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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:

Jul 10, 2012 1:24PM
there should be absolutely no tax on social security, this is double taxation, we are taxed when they forcibly      take it out of our checks and then again when we draw it, no way should we be double taxed
Jul 10, 2012 5:02PM
Social Security IS a tax. The small income you get back from it should never be subject to taxation. Greedy bastards; if they could figure how to tax farting, they would!
Jul 10, 2012 2:53PM
For those of us that have paid into SS our entire working lives, there should be no taxes withheld.  For those that recieve SS and have paid NOTHING into the program, yes by all means tax them and place those taxes back into the program.  And for the politicians that allowed those that have never paid into the program to collect (just for votes), they should be taxed at 50% of their own income.
Jul 10, 2012 4:54PM
Not only "No!" but "Hell NO, Social Security shouldn't be taxed!" That money is removed from our checks every payday as part of our income tax--that money has already been taxed.  Then the IRS is going to have the nerve to try and tax a tax? That is sooooooooooo unconstitutional I don't even know where to begin.  It's legalized theft.  People worked hard all their lives for that money and now the government want s to tax it?  I have one word for the US government: REVOLUTION!
Jul 10, 2012 2:22PM
Hell No!!!!  I've paid enough taxes thru my 50 years in the work force.... 
Jul 10, 2012 2:31PM
no tax on social security. congress has destroyed good  programs with their greed.
Jul 10, 2012 2:32PM
Not only NO, But Hell NO. I didn't work my entire life to pay for illegal aliens parents to come to the U.S. and siphon off my benefits. Who comes up with this crap????
Jul 10, 2012 2:25PM
Absolutely not.  US citizens who have worked and placed portions of their income into a plan to provide for a degree of financial security should not be taxed on that amount of income.  Their efforts have reduced their respective burden on the federal government and future tax payers. 
Jul 10, 2012 2:46PM
The United States government is just one big SCAM. They come up with new laws to override the old laws so that they can legally steal money from us. We need a rebellion and take back our country and our government. Get rid of all the illegals and the illegal activity that is going on in the White House. We want our America back. No to any new tax law, take a pay cut politicians and put back what you are stealing.
Jul 10, 2012 1:42PM
2 years ago I converted to Roth.  For those years I had to pay tax on 85% of my SS.  One of many ways the IRS, representing our Federal Govt., is ripping off those of who have been paying their wages and enormous benefits for more than 50 years.
Tax SS?  Why, so the federal government can just piss it away.
Jul 10, 2012 3:18PM
I have always contended that we have the best of the worst government in the world, when are americans going to finally investigate and get a backbone and stand up to the very politicians that they have voted into office.  These jerks pay themselves, get free medical benefits for life and widows of the military service have to pay for medical services called medicare.  Even though 30 years ago we were promised medical for life.  These jerks promise, our husbands put their very lives on the line, many died and the widows reap what the congress and senate decide about them later in life when they really need it the most.  This is corruption in action in front of your faces.  This post will not be published but at least I can speak out and feel better because serving this country isn't what it is about, it is about serving a government that is corrupt.
Jul 10, 2012 3:11PM
For several years now, I have been retired on Soc. Sec. and it just pays the bills. ($13,000). I'm at/below the poverty level and I do NOT need more taxes. I do not like food stampt,but that seems to be the only way we can get by. I go to the store as needed - when the store in mind has a sale WITH discount coupons.  AS mentioned earlier, why do ILLEGAL persons have tax-free benefits and more when the ordinary working people have to struggle just to make ends meet ??? I have never made $30,000 / year and am paying for it now. > "slow" economy, lack of work and employers STILL laying off people and/or shutting down.  Have been looking for work, for several months and all I get is a temp/seasonal day or 2-weeks at a time. I'd love to take my grandkids fishing but can't afford a fishing license.  LIFE IS GREAT -  <for politicians]
I really don't think it's fair for the benefits to be taxed allow them to have every cent to live on, now a days it's becoming more difficult to live and try to make ends meet. Believe me people who collect Social Security are not living high on the hog and enjoying eating dinner out every night it's not happening. There has been two deaths with older Americans who died in there homes because they did not turn on the air conditioner in the window because they can't afford the electric to run it. We need to treat older Americans with much more respect and allow them to live in peace.
Jul 10, 2012 2:37PM

I say "No" on paying taxes on S.S. retirement income.  It is hard enough to survive in todays economy. Prices go up but the retirement check amount stays as first issued unless the government desides to give a bitty raise and then most of it is taken back because the Medicare premium go up! 

Jul 10, 2012 7:13PM

$32,000. base income for a couple before being  taxed. Are you fuc___ kidding me. How can a couple live that is retired on social security for $32000. Our governemt is so out of touch. It remimds me of a "Tale of two Cities". What a bunch of out of touch politicians we have runing this country. Most should be tarred and feathered an run out of Washington, DC.

Jul 10, 2012 2:53PM
While we argue about political preference back and forth, the politicians keep finding ways to get into our pockets. I say pay attention to the ones you elected to serve you and vote them out if they are inclined to go after you hard earned money. Time to wake up and pay attention!!
Jul 11, 2012 6:56AM
Hell NO!!!  Enough is enough.....let people who have worked their whole lives have a little break.   People who get S S  are mostly  people who need every penny they get.   Maybe Gov't. should stop their wasteful spending like all the money "obama"  spent on the solar eneregy companies almost one BILLION and growing.  They should give the S S a little raise which hasn't gotten a raise in TWO years,  I bet you forgot that or never even knew.  The Seniors are a huge voting block Washington needs to whatch out in November.
Jul 11, 2012 8:43AM

Social Security Benefits are 100% TAX taken out of every paycheck you ever got in the first place!!! THIS IS YOUR MONEY ALREADY!! THEY TOOK IT, HELD IT FOR DECADES, AND NOW THEY WANT TO TAKE MORE OF IT BEFORE GIVING SOME OF IT BACK??? NO F-ING WAY!!!


At what point do the people need to overthrow the corrupt government and start over AGAIN??


Jul 10, 2012 4:50PM
It is my understanding that Social Security was to be like our 401K Plan...our retirement funds.  In fact, we were promised that it would never be used for anything else.  I read up on the history of social security. Except...I don't understand how the government could take our retirement fund and use it to finance the Viet Nam War (Johnson administration) with a promise to pay it back with interest.  Since then nothing has been repaid, much less interest... The government has since passed thier "own" laws to continue to dip into our retirement fund.  Should we be taxed?  Heck NO!  Should the government pay us back? Heck YES!!  STAND UP FOR WHAT IS RIGHT!  It was never legal for the government to use our Social Security...NEVER!
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