Here’s how old people have had their Social Security income stolen since 1993


It is an often lamented fact that Social Security does not provide enough money to seniors to live comfortably. Of course, not being able to live on Social Security alone shouldn’t come as a shock to retirees, because those benefits were never intended to fully replace working wages. But even seniors who act responsibly and secure an income outside of Social Security often find that their benefits fall short for one major reason: they are taxed.

However, it is not just the fact that the benefits are taxable that is the problem. What’s also embarrassing is that the rules governing benefit taxes haven’t changed in years, and that’s just one of the reasons seniors on Social Security continue to lose purchasing power and struggle in retirement.

How Social Security Taxes Work

Many seniors are shocked to learn that their Social Security benefits are taxable. Whether these taxes come into play or not depends on interim incomewhich is the sum of non-social security income plus 50% of the annual benefit.

Image source: Getty Images.

For single taxpayers, a provisional income of $25,000 to $34,000 means there is the possibility of being taxed on up to 50% of benefits, while a provisional income above $34,000 opens the door to taxes on up to 85% of benefits. For those who are married and file their taxes jointly, these thresholds are somewhat higher, although they are also not doubled, potentially putting couples at a disadvantage. Married people with tentative incomes between $32,000 and $44,000 are at risk of paying up to 50% of their benefits, and above $44,000 that tax threshold rises to 85%, as c is the case for single people.

As if benefit taxes weren’t enough, the fact that these income thresholds have been in place for decades, while the cost of living has continued to rise, compounds the problem. In 1983, amendments to the Social Security Act established income thresholds for the initial taxation of 50% of benefits. In 1993, the Omnibus Budget Reconciliation Act established the upper threshold of 85%. But since then, no adjustments have been made to the aforementioned income limits, which means that older people have effectively been deprived of part of their benefits for the past three decades.

Here is another way of looking at things. An item that would have cost $1 in 1983 would cost $2.61 today, while an item purchased for $1 in 1993 would cost $1.80 today. As the value of the dollar has eroded since the interim income caps were established, seniors have had to pay taxes based on outdated measures of so-called wealth.

A single senior living today on an annual income of $35,000, for example, lives far from large, even in low-cost parts of the country. Yet, based on outdated income thresholds, that same senior would be subject to taxes on up to 85% of their Social Security earnings.

It is for this reason that legislators must consider changing income thresholds that have been in place for too long. Social Security recipients are eligible for an annual allowance cost of living adjustment, or COLA, to retain purchasing power when prices rise, so the concept of inflation adjustment is not new to the Social Security world. This same idea, however, needs to be applied to Interim Income so that older people on Social Security are allowed to keep more of the benefits they desperately need to survive.


About Author

Comments are closed.