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Social Security: Isn't Taxing Benefits Unfair?

Millions rely on Social Security, but many don't realize it can be taxable until after they retire. Many believe that paying taxes on Social Security benefits that were themselves funded by payroll taxes is unfair.

Source: Phillip Ingham, Flickr.

In this installment of our Social Security Q&A series, Dan Caplinger, The Motley Fool's director of investment planning, answers a question from Donald, who notes that he has a real problem with how Social Security gets taxed and wants to know why he pays what he sees as double tax. Dan notes that although most people think of their benefits as being funded by the Social Security payroll taxes they pay during their careers, the government doesn't see it that way, with court cases holding that there's no property right to Social Security benefits just because you pay payroll taxes. As a result, the IRS can impose tax on those benefits as completely separate income, with as much as 85% of your benefits being added to your taxable income and taxed at your ordinary income tax rate. Dan concludes that those taxes might not be fair, but Congress would have to change the tax laws in order to stop those benefits from being taxed.

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

Read/Post Comments (14) | Recommend This Article (1)

Comments from our Foolish Readers

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  • Report this Comment On June 01, 2014, at 10:37 AM, djconklin wrote:

    The story leaves out why social security income is being taxed for some, but not all of us. The wording "it can be taxable until after they retire" doesn't make any sense.

  • Report this Comment On June 01, 2014, at 11:06 AM, earth2sterling wrote:

    Social Security was originated as Old Age, Survivors and Disability Insurance (OASDI). Note the word "Insurance", which means that people who put money in should get money out regardless of how much money they have. The word "Insurance" has enabled the government to tax those contributions all these years. To tax that money again when you get it back should be unconstitutional. The government should not be able to tax a tax.

  • Report this Comment On June 01, 2014, at 11:52 AM, kma wrote:

    im retired on ssa i make $721.00 month i can bearly stay alive on that money,if its not for my lady friend i would be homeless out on my ass,im 69 years old and taxing that money you mite as well kill me because i would die out in them streets,and i work al my life over 40years and payed my tax on time every year state and federal never was behind on them so tax me just be kind and shoot me ok thank you all a vet

  • Report this Comment On June 01, 2014, at 12:32 PM, LadySym wrote:

    65.00 a week+ for SS TAX has come out of my paycheck for about 40 yrs now. How can something that has already been taxed and taken away from us by an already shady company ,be taxed again? Its criminal. Either give us all of our money they have stolen from our paychecks over the yrs NOW and let us plan our own use of our own money, or stop threatening us with loss of SS, before we even get it.I am tired of living in a nanny state of mind, where gov acts as tho they must do everything for us. We work for 60 yrs and raise families on the pittance the gov allows us to have after they take their chunk.Then they want more! Its insulting.

  • Report this Comment On June 01, 2014, at 2:00 PM, greyhound44 wrote:

    After having paid maximum SS portion of FICA for 35 + years, I was able to collect maximum (reduced for age) SS retirement benefits at age 62.

    I have not paid a dime in income taxes on those.

    That will change next year when I have to take MRDs from my IRAs.

    Just last week I collected the numbers: as of 10 June 2014, I'll have received $146,537.40.

  • Report this Comment On June 01, 2014, at 2:06 PM, fantumofthewinds wrote:

    I have always wondered how our government gets away with taxing SSI and many other retirement funds ? and is their away to avoid these taxes ? I think its unfair , and Im sick of seniors being taxed to death . Live , work and play taxes till ya die. Its a insult

  • Report this Comment On June 01, 2014, at 2:18 PM, Taz wrote:

    Google the topic on and you will learn how SS is taxed. It depends on your total income and tax status. If above a certain level your SS begins subject to tax but the percentage is variable depending upon income.

  • Report this Comment On June 01, 2014, at 2:35 PM, GeaugaTruck wrote:

    Absolutely it's unfair. All retirement income from Social Security, pensions, and IRA's should be tax-free. We paid more than our share of taxes while we were working, unlike the over 50% who now pay no taxes.

  • Report this Comment On June 01, 2014, at 2:39 PM, GeaugaTruck wrote:

    The government claims that SS will run out of money, but you never hear that Food Stamps or Welfare will run out of money. One was paid for, the other wasn't.

  • Report this Comment On June 01, 2014, at 5:57 PM, a914er wrote:

    Obama campaigned & said he would get Congress to change tax law so anyone

    making less than $40,000 a year would

    not pay ANY income tax. He had a dem

    congress for 2 years but somehow this

    was another promise not fulfilled.

  • Report this Comment On June 02, 2014, at 9:09 AM, pepawjoe wrote:

    Anything, that's Polices, Laws, or Non-Mentioned, Political Secert's that are FOR the Government's OWN BENEFIT, are a simple happening in Washington DC, and the American Government's ACTIONS.

    "ALL's FAIR", except FOR the Political Party's Hierarchy, and their Corporate $$$'s !

  • Report this Comment On June 02, 2014, at 9:29 AM, JoeTheEconomist wrote:

    The 'tax' that you are talking about is a means-tested clawback of benefits. The revenue is returned to Social Security not put into the general fund.

  • Report this Comment On June 02, 2014, at 12:13 PM, yooperintx wrote:

    kma - As a single person, you would only be taxed on a portion of your SS benefit if all other income you have plus one half of your SS benefit exceeds $25k. Getting only $721 a month SS, you would need about $21,000 additional annual income to subject your SS benefit to income tax.

  • Report this Comment On June 02, 2014, at 10:41 PM, bamissfa wrote:

    well well

    another obama lie

    remember in 08 he ran on getting rid of taxes on our senior citizens?

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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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