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Why the IRS Will Take More of Your Social Security Benefits

Social Security is a key part of most retirees' financial plans, and many are surprised to find out that in certain situations, Social Security benefits are subject to tax. But thanks to one little-known provision of the tax laws,moreretirees will pay taxes on Social Security in future years.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, explains how the rules governing Social Security taxation make it a certainty that more retirees will gradually pay higher taxes on their benefits. Dan notes that Social Security taxes are determined by adding up half your Social Security income plus most of your other income sources. If those amounts are above $25,000 for single filers or $32,000 for joint filers, you'll include part of your Social Security benefits as taxable income. But as Dan points out, those income limits aren't indexed for inflation, so more people will gradually land above those limits as income levels rise generally.

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Read/Post Comments (22) | Recommend This Article (18)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 09, 2014, at 10:33 AM, VegasSmitty wrote:

    A peoples revolution will stop the govt from robbing us all!

  • Report this Comment On February 09, 2014, at 10:56 AM, TommyBoyJr wrote:

    The President recently championed "myRA's"

    Which is a poor investment vehicle, BUT, it can work a much better way if it is harnessed the same way in the Social Security accounts.

    The President said we are not saving enough for retirement, well here is how the President can change that.

    If we are not saving enough AND we do not have enough in our Social Screwity accounts I have the perfect solution rather than the Myra.....



  • Report this Comment On February 09, 2014, at 12:01 PM, agsb02 wrote:

    This is the reason why the AARP is not an organization that protects seniors. The way I see it is this is a case of double taxation; taxed when I had a job before retirement and taxed again when funds are distributed.

  • Report this Comment On February 09, 2014, at 1:07 PM, airjackie wrote:

    Well it is a script right from AIG and we know where that retirement money went. Putting fear in people about SSI is gaining speed with the MYRA announced. Look SSI formed and put into law in 1935 was not to be the only retirement people should plan. The corporations with help from lawyers has shown every 25 years a major retirement saving companies goes out of business and people lose everything. Now with a Government protected saving you win the companies lose. The US lawmakers/Banks/Corporations work together on GREED and it takes a wise investor to out beat the crooks. Even the lawmakers have tried hard to privatize SSI so companies could steal.

  • Report this Comment On February 09, 2014, at 1:18 PM, newdelman wrote:

    I agree with TommyBoyJr but he hasn't gone far enough. As a person on social security, I have to pay income taxes on my social security benefits every April 15. In addition, I pay approx. $109 per month for medicare coverage. The costs will be going up because of the outrageous requirement of the Obamacare law, The are a few hidden taxes in that law that the Democrats didn't want anyone to know about until it became law.

    A number of years ago congress too money out of the social security fund for some reason. They never put it back. Now theya re saying that this "entitlement" is going bankrupt and they don't know what to do about it. I know what to to do. Congres must put the money back into the fund they stole it from.

  • Report this Comment On February 09, 2014, at 2:21 PM, RobAllen wrote:

    We amercan need to push Congress not to tax

    the S.S benefits any more since we already

    have been working and paying tax for +30

    years, if they want to they can increase the tax

    rate to flat 30% for the middle class, and for

    the rich who have been making +1 mil, they

    can pay flat 40%, then i am sure the government

    will be able to also cut down the deficits.

    Another thing the retirement age is 65, Congress

    need to force people not to work longer than 70

    to save millions of jobs for young generations.

  • Report this Comment On February 09, 2014, at 2:37 PM, surf wrote:

    Should all get behind this bill.

    Representative Massie introduced HR 3894, The Senior Citizens Tax Elimination Act to eliminate income taxes on Social Security benefits.

    “Taxing these benefits is an accounting sleight of hand that redistributes portions of the Social Security trust fund to other areas of government”

  • Report this Comment On February 09, 2014, at 9:35 PM, ammiey wrote:

    hope i'm not here to experience this. it's devestating to say the least. my husband works his body to the bone, (mill work) and deserves every cent he put in. he's been working since he was 18 and now is 59. sad, and scary.

  • Report this Comment On February 09, 2014, at 10:40 PM, tcmtz3 wrote:

    I started collecting Social Security this past July, after paying into it for over 48 years... and counting! 2012 was the first and ONLY time I exceeded the Earnings "cap" on FICA. My ENTIRE contribution for 2012 barely covered my first 3 monthly checks, while my employer's contribution covered another 3 months!

    If we Seniors were truly honest with ourselves and looked back at how much we ACTUALLY paid into the SSA Fund, we'd have to admit we're getting MUCH MORE than we ever paid in. For that reason alone, SS benefits SHOULD BE TAXABLE INCOME.

