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Social Security Tax: Will I Lose 85% of My Benefits?

Many people don't realize that Social Security benefits can be taxable. But exactly how much you'll pay in tax isn't quite as simple as it looks at first glance.

In the following video from our Social Security Q&A series, Dan Caplinger, The Motley Fool's director of investment planning, answers a question from Fool reader Andrea, who asks whether she'll lose 85% of her Social Security benefits to tax because she has a relatively high income. Dan notes that the biggest confusion about Social Security taxation is that you don't pay a tax rate of 85%; rather, up to 85% of your benefits can be added to your taxable income and taxed at whatever your prevailing rate is. But Dan also points out that Andrea is right to consider waiting to take Social Security until her income is lower, although there's no age limit at which Social Security benefits don't get taxed if the other conditions are met.

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Have general questions about Social Security? Email them to SocialSecurity@fool.com, and they might be the subject of a future video!


Read/Post Comments (4) | Recommend This Article (17)

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 May 05, 2014, at 7:23 PM, duudaa wrote:

    You have to move in with your kids. Then work under the table doing whatever you can. Or move to a third world country that won't tax you to death.

  • Report this Comment On May 06, 2014, at 8:41 AM, AHuston wrote:

    Invest and trade within a Roth IRA. No matter what your income is from the Roth. None it counts as income in determining taxes from SS income. Nothing to worry about and no need to force yourself to live in poverty to avoid taxes on SS retirment income.

  • Report this Comment On May 06, 2014, at 11:16 AM, ettucat wrote:

    What is truly unfair is the fact that a person making $50k a year will pay SS tax on their entire income, while someone making $500k will only pay on wages up to the current cap for SS taxes. Then, when it comes time to collect, that person who paid on their entire earnings will receive minimal benefit, and the high wage earner who only paid on the smaller amount of their wages, will receive the highest benefit allowed by the system. Why is there a cap? If the high wage earner gets the most benefit, they should have to pay on all their wages, just as the low end wage earner does.

  • Report this Comment On May 06, 2014, at 2:45 PM, BillR wrote:

    @ettucat

    You don't understand how SS works. The reason there is a cap on how much someone pays from income, is because there is a cap on how much it will pay back out.

    If the lower income person makes as just enough to hit the SS cap, then he and the person of a much higher income who makes way over the cap will get the exact same amount paid out on retirement.

    If you want them to pay in on their entire income, then you would need to remove the cap on how much it would pay back out when they start to collect. Doing otherwise just makes it another tax for redistribution of wealth.

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Dan Caplinger
TMFGalagan

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 Fool.com. 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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