Who Started Taxing Social Security Income

Social Security History

Background Since a pair of 1938 Treasury Department Tax Rulings, and another in 1941, Social Security benefits have been explicitly excluded from federal income taxation. (A revision was issued in 1970, but it made no changes in the existing policy.) This changed for the first time with the passage of the 1983 Amendments to the Social Security Act. Beginning in 1984, a portion of Social Security benefits have been subject to federal income taxes.

The three Treasury Rulings (see below) established as tax policy the principle that Social Security benefits were not subject to federal income taxes. This was special treatment for Social Security benefits since most private pensions are partly taxable. In most private pensions, an amount of the pension equal to the contributions made by the worker are tax-free. The amount of such private pensions which exceeds the amount of the worker's contributions, is usually subject to federal income taxes.

A slightly different, and more complicated, way of saying essentially the same thing is that the portion of pension benefits not subject to taxation is that on "after-tax income." For a worker, his entire pay is subject to federal income taxes, including that part that is subject to Social Security payroll taxes, and so, in the sometimes confusing parlance of tax policy, this is said to all be "after-tax income." His employer, however, is allowed to deduct his portion of the Social Security payroll tax from his taxable income. So Social Security payments made by the employer are considered "before-tax income" (and hence, not taxable). So the value of the "before-tax income" received by the beneficiary (i.e., the employer's contribution) is potentially taxable. Or to say it the other way, only that portion of the worker's "after-tax income" on which he paid payroll taxes, is not taxable.

Yet another way of describing this idea is to use "exclusion ratios," which is how the Treasury Department defines the taxable portion of a pension benefit. In all of these ways of describing it, the basic idea is the same: the pension recepient is generally liable for taxes on that portion of his benefits that he did not himself contribute.

Treasury's underlying rationale for not taxing Social Security benefits was that the benefits under the Act could be considered as "gratuities," and since gifts or gratuities were not generally taxable, Social Security benefits were not taxable. It is likely that Treasury took this view owing to the structure of the 1935 Act in which the taxing provisions and the benefit provisions were in separate Titles of the law. Because of this structure, one could argue that the taxes were just a form of revenue-raising, unrelated to the benefits. The benefits themselves could then be seen as a "gratuity" that the federal government paid to certain classes of citizens. Although this was clearly not true in a political and moral sense, it could be construed this way in a legal sense. In the context of public policy, most people would hold the view that the tax contributions created an "earned right" to subsequent benefits. Notwithstanding this common view, the Treasury Department ruled that there was no such necessary connection and hence that Social Security benefits were not taxable.

Why Are Social Security Benefits Taxable? | The Motley Fool

About half of all seniors receiving Social Security will owe some amount of tax on their benefits this year.

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Whether you realize it or not, Social Security truly is an incredible program. Each month, it's doling out almost 64 million benefit checks that are ultimately being leaned on by more than 15 million retired workers to pull themselves out of poverty. These monthly payouts also go to the survivors of deceased workers and the long-term disabled, many of which might struggle to make ends meet without this guaranteed financial lifeline.

But what you might be surprised to learn as a retired worker, or perhaps a future retiree, is that your Social Security benefit may be taxable. Why, you ask? That's not a simple answer, so let's dig into some of the history behind why the tax on benefits was introduced, as well as discuss why (unfortunately) it's not going away anytime soon.

Social Security History

Myths and misstatements of fact frequently circulate on the Internet, in email and on websites, and are repeated in endless loops of misinformation. One common set of such misinformation involves a series of questions about the history of the Social Security system.

Q1: Which political party took Social Security from the independent trust fund and put it into the general fund so that Congress could spend it? Q2: Which political party eliminated the income tax deduction for Social Security (FICA) withholding? Q3: Which political party started taxing Social Security annuities?

