Smart SpendingSmart Spending

Should Social Security be taxed?

About a third of Social Security recipients pay federal income tax on a portion of their benefits. Is that fair?

By MSN Money Partner Jul 10, 2012 12:49PM

This post comes from Jim Wang at partner blog Bargaineering.

 

After a post a few weeks ago about reading your Social Security statement, reader "J. Shoe" asked the following question:

Just trying to find out if it is true that any Social Security benefits you start taking are taxed starting at 50% of the money you receive. So that if you take 5K from SS in one year, they put a tax on 2.5K of that money. Can that be real and is there a link to see this horrific scam? It's bad enough they borrow from SS without the intention of paying it back, but this crazy.

Image: Taxes (© Thinkstock/SuperStock)I don't see how it's crazy, but I also didn't fully understand how Social Security benefits are taxed. For more information, I turned to Publication 915: Social Security and Equivalent Railroad Retirement Benefits (.pdf file), which is the IRS document that explains everything.

 

Are your benefits taxable?

Add up all the benefits you received, which is in Box 5 of your Form SSA-1099. Take half of that amount and add it to your taxable pensions, wages, interest, dividends and other taxable income. Then add any tax-exempt interest income, such as from municipal bonds or savings bonds. (Post continues below.)

Now compare that number with the base amount for your filing status (these are 2011 figures):

  • Single, head of household, or qualifying widow(er) -- $25,000.
  • Married filing jointly -- $32,000.
  • Married filing separately (living apart) -- $25,000.
  • Married filing separately (living together at any time during the year) -- $0.

If your total is less than the base amount for your filing status, you are not taxed on any portion of your benefits. If your number is more than the base figure, you'll be taxed on up to 50% of your benefits. If your base number is greater by a significant amount -- $9,000 more for single, head of household and qualifying widow(er) or $12,000 more for married filing jointly -- then you'll be taxed on up to 85% of your benefits.

 

The Social Security Administration says that about a third of recipients pay federal income tax on a portion of their benefits.

 

Should Social Security benefits be taxed?

I don't think so. When you make (forced) contributions, those amounts are deducted from your income but you still pay income taxes on them. When you get disbursements from the SSA, you can be taxed on up to 85% of your benefits, which means you're getting a 15% discount, but it's on contributions that were already taxed when you made them.

It's a little messy because you get more out of Social Security than you put in, but you were taxed going in, so should you be taxed going out? It's like making a contribution to a Roth IRA and then being taxed on the back end too.

 

More on Bargaineering and MSN Money:

Tags: Bargaineeringretirementretirement planningretirement savingsSocial Securitytax laws
< Back to Smart Spending
User Picture
Write a comment...
994Comments
marensman
Jul 11, 2012 1:04AM
avatar
I tell my kids not to rely on SS. it is a saftety net not a retirement. In fact, unless congress wakes up and fixes it it will not be there for my kids at all!
Robert H. Raymond (Rockman577)
Jul 11, 2012 12:58AM
avatar
I think the people in congress, supreme court, ant the president/vice president should not receive any income and never receive a pension of any kind as they do not deserve it. we have no government that obeys the constitution of the United States.
Starsailing
Jul 11, 2012 12:55AM
avatar
Repubs/banksters/wallstreeters have been trying to crash Soc sec for years to get their hands on that money. Bush junior tried and tried and was defeated. Now repubs are enacting voter suppression laws against the elderly so they won't be able to fight off the rich getting hands on Soc Sec money! Republican Ryan plan specifically gets rid of Soc Sec and gets money into wallstreet. Seniors beware.
marensman
Jul 11, 2012 12:54AM
avatar
social security is a lot like Obamacare. it is a tax that buys insurance not benefits. collected benefits from that insurance is income in the eyes of the government.
Danny Ratliff
Jul 11, 2012 12:53AM
avatar
SS should pay interest on the money.  Hell im 57 and got no job now thank to the Goverment and Ford Motor Co. Use to make around $80.000 a year Im Skilled Labor (Millwright)    Instead of building all the Goverment is doing is sending our jobs some where else SO what money I have made thats been held back from me should be collecting interest not being TAXED!   
Momoffive56
Jul 11, 2012 12:51AM
avatar
No, Social Security should not be taxed because you already paid a tax on that money.  The government is double dipping with our hard earned money and that should not be allowed to happen.  If anything Social Security benefits should be increased so people aren't living in poverty if all they have is Social Security.
The government takes and takes from the American people but we do not get the benefits like the illegal immigrants do. This is wrong.  
ovcmnrjr-jrum12
Jul 11, 2012 12:51AM
avatar

Taxed for what we've already been taxed on.Hell no.I'd revolt.Can someone please remove Obummer from office.

Tax and spend the liberal way.Always has been and always will.

SpiritualGiant
Jul 11, 2012 12:51AM
avatar
No! They should not! These folks have paid their dues to society and they deserved to be honor and treated with dignity. The economy is so bad now and social security per person isn't that much. Why would you tax money they have paid into the system and the system has been using their monies to pay other people. What about the interest the government has made on the monies they have paid into the system? Will the government give that to them? No! And they shouldn't be taxed!
Someone
Jul 11, 2012 12:50AM
avatar

It is taxed if over a certain amount, most are at low income level.

