February 22, 2022
Nearly half of all households receiving Social Security benefits can pay tax this year on part of their benefits, according to a national survey by The Senior Citizens League (TSCL). “To make matters worse, the study shows that retired and disabled taxpayers are more uncertain than ever about their tax liability this year,” said Mary Johnson, a social security analyst for The Senior Citizens League.
About half of the survey participants (51 percent) said they did not expect to pay tax on their services. “It’s pretty much in line with what we expected,” Johnson notes. However, the other half were much more in disagreement than usual about whether their services would be taxable or not.
Early survey results show that less than a quarter of survey participants (24 percent) said they would certainly owe tax on their benefits, compared to the 47 percent who reported paying social security benefits in a survey conducted after the tax season, last year. fall. There is also considerable uncertainty about the potential tax on social benefits. About 42 percent of those who thought they would owe tax on benefits thought their tax liability would be higher than last year. However, 53 percent were not sure whether the amount would be higher or lower.
In 2020 became Congressional Research Service estimated that the average amount of federal income taxes owed on social security benefits would be about 6.6 percent of social security benefits. While the tax varies by income, the households affected were expected to pay an average of an estimated $ 3,211.
Unlike federal income taxes, income from taxation of Social Security benefits is secured by Social Security and Medicare Trust Funds. “Even more unlike other federal income taxes, Congress has never adjusted the income thresholds that tax social security benefits since the tax came into force in 1984,” Johnson notes.
The lack of adjustment has led to both an increasing number of social security beneficiaries paying the tax and a growing amount of their benefit being taxed. When the benefit tax became law, less than 10% of beneficiaries paid income tax on their benefits. In 2015 research by the Social Security Administration projected that as many as 56% of households receiving social security benefits will pay tax on part of their benefits in the coming years.
Up to 85% of social security benefits can be included in the taxable income of beneficiaries whose “provisional” income exceeds the income limit. Provisional income is determined by adding the adjusted gross income plus otherwise tax-free income plus 50% of social benefits. (AGI + tax-free income + 50% of social benefits = provisional income). Social security benefits are taxable for single files with a provisional income of more than $ 25,000 and married couples applying along with a provisional income of more than $ 32,000. “Had these income thresholds 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,” Johnson says.
The Social Security Trustees have estimated in Annual report 2021 that the Social Security Trust Fund will receive $ 34.5 billion in revenue from the taxation of social benefits in 2021, and it will jump to more than $ 45 billion by 2022. “The big jump is primarily due to the increasing number of new retirees with higher income and does not take into account the effects of the 5.9 percent cost of living adjustment received in 2022 because it affects taxes paid in the 2023 tax season, ”Johnson notes.
Johnson recommends that social security recipients remember to check the impact of this year’s COLA of 5.9% on next year’s estimated tax liability. “It may be preferable to have tax withheld all year round to avoid a big bill at the time of taxation or worse, an underpayment fine,” Johnson says.
Social security recipients can request to withhold money from social security benefits by submitting an application Form W-4V with the Social Security Administration requesting the withholding of 7%, 10%, 12% or 22% of their monthly benefit for tax purposes. Retirees can also have tax withheld from other income, such as IRA payments or a pension. Finally, some taxpayers may choose to send quarterly estimated tax payments to the IRS using Form 1040-ES.
The Senior Citizens League is working for the enactment of social security legislation that will adjust the income thresholds that tax social benefits. “This tax on benefits was never intended to affect low- and middle-income retired and disabled Americans,” Johnson says.
With 1.2 million supporters, The Senior Citizens League is one of the country’s largest non-partisan senior groups. Its mission is to promote and assist members and supporters, to educate and warn senior citizens about their rights and freedoms as U.S. citizens, and to protect and defend the benefits senior citizens have earned and paid for. The Senior Citizens League is a proud affiliate of The Retired Enlisted Association. Visit http://www.SeniorsLeague.org for more information.
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