THE CORRECT ANSWERS TO THE FIVE QUESTIONS Q1. Which political party took Social Security from the independent trust fund and put it into the general fund so that Congress could spend it? A1: There has never been any change in the way the Social Security program is financed or the way that Social Security payroll taxes are used by the federal government. The Social Security Trust Fund was created in 1939 as part of the Amendments enacted in that year. From its inception, the Trust Fund has always worked the same way. The Social Security Trust Fund has never been "put into the general fund of the government."

Most likely this question comes from a confusion between the financing of the Social Security program and the way the Social Security Trust Fund is treated in federal budget accounting. Starting in 1969 (due to action by the Johnson Administration in 1968) the transactions to the Trust Fund were included in what is known as the "unified budget." This means that every function of the federal government is included in a single budget. This is sometimes described by saying that the Social Security Trust Funds are "on-budget." This budget treatment of the Social Security Trust Fund continued until 1990 when the Trust Funds were again taken "off-budget." This means only that they are shown as a separate account in the federal budget. But whether the Trust Funds are "on-budget" or "off-budget" is primarily a question of accounting practices--it has no effect on the actual operations of the Trust Fund itself.

A2: There was never any provision of law making the Social Security taxes paid by employees deductible for income tax purposes. In fact, the 1935 law expressly forbid this idea, in Section 803 of Title VIII.

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Category: Income Taxes

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Posts Mislead on Biden's Role in Social Security Taxes - FactCheck.org

Posts on Facebook and Twitter suggest that former Vice President Joe Biden is responsible for taxes on Social Security, but those posts ignore the political history and mislead on the details. The posts also twist Biden's proposals on retirement contributions.

Posts on Facebook and Twitter suggest that former Vice President Joe Biden is responsible for taxes on Social Security, but those posts ignore the political history and mislead on the details. The posts also twist Biden’s proposals on retirement contributions.

A claim linking Joe Biden to Social Security taxes has been shared widely online, but it offers a misleading interpretation of how the taxes were established, Biden’s role and the vice president’s tax plan.

Text posts shared on Facebook and Twitter — where actor and wellspring of dubious claims James Woods garnered more than 45,000 retweets — make this claim: “Prior to 1983, social security was not taxable. Joe Biden voted successfully in favor of taxing 50% of social security. In 1993, Joe Biden was the deciding vote in raising taxes on social security from 50% to 85%. Now he wants to tax our 401k’s and IRA’s (page 78, Dems’ platform)”

That’s not the whole story. Biden was one of 88 senators who voted for a bipartisan bill in 1983 to tax up to 50% of Social Security for beneficiaries with income above a certain threshold. That vote came at a time when the Social Security trust fund for retirement benefits was running out of money.

In the early 1980s, President Ronald Reagan, with congressional leaders, convened a bipartisan commission to study the issue. In 1983, that commission issued a report that formed the basis for amendments to the Social Security program. Among the recommendations in the report was that benefits be taxed as income for recipients who had income over a certain threshold.

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IRS reminds taxpayers their Social Security benefits may be taxable | Internal Revenue Service

Tax Tip 2022-22, February 9, 2022 — A new tax season has arrived. The IRS reminds taxpayers receiving Social Security benefits that they may have to pay federal income tax on a portion of those benefits.

To determine if their benefits are taxable, taxpayers should take half of the Social Security money they collected during the year and add it to their other income. Other income includes pensions, wages, interest, dividends and capital gains.

If they are married filing jointly, they should take half of their Social Security, plus half of their spouse's Social Security, and add that to all their combined income. If that total is more than $32,000, then part of their Social Security may be taxable.

Benefits Planner | Income Taxes And Your Social Security Benefit | SSA

This Social Security planner page explains when you may have to pay income taxes on your Social Security benefits.

Some of you have to pay federal income taxes on your Social Security benefits. This usually happens only if you have other substantial income in addition to your benefits (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return).

Each January, you will receive a Social Security Benefit Statement (Form SSA-1099) showing the amount of benefits you received in the previous year. You can use this Benefit Statement when you complete your federal income tax return to find out if your benefits are subject to tax.