J Doornik (jdoornik)
Jul 11, 2012 12:41AM
avatar
NO!!!!!!!!!!!!!!!!!!​!  Tax for being old enough to use the money you were taxed on?  My husband passed before using his--there was no refund.
Michael Doleski (Michael Doleski)
Jul 11, 2012 12:37AM
avatar
It doesn't really matter because the Jack **** Party that is trying to push on everyone the Health Care will be Taxed as well so taxing anything they want to tax we the America People do not have a voice.
lk2b8
Jul 11, 2012 12:31AM
avatar
got news 4ya'll...roths are rite around the corner...all us "rich"bastards that saved 4our retirement,the Dems won't be able 2keep their hands off...luv how the truly rich give up their citizenship&leave,wh​at a crock!!!!!
Frozen_Hell
Jul 11, 2012 12:31AM
avatar
Liberal Trash want things like this to happen to us.
Never Forget 9-11
Jul 11, 2012 12:29AM
avatar

  To be taxed on your SS contribution and then taxed again when you collect is double taxation which is supposed to be against the law or did Obama change that too?  Obama wants to raise capital gains taxes from 15% to 30% and dividend taxes from 15% to a top rate of 43.4%.and that's not to mention the other 19 new taxes that are in Obamcare.    So good luck being able to retire if this joker stays in office. So to answer the question  should SS be taxed I would say a resounding hell no!  Now is there any doubt this joker is a Socialist.

  To all thumbs down you need to get informed about Obamacare. There are no less then 21 new taxes in the bill. $500,000,000,000 will be taken away from Medicare. Medicare Advantage plans will go bye bye. I thought it was the Republicans who were pushing grandma off the cliff? We now know it's Obama and the Democrats. 

 You voted for Obama to prove you weren't racist now vote him out to prove you're not stupid.

Humble56
Jul 11, 2012 12:28AM
avatar

I am one of those 33% , paying 85% of my S.S. I'm not happy about it  but take consolation in realizing that my employers contributed 50% of my S.S. that i paid no tax on. 

Dave. H  

Humble56
Jul 11, 2012 12:28AM
avatar

I am one of those 33% , paying 85% of my S.S. I'm not happy about it  but take consolation in realizing that my employers contributed 50% of my S.S. that i paid no tax on. 

Dave. H  

sharriannie1234
Jul 11, 2012 12:22AM
avatar
I know elderly couples worth a million and much more, they are the first to bitch about not enough, social security should have means tests.
Buddy Tweedy (Budgy)
Jul 11, 2012 12:21AM
avatar

nuckles and mills. YOU and others on THIS board keep yourselves informed by READING,investigatin​g,exploring, and NOT being damn LAZY sitting before the great one eyed monster being eaten up by the INDOCTRINATING trash spewing forth from the monsters mouth.You are right.The REAL problem is The corrupt politicians,the super rich who bought, and paid for them through the VOTES of mainstream emotional IGNORANCE.And the Big banks that are making a ridiculous FORTUNE of damn unearned, exorbitant FEES daily.Politicians who have NO program just grid lock to offer to the DUMB, STUPID, IGNORANT,NAIVE,Elect​orate.Super rich who have NOTHING to offer the American people who has BUILT many nations to turn and HATE us.Banks who LEGALLY--ROB the American people through bail outs of the PEOPLES money then HOARD it while TURNING out OWN money AGAINST us.WE must SIGN for GOV loans and WILL catch economic HELL when we MISS a single payment.These SUPER GREEDY THEIVES are GIVEN our money.Cart blanche, no questions asked.No provisions to REPAY.I say once more.'Its absolutely astonishing how Americans who are HURT the MOST by these people.Keep sending those BACK to DC to CONTINUE leaving them BEHIND and HIGH TREASON by strengthening the ENEMY and BETRAYING their OWN people.

 

giveup mentioned GOD.Well--GOD says---"He who FAILS to provide for home FIRST.Is WORSE than an infidel. "Authorized" King James. First Timothy.Chapter 5---Verse 8  As such---- But if any provide not for his own,and especially for those of his own house,he hath denied the faith, and is worse than an infidel.

 

While you are at it.Read,and STUDY Romans First and Second chapters .Especially Chapter One. Verses 21 to 28

johnnie appleseed (soymilk)
Jul 11, 2012 12:17AM
avatar
Social Security is a tax.  It's used to fund every sole source, no bid, cost plus contract in government for every political buddy that Congress and the Administration can support- both Democrats and Republicans.  Salary tax withholding is a tax also.  I don't want to hear another moron politician say that 50% of the population pays no taxes.  In fact, most people I know pay more in withholding tax so they are not faced with a big tax bill on April 15. Those that pay taxes on dividends, stock options, bonuses, capital gains pay taxes after the fact not up front like most middle class families.
militaryman73
Jul 11, 2012 12:16AM
avatar
uh......hell no x 2!!!!!!!!!
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

RELATED ARTICLES

DATA PROVIDERS

Copyright © 2013 Microsoft. All rights reserved.

Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.

Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.

Japanese stock price data provided by Nomura Research Institute Ltd.; quotes delayed 20 minutes. Canadian fund data provided by CANNEX Financial Exchanges Ltd.

ABOUT SMART SPENDING

Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.

LATEST BLOG POSTS

12 money lessons from the new 'Star Trek'

Money lessons are where you find them. Use these tips to live long and prosper.

VIDEO ON MSN MONEY

TOOLS

More
MSN Mobile: Go to msn.com in your phone's browser.

BLOGS WE LIKE

MUST-SEE ON MSN