  • Report this Comment On February 10, 2014, at 6:44 AM, 12yogi wrote:

    Our legislators, Democrat and Republican see our SS contributions as a free checking account for their pork barrel and social programs. There is not one in our government, and particularly with this administration, willing to even suggest that SS be put back in its proper place, it takes away from their free checking account. Also it is ludicrous to put a cap on SS taxes. It should continue as long as a person works and regardless of how much they make. They will not address this either. We need politicians who are interested in helping the people who put them in office rather than their own self interests!

  • Report this Comment On February 10, 2014, at 7:20 AM, OkDaley wrote:

    Although Social Security could be considered income, it also has been accruing until you start collecting it.

    Any Congressional representative with at least some scruples should know that:

    A- the government has had use of this money already as a no interest free loan from you.

    B- They should have no right to tax that income which they have already made a good fortune from.

    Simply do the math since you started work. Consider the interest rates that the government charges.

    Should they then have the right to tax you on the base sum which they have already overwhelmingly profited from already.

    Ask your congressperson why they have not addressed this !!

  • Report this Comment On February 10, 2014, at 8:03 AM, thomas4211 wrote:

    You can thank Bill Clinton for the tax on your Social Security. You can count on HILLARY CLINTON to get more of your SS Check. The wife of that Sexual Predator,Bill Clinton will increase taxes on the Elderly,simply because there is so many of them !!! It will be a WindFall for the IRS and all those BLOOD SUCKERS IN CONGRESS !!!!

  • Report this Comment On February 10, 2014, at 8:15 AM, hpak1067 wrote:


  • Report this Comment On February 10, 2014, at 8:57 AM, DevonShire123 wrote:

    Why the IRS is taking more of your money: they are criminals. Government is a criminal enterprise.

  • Report this Comment On February 10, 2014, at 10:26 AM, sogole wrote:

    Tax when you make the money and tax you again when you spend the money.We need people in the government that are able to MANAGE money.

  • Report this Comment On February 10, 2014, at 12:14 PM, 1uncle wrote:

    You paid taxes on your salary when part of it was taken for SS benefits. This is double taxation.

    Clinton started this theft. Killary will take more. Taxes is what demos buy votes with.

  • Report this Comment On February 10, 2014, at 4:54 PM, snackbar wrote:

    If the government would just STOP giving away our tax dollars to other countries by the BILLIONS each year then the problem would be solved!

  • Report this Comment On February 10, 2014, at 5:20 PM, SkyeAZ wrote:

    The tax on Social Security benefits was implemented during Ronald Reagan's first term (in 1983) as part of the Greenspan Commission that reformed the program to restore long term solvency. Bill Clinton had nothing to do with this.

  • Report this Comment On February 10, 2014, at 7:03 PM, peterwolf wrote:

    Let's title future articles on this subject as follows:

    "What Income Won't the IRS Target in the Future?"

  • Report this Comment On February 11, 2014, at 3:48 AM, gadfly1000 wrote:

    Caplinger must have read my comment after the previous time he talked of the tax on Social Security pensions, only he got in wrong.

    It is not "going forward" that the tax falls on more and more people. The lack of indexation foro inflation of the thresholds has been going on for THIRTY YEARS! Dan is a johnny-come-very-lately to the subject.

    Second, unlike what somebody above write, the income tax collected on Social Security pensions DOES NOT get distributed to other areas of the government. BY LAW those tax receipts go directly back to the Social Security fund. So indexing for inflation should be done, but the money will have to be replaced.

    To the person who wants 3% interest on money contributed to the Social Security fund, it's actually receiving closer to 5%! That's the rate the bonds pay on the money everybody accuses Congress of "taking" from the fund.

  • Report this Comment On February 11, 2014, at 3:50 AM, gadfly1000 wrote:

    "Bill Clinton had nothing to do with this. "

    Wrong. Under Clinton the second threshold, which kicked in the tax on 85% of the pension, was enacted.

  • Report this Comment On February 11, 2014, at 7:02 PM, cvanhorn wrote:

    This tax began during the Reagan administration using $25,000/32,000 to determine if Social Security is taxable. That is, after adding in one half of Social Security benefit. Very Interesting.

    Although it may have been fair then, it is not now as the cost of living has doubled since then...go figure. Write to your legislators, AARP etc. Make some noise! The tax will probably never be repealed, BUT come on, how about indexing it for inflation. Dependent exemption is - Standard deduction is. This should be a simple fix by amendment

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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