries who have annual incomes above a certain limit. When the law was introduced, only about one in ten recipients had to pay income tax; today that figure is almost fifty-six percent.
The Social Security Administration predicts that through 2050, the percentage of beneficiaries subject to income tax is expected to increase to fifty-six percent between 2025 and 2050.
No Social Security beneficiary will ever have to pay more than 85 percent of their benefits in taxes. Those who end up paying taxes usually have to do so because they earn an income from other sources.
These other sources of income typically take the form of “wages, self-employment, interest, dividends, and other taxable income that must be disclosed on your tax return.”
Income Limits and Tax Requirements
- You are obliged to file a tax return if: if ‘individual‘ and your combined income is between $25,000 and $34,000. Within this range, a Social Security beneficiary may be required to pay income tax on up to fifty percent of your benefits. After crossing the $34,000 threshold, the IRS can tax up to eighty-five percent of your benefits.
- If you joint return with your spouse, and your combined income is between $32,000 and $44,000, the IRS can tax up to fifty percent of your benefits. Above $44,000, up to eighty-five percent of your benefits can be taxes.
- Most married couples who file separate returns are taxed on their benefits by the IRS.
Source: Social Security Administration
Whether or not a senior or other Social Security beneficiary is dependent on their annual gross income. Combined income is calculated by adding up your annual gross income, non-taxable interest, and your Social Security benefits.
How do you know if you have to pay tax?
The Social Security Administration sends beneficiaries an SSA-1099 form each year showing the total amount they have received in benefits. By reviewing this figure and any other sources of income, a beneficiary can determine whether it owes the Internal Revanue Service any money for that year.
The IRS developed the Interactive Tax Assistant to help different groups understand whether they should pay taxes. For those on Social Security, they need your annual gross income and the information on the SSA-1099.