View Full Version : A question about social security and taxes

03-17-2005, 05:03 PM
I know SS recipients pay taxes on their SS income. My question is, what taxes specifically are paid? Is it just income tax? Is it SS taxes? Medicare? All of the above?

Anyone know?

03-17-2005, 09:22 PM
From what I was able to make of the information on government websites and elsewhere, Social Security benefits are considered unearned income. Therefore, they may be subject to income tax, but they are not subject to the FICA taxes (Social Security and Medicare). The FICA taxes only apply to earned income.

The "Answers" site at the Social Security Administration is a good place to get information. I don't know of a single site that would explicitly support my claims above; take them merely as my deductions from the information I ran across.


03-17-2005, 09:41 PM
One of the SSA "Question and Answers" that strongly supports the idea that there is a distinction between benefits and earnings is the following:

I'm receiving Social Security benefits. Do I still have to pay Social Security and Medicare tax on my earnings if I continue to work?

Yes, you do. Whenever you work in a job that is covered by Social Security, your employer must deduct your Social Security and Medicare taxes from your salary and must pay the equal employer's share of the taxes. Your earnings will be reported to SSA every year just like any other worker's earnings.

If you are self-employed while getting benefits and your net profit from your business is more than $400, that, too, is covered by Social Security and Medicare. You must report those earnings and pay the Social Security and Medicare taxes when you file your personal income tax return for the year. These extra earnings may help increase the amount of your benefits. We check these additional earnings each year and if they raise your benefits, we will notify you of the new amount.

http://ssa-custhelp.ssa.gov/cgi-bin/ssa.cfg/php/enduser/std_adp.php?p_faqid=492&p_created=975935129&p_sid=juJ7eGAh&p_lva=&p_sp=cF9zcmNoPTEmcF9zb3J0X2J5PSZwX2dyaWRzb3J0PSZwX3Jvd19jbnQ9MjImcF9jYXRfbHZsMT03JnBfY2F0X2x2bDI9NjY mcF9wYWdlPTE*&p_li=

03-18-2005, 10:46 AM
Thanks for the information. My dad and I were discussing the absurdity of taxing income that had previously been taxed away from you once before when it donned on us that we had no idea exactly what taxes were paid on SS.

03-18-2005, 02:42 PM
Thanks for the information. My dad and I were discussing the absurdity of taxing income that had previously been taxed away from you once before when it donned on us that we had no idea exactly what taxes were paid on SS.

Concern about the unfairness of doing such a thing has played a role in the history of taxation on Social Security benefits. So that particular absurdity has been avoided.

Here's a brief guide to the arguments used to justify taxing Social Security as income. Essentially, Social Security contributions come from two direct sources and one hypothetical source.

(i) The employee pays his contribution with after-tax income (e.g. your income tax is based on your "gross income", not the amount that is left over after you pay your FICA taxes). So, it wouldn't be fair to put an "income tax" on the part of the Social Security benefit that came from the employee's contribution, since the employee already paid income taxes on it.

(ii) As for the second source, on the other hand, the employer's contribution to Social Security on behalf of each employee is a deductible expense, so it's considered "pre-tax" as far as the employer's income tax is concerned. (As you may know, employers match what employees contribute, so if you make any self-employment income, be prepared to pay twice as much FICA tax, because you have to pay both the employer and the employee share. Keep that rule in mind in case you ever do any "consulting" or "independent contracting": you need to charge more for your services than your usual wage, if only to pay for the extra Social Security taxes you'll have to pay. ;) )

Hypothetically, there's also a third-source of money for Social Security contributions, the interest earned on the contributions before they were paid out as benefits. A rough estimate of how much of each worker's benefit came from each worker's contribution is about 15%: it's less than 50%, for sure. In other words, somewhere between 50% and about 85% of the Social Security benefit comes from "pre-tax" sources, so that amount could be subject to taxation without seeming to be an outrage against justice (or an absurdity, as you put it ;) ).

In 1983, that what's happened: some Social Security benefits became subject to income tax.

The Social Security Administration has a history of "Taxation on Social Security Benefits" at this link:


03-18-2005, 02:47 PM
Basically, if you make too much money from other sources while receiving Social Security, a portion of your SS income will be taxed.

This was part of the '83 revisions to SS, I believe. The concept is that Social Security is supposed to a safety net. If someone is making more than $30K/year (or whatever it is) in non-SS income, then they obviously don't need much of a safety net.

SS won't get taxed at 100%, of course, but the problem is that the EFFECTIVE tax rate for a dollar earned by working or by getting other income will become very high indeed once you factor in the SS tax. I remember reading a LONG time ago that there was a SS "bubble", where at it's worst a dollar of income would be subject to an effective tax rate of like 75% when you included loss of Social Security income.

An anomaly, of course, but an annoying one for those it hits.