History of social security income
Social Security was established by the Social Security Act, signed into law by President Franklin D. Roosevelt on August 14, 1935. In 1937, the first Social Security benefit was paid as a lump sum, not a monthly check. In January 1940, the first monthly Social Security retirement income checks were issued. Social Security benefits were income tax-free for over 40 years up until the Social Security Amendments of 1983. Since 1994, the thresholds are as follows:
| Single Taxpayer | Married Taxpayer |
| 0% taxable if provisional income is less than $25,000 | 0% taxable if provisional income is less than $32,000 |
| Up to 50% taxable if provisional income is $25,000 to $34,000 | Up to 50% taxable if provisional income is $32,000 to $44,000 |
| Up to 85% taxable if provisional income is more than $34,000 | Up to 85% taxable if provisional income is more than $44,000 |
These thresholds have been fixed in statute since the 1980s and are not indexed for inflation (unlike ordinary tax brackets), which means inflation and higher non-Social Security income have caused increasing numbers of beneficiaries to pay federal tax on their benefits over time.
what is considered “taxable retirement income”?
A common misconception is that taxable income disappears once you stop working, when in reality many income sources received later in life are still subject to taxation. