Posted by This is a great post by my brother, Gene McGovern, of McGovern Financial Advisors, LLC, concerning the the tax treatment of Social Security benefits. To read more, follow the link at the end of the post.
The income threshold that triggers federal income taxes on your Social Security benefits hasn’t changed since 1984. Meanwhile, the national average wage index used by the Social Security Administration (SSA) to compute benefits has tripled since 1984, while the Consumer Price Index has risen nearly two-and-a-half times. As a result, more and more individuals and families are paying taxes on their Social Security benefits every year, not because their real incomes have risen significantly but mainly because of rising wage and price levels.
The government’s use of a fixed income threshold that is not adjusted for either inflation or rising wages amounts to both an ongoing stealth tax increase and a means test on Social Security beneficiaries, since taxing benefits based on your income effectively reduces them. About half of all families receiving benefits now pay income tax on them. In 1984, when benefits first became taxable, fewer than one in ten did.
Source: McGovern Financial Advisors