SHARE THIS POST

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.

By Karin Price Mueller

Email your questions to Ask@NJMoneyHelp.com.

 

Thank you for signing up to receive our newsletter!

If you would you like to discuss financial planning with us, please provide your phone number.

Sarsi LLC Logo

Disclaimer

Sarsi, LLC (“Sarsi” or “the firm”) is a registered investment adviser located in New Jersey. Sarsi and its representatives are in compliance with the current registration mandates imposed on state registered investment advisers in those states where registration is required. The firm may also transact business in those states in which it maintains registration or qualifies for a corresponding exemption there from.

Use of this website is limited to the dissemination of general information regarding Sarsi’s investment advisory services offered to individuals residing in those states where providing such information is not prohibited by applicable law. Accordingly, the publication of Sarsi’s website on the internet should not be construed by any consumer as a solicitation or attempt to effect transactions in securities, or the rendering of personalized investment advice. Nothing on this website should be interpreted in any manner whatsoever as a substitute for, or the receipt of, personalized investment advice. Certain of the information contained herein may not be suitable for everyone and may be derived from external sources that are not affiliated with Sarsi. While Sarsi believes these sources to be reputable, the Firm makes no representation or guarantee as to the accuracy, timeliness or suitability, completeness or relevance of the information prepared by any unaffiliated third-party, whether linked to the website or referenced herein. All such information is provided for convenience purposes only and all users therefore should be guided accordingly. Any subsequent, direct communication with a prospective client of the Firm will be initiated by a representative whom is either registered or exempt from registration in the state in which the prospect resides.

Detailed information pertaining to Sarsi’s qualifications, business operations, fee schedule service offerings can be found in the Firm’s Disclosure Brochure which appears as Part 2A of Sarsi’s Form ADV. Additional information about Sarsi, as well as a current version of the Firm’s Disclosure Brochure, is available on the Investment Advisor Public Disclosure website which is operated by the U.S. Securities and Exchange Commission, at www.adviserinfo.sec.gov

ACCESS TO THE FIRM’S WEBSITE IS PROVIDE FOR INFORMATION PURPOSES ONLY AND WITHOUT WARRANTIES-EXPRESS OR IMPLIED-WITH REGARD TO THE ACCURACY, TIMELINESS OR RESULTS OBTAINED FROM ANY INFORMATION POSTED ON THIS WEBSITE OR ANY THIRD-PARTY WEBSITE LINKED HERETO.