Tax on Social Security Benefits Providing More Trust Fund Revenue

Research Report

Tax on Social Security Benefits Providing More Trust Fund Revenue

December 9, 2002

Abstract

Since 1984, Social Security benefits have been partially subject to federal income tax. The share of benefits subject to tax depends on an expanded measure of income: adjusted gross income plus tax-exempt bond interest and one-half of Social Security benefits. Benefits are only subject to tax if this expanded income measure exceeds $25,000 (single) or $32,000 (married filing jointly). Above these thresholds, up to 50 percent of benefits are included in taxable income if the income measure is below $34,000 for singles or $44,000 for joint filers. For those with higher incomes, legislation enacted in 1993 increased the maximum inclusion rate to 85 percent of benefits; the 85 percent factor was intended to approximate the tax treatment of private pensions.

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