December 20, 2019Updated June 12, 2020
Social Security Benefit Taxation Highlights
Taxpayers filing as single with provisional income
Key Findings
In November 2019April 2020, the Social Security system provided
almost $87 over
$89.7 billion in monthly benefits to 64 million
retired .6 million retired
workers, disabled workers, and their spouses,
survivors,
and dependents.
Since 1993, beneficiaries with income above certain
statutory thresholds are subject to federal income
taxation on up to 85% of their Social Security benefits.
Around half of all Social Security beneficiaries do not pay
federal income tax on their Social Security benefits, but
the proportion of beneficiaries who owe income tax on
their Social Security benefits is rising.
The overall share of Social Security benefits that will be
paid as federal income taxes is projected to be 6.6% in
2020. It increases with income and is projected to reach
nearly 32% for taxpayer units with economic income
income over $1
million in 2020.
In 20182019, the Social Security trust funds were credited
with $35.036.5 billion from taxation of Social Security
benefits, or 3.54% of the trust funds’ total income. Also in
20182019, income to the Medicare Hospital Insurance trust
fund from the taxation of Social Security benefits was
$24.223.8 billion, or 7.94% of the trust fund’s total income.
ThreeFour bills have been introduced in the 116th116 th Congress
that would either raise the income thresholds for
taxation of Social Security benefits or eliminate taxation
of Social Security benefits.
How Does Taxation of Social Security
Benefits Work?
Taxable Social Security Benefits
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.
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.
Federal Income Tax on Taxable Social Security
Benefits
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.
Who is Affected by Social Security
Benefit Taxation, and By How Much?
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 13.37% in
20162017 (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 31.433.0%
in 20162017 (Figure 1, orange line). CBO estimated that the
proportion will increase to more than 50% by 2046.
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Social Security Benefit Taxation Highlights
Figure 1. Income Taxation of Social Security Benefits
How Important Is Benefit Taxation to
the Social Security Trust Funds?
The proceeds from taxing up to 50% of Social Security
benefits for taxpayers filing as single with provisional
income between $25,000 and $34,000, and taxpayers filing
a a
joint return with provisional income between $32,000 and
$44,000, are credited to the Social Security trust funds. In
2018, the Social Security trust funds were credited with
$35.0 billion from taxation of benefits, or 3.5% of the trust
funds’ total income. Under the intermediate assumptions,
the Social Security Trustees project that income taxes will
grow to 5.7% of income by 2028 and 7.4% by 2095.
Source: CRS calculations from Internal Revenue Service, Statistics of
Income Bulletin Historical Table 1 and Social Security Administration,
Office of the Chief Actuary, Trust Fund Tables, OASI and DI Trust Funds,
Combined, 1957 and later
and $44,000, pay federal income tax on up to 50% of
their Social Security benefits.
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Social Security Benefit Taxation Highlights
Figure 1. Income Taxation of Social Security Benefits
Source: CRS calculations from Internal Revenue Service, Statistics of
Income Bulletin Historical Table 1; IRS, SOI Tax Stats – Individual Income
Tax Returns, Preliminary Data, Table 1; and Social Security
Administration, Office of the Chief Actuary, Trust Fund Tables, OASI
and DI Trust Funds, Combined, 1957 and later.
Notes: IRS data for 2017 are preliminary.
Federal income tax liability on Social Security benefits
increases with income. The overall share of Social Security
benefits that will be paid as federal income taxes is
projected to be 6.6% in 2020 (Figure 2, right vertical axis),
ranging from zero for the lowest income categories to
31.9% for taxpayer units with economic income over $1
million. SSA’s 2015 analysis projected that, among all
Social Security beneficiary families, the mean percentage of
Social Security
benefits owed as taxes will be 10.9% in
2050.
Average federal income tax liability on Social Security
benefits across all Social Security taxpayer units is
projected to be about $3,200 in 2020 (Figure 2, left vertical
axis), ranging from zero for the lowest income categories to
$12,000 for taxpayer units with economic income greater
than $1 million.
Figure 2. Social Security Tax Liability Projected for
2020
Source: CRS and Joint Committee on Taxation (JCT), Background on
Revenue Sources for the Social Security Trust Funds, JCX-41-19, Table 9,
July 24, 2019.
Notes: The concept of economic income as defined by JCT includes
the annual flow of all resources at the command of an individual and
represents an individual’s total well-being.
How Important Is Benefit Taxation to
the Trust Funds?
The proceeds from taxing up to 50% of Social Security
benefits for 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, are credited to the Social Security trust funds. In
2019, the Social Security trust funds were credited with
$36.5 billion from taxation of benefits, or 3.4% of the trust
funds’ total income. Under the intermediate assumptions,
the Social Security Trustees project that income taxes will
grow to 6.1% of income in 2029.
The additional income taxes paid by taxpayers filing as
single with provisional income greater than $34,000 and
taxpayers filing a joint return with provisional income
greater than $44,000, who pay tax on up to 85% of their
Social Security benefits, are credited to the HI trust fund.
Income to the HI trust fund from the taxation of benefits
was $24.223.8 billion in 20182019, or 7.94% of total HI trust fund
income. Under the intermediate assumptions, the Medicare
Trustees project that income taxes as a share of total
revenue will increase to 12.413.3% in 20282029.
Note that the 2020 intermediate assumptions reflect the
Board of Trustees’ understanding of Social Security and
Medicare at the start of 2020; they do not include potential
effects of the Coronavirus Disease 2019, or COVID-19.
Have Bills Been Introduced to Change
the Taxation of Social Security Benefits?
Three
Four bills have been introduced in the 116 th116th Congress that
would alter the taxation of Social Security benefits.
H.R. 567, the Save Social Security Act of 2019, would
replace the current-law provisional income thresholds with
a single threshold and would tax up to 85% of Social
Security benefits for taxpayers filing as single or filing a
joint return with provisional income greater than $100,000.
If enacted, H.R. 567 would result in less income tax
revenue for the Social Security and HI trust funds. To hold
the funds harmless, general revenues would be appropriated
in amounts required to make up the lost revenue.
H.R. 860 and S. 269, the Social Security 2100 Act, would
replace the
current-law provisional income thresholds with new, higher
higher thresholds of $50,000 for taxpayers filing as single and
and $100,000 for taxpayers filing a joint return. Beneficiaries
Beneficiaries with provisional income above the new thresholds would
thresholds
would pay income taxes on up to 85% of their Social Security
Security benefits. H.R. 860 and S. 269 would reduce the
number of
beneficiaries who pay federal income taxes on
their Social
Security benefits, leaving less income tax
revenue for the
Social Security trust funds (the HI trust fund
would be held
harmless).
H.R. 3971, the Senior Citizens Tax Elimination Act, would
eliminate the federal income taxation of Social Security
benefits. General funds would be appropriated in amounts
needed to hold the Social Security and HI trust funds
harmless from the loss of income tax revenues.
Source: CRS and Joint Committee on Taxation (JCT), Background on
Revenue Sources for the Social Security Trust Funds, JCX-41-19, Table 9,
July 24, 2019.
Notes: The concept of economic income as defined by JCT includes
the annual flow of all resources at the command of an individual and
represents an individual’s total well-being.
For Additional Information
CRS Report RL32552, Social Security: Taxation of Benefits
Paul S. Davies, Specialist in Income Security
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IF11397
Social Security Benefit Taxation Highlights
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