The number of seniors having to pay taxes on their Social Security benefits is rising, and retirees shouldn't underestimate the effect of those taxes on the money they have to live on.
That's according to The Senior Citizens League, which cited statistics from the Congressional Budget Office showing that in 2005, 39 percent of Social Security beneficiaries, or about 16.9 million people, were affected by the taxation of benefits.
Now, however, that number has grown to 56 percent, according to a survey by TSCL, which estimated that those who had to pay taxes on a portion of their Social Security benefits during the tax season that ended April 15 now totals about 30 million people.
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While some of the increase is due to the growing numbers of baby boomers retiring and filing for Social Security, another factor is that the income thresholds used to determine whether someone will be taxed on benefits are fixed, not indexed to inflation.
Social Security benefits were exempt from tax until 1984. And the level at which taxes become due today is proportionately far lower than it was when the tax went into effect.
According to TSCL, up to 50 percent of benefits are taxable if income is between $25,000–$34,000 (single) or $32,000–$44,000 (joint return). When income exceeds $34,000 (single) or $44,000 (joint), up to 85 percent of benefits are taxable. If the tax thresholds were subjected to the same adjustments as tax brackets, the group says, the $25,000 threshold in 1984 would be about $56,963 in today's dollars, and $32,000 would be $72,912.
"When the tax on benefits was enacted, Congress sold it to the public by saying it would affect higher income Social Security recipients. But today $25,000 is only slightly more than two times higher than the federal poverty level," Ed Cates, chairman of TSCL, said in a statement.
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