happy senior couple hugging in autumn parkPhoto by Gustavo Fring

Many seniors heavily rely on Social Security benefits to cover essential costs in retirement. However, a significant portion of these benefits are being lost each year due to a problematic rule established in the 1980s. Originally, Social Security benefits were not taxed federally, allowing seniors to keep the entirety of their payments. But in 1983, Congress passed a law making up to 50% of benefits taxable, with further changes in 1993 increasing this to 85% for some retirees.

The issue lies in the fact that the income thresholds triggering these taxes haven’t been adjusted for inflation since their inception. For example, in 1983, benefits became partly taxable once a single filer’s provisional income exceeded $25,000 or $32,000 for joint filers. Fast forward to 2024, and these thresholds remain unchanged despite the significant decrease in their purchasing power over the decades.

As a result, a growing number of retirees—now around half—find themselves owing taxes on their Social Security benefits, with an average tax bill of over $3,000 annually. This loss of income is a direct consequence of Congress failing to implement automatic adjustments to account for inflation, unlike many other Social Security parameters.

Unfortunately, the situation is expected to worsen, as Congress shows little inclination to revise these outdated income limits. For future retirees, investing in a Roth IRA could offer a tax-efficient alternative, as distributions from it do not factor into the taxation of Social Security benefits. However, for current and imminent retirees, planning for substantial IRS bills is essential, as mitigating strategies may be limited.


50% of Those on Social Security Face Losses Averaging Over $3,000 Because of This Problematic Rule (yahoo.com)

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