CRS: 40% of Social Security Beneficiaries Affected By Benefits Taxes

Thirty-nine percent of all beneficiaries of the federal retirement benefits program get taxed on their benefits, CRS reported, a fact that could be more relevant today because of multiple proposals to roll back a 1993 expansion of Social Security benefits taxation.

In 2002, Social Security paid a total of $453.8 billion in benefits, and 10.8 million taxpayers had taxable Social Security benefits totaling $94.7 billion, which amounted to 20.9% of total Social Security benefits, the report said.

There are three separate tiers of income taxes on Social Security benefits, according to the agency. For married couples with a total income of $32,000 or less, there exists no tax on benefits; for couples with income between $32,000 and $44,000, 50% of their benefits are subject to tax. For couples with annual income over $44,000, 85% of their benefits are subject to income tax. For individuals, these levels are set at $25,000, $34,000, and over $34,000.

States can also tax Social Security benefits, but in 2003, only 14 of the 42 states with personal income tax fully taxed such benefits. These states are: Connecticut, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, West Virginia, and Wisconsin.

Partial respite from such taxation may be near if some legislation passes. The Senate has approved a budget resolution that includes the roll back the 1993 tax increase on such benefits; however, the provision is not expected to survive a House-Senate conference committee.