If you currently live in the United States and you misplaced or didn't receive a Form SSA-1099 or SSA-1042S for the previous tax year, you can get an instant replacement form by using your online my Social Security account. If you don't already have an account, you can create one online. To get your replacement Form SSA-1099 or SSA-1042S, select the "Replacement Documents" tab to get the form.

If you do have to pay taxes on your Social Security benefits, you can make quarterly estimated tax payments to the IRS or choose to have federal taxes withheld from your benefits.

When You Need to Pay Taxes on Social …

WebApr 4, 2022 · If your combined income exceeds $34,000, 85% of your Social Security income could be taxable. Married couples face tax on 50% of their Social Security benefit if their …

Must I pay taxes on Social Security benefits? · FAQ | SSA

WebFederal tax return as an “individual” and your “combined income” exceeds $25,000. Joint return, and you and your spouse have “combined income” of more than $32,000. If you …

Who added the tax on Social Security? - Quora

WebSocial security became taxable in 1984. The change in tax law was made in 1983 and signed by Ronald Reagan that same year. Interestingly enough, the formula (s) and …

Social Security History

The Official History Website for the U.S. Social Security Administration.

A: The Social Security Act was signed by FDR on 8/14/35. Taxes were collected for the first time in January 1937 and the first one-time, lump-sum payments were made that same month. Regular ongoing monthly benefits started in January 1940.

Q2: What is the origin of the term "Social Security?" A: The term was first used in the U.S. by Abraham Epstein in connection with his group, the American A-sociation for Social Security. Originally, the Social Security Act of 1935 was named the Economic Security Act, but this title was changed during Congressional consideration of the bill. (The full story has been recounted by Professor Edwin Witte who was present at the event.) Q3: When did Medicare start? A: Medicare was passed into law on July 30, 1965 but beneficiaries were first able to sign-up for the program on July 1, 1966.

Q4: Is it true that Social Security was originally just a retirement program? A: Yes. Under the 1935 law, what we now think of as Social Security only paid retirement benefits to the primary worker. A 1939 change in the law added survivors benefits and benefits for the retiree's spouse and children. In 1956 disability benefits were added.

Keep in mind, however, that the Social Security Act itself was much broader than just the program which today we commonly describe as "Social Security." The original 1935 law contained the first national unemployment compensation program, aid to the states for various health and welfare programs, and the Aid to Dependent Children program. (Full text of the 1935 law.)

Q5: Is it true that members of Congress do not have to pay into Social Security? A: No, it is not true. All members of Congress, the President and Vice President, Federal judges, and most political appointees, were covered under the Social Security program starting in January 1984. They pay into the system just like everyone else. Thus all members of Congress, no matter how long they have been in office, have been paying into the Social Security system since January 1984.

Don’t forget, Social Security benefits may be taxable | Internal Revenue Service

Tax Tip 2020-76, June 25, 2020

If they are married filing jointly, they should take half of their Social Security, plus half of their spouse's Social Security, and add that to all their combined income. If that total is more than $32,000, then part of their Social Security may be taxable.

The tax filing deadline has been postponed to Wednesday, July 15, 2020. The IRS is processing tax returns, issuing refunds and accepting payments. Taxpayers who mailed a tax return will experience a longer wait. There is no need to mail a second tax return or call the IRS.

When Did Social Security Become Taxable?

Category: Income Tax

Those eligible for social security benefits could be taxed because of the amount of money they make.

Retiring is a goal for many people after spending years in the workforce to prepare for this pivotal transition in life. With that comes planning for the future and applying for social security and retirement benefits.

But these benefits have regulations that people should make themselves aware of. People have to be within a certain age range to even apply for them and, under certain circumstances, they can be taxed. However, getting informed and managing your income can help ensure you reach your retirement goals.

