Four Reasons to Abolish the Social Security Benefits Tax

Brief Analyses | Taxes

No. 835
Thursday, September 01, 2016
by Pamela Villarreal

Presidential candidate Hillary Clinton wants to expand Social Security for the most vulnerable retirees—specifically, widows and widowers whose incomes fall dramatically after their spouse dies. What she has not mentioned, however, is repealing a tax that targets lower-income retirees who have worked low-wage jobs: the Social Security benefits tax.

Passed as part of the 1983 Social Security reforms, the benefits tax applies to a portion of Social Security benefits for single retirees with modified adjusted gross incomes (adjusted gross income minus tax-exempt interest) over $25,000 and married couples over $32,000. The Omnibus Budget Reconciliation Act of 1993 added a second tax tier for single retirees with incomes over $34,000 and married couples over $44,000. To calculate the tax liability:

  • Take one-half of an individual’s or couple’s Social Security benefits received in the tax year and add other taxable income (such as wage income or withdrawals from a tax-deferred retirement account).
  • Subtract the excluded income described above to get the total modified adjusted gross income; and
  • Subtract the standard or itemized deductions and personal exemptions, producing the amount of income subject to the benefits tax.

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