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1 1 (December 20, 2019)

handle is hein.crs/govbgxu0001 and id is 1 raw text is: &~ ~ riE SE .$rCh &~ ~ ~ p\w -- , gn'a', goo mppm qq\ , q I aS 11LULANJILiN, December 20, 2019 Social Security Benefit Taxation Highlights Key Findings * In Novembeir 2019, the Social Secur-ity system pirovided almost $87 billion in monthly benefits to 64 million retir-ed wor-kers, disabled workers, and theii spouses, survivors, and dependents. * Since 1993, beneficiari es with income above ceirtain statutory thresholds are subject to federal income taxation on up to 85% of their Social Secur-ity benefits, S Around half of all Social Security beneficiari es do not pay federal income tax on their Social Security benefits, but the pr-opor-tion of beneficiari es who owe income tax on their- Social Secur-ity benefits is r-ising.* h The overall shar-e of Social Security benefits that will be paid as federal income taxes is pr-ojected to be 6.6% in 2020. It increases with income and is proijected to reach nearly 32% for taxpayer units with economic income over $1 million in 2020. * In 2018, the Social Security trust funds were credited with $35.0 billion from taxation of Social Secur-ity benefits, or 3.5% of the trust funds' total income. Also in 2018, income to the Medicaire Hospital Insur-ance trust fund fr-om the taxation of Social Secur-ity benefits was $24.2 billion, or 7.9% of the tiust fund's total income. * Three bills have been introduced in the 1 16 Congress that would either raise the income thresholds for taxation of Social Secur-ity benefits or eliminate taxation of Social Secur-ity benefits. B eXn e.fi s, WoC~R ~r ? Calculation of taxable Social Security benefits depends on the level of benefits and the level of non-Social Security income. Social Security beneficiaries whose provisional income is above one of two statutory thresholds pay federal income taxes on a portion of their Social Security benefits. Provisional income roughly equates to modified adjusted gross income plus 50% of Social Security benefits. * Taxpayers filing as single with provisional income less than $25,000, and taxpayers filing a joint return with provisional income less than $32,000, do not pay federal income tax on their Social Security benefits. * Taxpayers filing as single with provisional income between $25,000 and $34,000, and taxpayers filing a joint return with provisional income between $32,000 and $44,000, pay federal income tax on up to 50% of their Social Security benefits. * Taxpayers filing as single with provisional income greater than $34,000, and taxpayers filing a joint return with provisional income greater than $44,000, pay federal income tax on up to 85% of their Social Security benefits. * Holding benefits constant, as non-Social Security income increases, provisional income increases, and therefore the taxable amount of Social Security benefits increases. * Holding non-Social Security income constant, as Social Security benefits increase, the taxable amount of Social Security benefits increases. F'ed. °a b-r, :,-- Tax o, Taxakb,: Nocm.',i, Sec:ur' , :y The federal tax rate and the amount of federal income tax owed on taxable Social Security benefits are determined separately through the federal income tax system. They are based on the taxpayer's other taxable income and marginal tax rate. Revenue from federal income taxes paid on Social Security benefits is credited to the Social Security and Medicare Hospital Insurance (HI) trust funds. Around half of all Social Security beneficiaries do not pay federal income tax on their Social Security benefits. The Congressional Budget Office (CBO) estimated that 49% of Social Security beneficiaries were affected by the income taxation of Social Security benefits in tax year 2014, almost doubling since 1998, when 26% of beneficiaries were affected by benefit taxation. A 2015 Social Security Administration (SSA) analysis projected that more than 56% of Social Security beneficiary families will owe income tax on their Social Security benefits in 2050. The proportion is growing because Social Security benefits are indexed to wage growth and adjusted for inflation, whereas the provisional income thresholds used to determine the taxable amount of Social Security benefits are fixed by statute and not indexed for inflation or wage growth. The percentage of all tax returns with taxable Social Security benefits has grown from 7.4% in 1999 to 13.3% in 2016 (Figure 1, blue line). The taxable amount of Social Security benefits as a percentage of all Social Security benefit payments has grown from 19.5% in 1999 to 31.4% in 2016 (Figure 1, orange line). CBO estimated that the proportion will increase to more than 50% by 2046. ~fl:O~

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