Whether taxes are taken out of someone's social security benefits isn't a matter of age. Age determines when they can receive benefits. According to the IRS, social security benefits may be taxed if they're not a person's only source of income.

The amount of money someone needs to make for the benefits to be taxed varies. If a person is filing taxes as an individual and their overall income is between $25,000 and $34,000, they could pay income tax on up to 50 percent of their benefits.

For anything more than $34,000, a person could pay taxes on up to 85 percent of their benefits. The requirements change if they file taxes with a spouse or if they're married but file separately.

Verify: Did Biden vote to tax social security benefits? | wusa9.com

The Verify Team was sent an email, in which a viewer claimed that Joe Biden voted to tax social security benefits two times in his career. This is true.

Yes. In 1983, Joe Biden joined a bipartisan effort to make 50% of Social Security benefits taxable, for those above a certain income. This new revenue would go towards the Social Security Trust Fund.

In 1993, Biden joined a partisan effort to narrowly pass an "Omnibus Bill," mostly focused on lowering the deficit. Included in this large package was a bill that changed the level of taxable Social Security benefits from 50% to 85%. This new revenue would be directed to a trust fund for Medicare.

A viewer contacted the Verify team with multiple claims about Joe Biden's past votes as a senator, in regards to taxation of Social Security benefits. The beginning of this viewer's email read as follows:

Prior to 1983, social security was not taxable. In 1983, Joe Biden voted in favor of taxing 50% of social security - and it passed. In 1993, Joe Biden doubled down and was the deciding vote in raising the percentage taxed on social security from 50% to 85%.

The Verify Team reached out to Social Security experts, to not only confirm that Biden voted for these bills, but also to get context and nuance to these decisions. The Verify team also looked through Social Security Administration records, for a detailed history of Social Security legislation.

Social Security Income Limit 2023 - Social Security Intelligence

Category: Income Tax

Social security income limits can be confusing, and the stakes are high. Read this to understand the rules for working while on Social Security.

At one of my first speaking engagements, I heard a great story from one of the attendees. Her experience provides us with one of the best examples I’ve ever heard of how much the Social Security income limit can catch you by surprise.

A few years earlier, she’d been at her bridge club when the topic turned to Social Security. As she and the other card players chatted about the best way to leverage Social Security Benefits, the consensus around the table seemed to be that filing at 62 was the smartest thing to do.

She then told me she’d always wanted to buy a brand-new Toyota Camry. She figured that, once she started receiving Social Security income, it would be the perfect time to buy the car. She was still working, which meant her Social Security check would be extra income.

As she told the story to me, she bought the car and took out a car loan to do it. She planned to repay the loan using some of the income she expected to receive from her Social Security benefits since she filed for them.

Imagine her surprise, then, when a nasty letter from Social Security Administration showed up in her mailbox. The letter claimed she had been paid benefits that she was not eligible for!

How Are Social Security Benefits Taxed?

Category: Income Taxes

If your total income is more than $25,000 for an individual or $32,000 for a married couple filing jointly, you pay federal income on your Social Security benefits.

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If your total income is more than $25,000 for an individual or $32,000 for a married couple filing jointly, you must pay federal income taxes on your Social Security benefits. Below those thresholds, your benefits are not taxed. That applies to spousal benefits, survivor benefits and Social Security Disability Insurance (SSDI) as well as to retirement benefits.

Say you file individually, have $50,000 in income and get $1,500 a month from Social Security. You would pay taxes on 85 percent of your $18,000 in annual benefits, or $15,300. Nobody pays taxes on more than 85 percent of their Social Security benefits, no matter their income.

For purposes of determining how the Internal Revenue Service treats your Social Security payments, “income” means your adjusted gross income (line 11 of your 1040 form) plus nontaxable interest income plus half of your Social Security benefits. The IRS has an online tool that calculates how much of your benefit income is taxable.

All of the above concerns federal income taxes. Twelve states also tax Social Security to varying degrees: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Vermont, Utah and West Virginia.