Now that everyone is talking about Social Security and when benefits became taxable. Many Americans wonder when it all started. Nowadays, more retirees may have to pay taxes than in the past. This is because there have been COLA boosts and no tax bracket updates.
Therefore, many retirees are losing purchasing power because they may have to pay taxes on their benefits. This mostly happens when a retiree has other sources of income apart from Social Security retirement benefits.
When did Social Security become taxable?
According to SSA, a part of Social Security benefits became taxable back in 1984. Thanks to the passage of the Amendments to the Social Security Act of 1983. Hence, this change was introduced 40 years ago.
Since then, part of retiree’s or SSDI benefits have been subject to taxes. This Federal Income tax does not affect all of your benefits. So do not worry about losing all of them.
In fact, there are some thresholds. Bear in mind that most private pensions are taxable in part. SSA claims that about 40 percent of beneficiaries must pay federal income tax on their benefits.
When do you have to pay Federal income tax on Social Security and how much?
SSA highlights that Americans may have to pay taxes on their benefits when they get other earnings. Of course, this income must be substantial. It could be earnings if you are self-employed, wages dividends interest, and so on.
For your information, if you receive monthly retirement payments and you have additional substantial income, you need to report it on your Federal tax return. Here comes the importance of following the rules set by the IRS (Internal Revenue Service).
For example, you must pay tax on up to 50% of your Social Security and file a single return when your combined income is between $25,000 and $34,000. More than that would be up to 85%.