15 Nov Why do we have to pay taxes on Social Security?
Q. Why do we have to pay taxes on Social Security?
— Taxed enough
A. Let’s start at the very beginning.
Social Security was signed into law in 1935. In 1937, Social Security taxes were collected and benefits were paid for the first time.
The number of beneficiaries has increased consistently over the years and as of 2018, about 68 million people received benefits, said Deva Panambur, a certified financial planner with Sarsi, LLC in West New York. and adjunct professor of personal finance at Montclair State University.
In order to make the program viable, it has been amended several times.
“In the early years, only one half of the jobs in the U.S.A. were covered and the tax rate was 1 percent each for the employee and employer,” Panambur said. “The coverage was gradually increased, and today except for a small number of exceptions, most employed and self-employed people pay the Social Security tax.”
The tax rate and the maximum wages taxable have also increased gradually to the current level. In 2019, the tax rate is 6.2 percent of your wages up to $132,900, he said. Your employer pays another 6.2 percent.
If you are self-employed, you will pay both halves for a total tax of 12.4 percent of your wages, he said.
In order to increase the revenue for the program, a major amendment was passed in Congress in 1983.
“Two of the most significant changes in this amendment were a gradual increase of the full retirement age to 67 by the year 2022 and the taxation of Social Security benefits, which went into effect in 1984,” Panambur said.
Social Security benefits include monthly retirement, survivor and disability benefits. They don’t include supplemental security income (SSI) payments, which is a means-tested assisted program for qualified individuals and are not taxable.
“Generally, 50 percent of your benefits is taxable but you may be taxed on up to 85 percent of your benefits if one half of your benefits plus all other income, including tax-exempt interest, is more than what the IRS calls the base amount,” he said. “The base amount is $25,000 if you are single, head of household or qualifying widow/widower and it is $32,000 if you are married and filing jointly.”
So why are benefits taxed? Simple. The country needed the cash then, and it still needs it now.
For more on the history, check out this story.
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This story was originally published on Nov. 15, 2918.
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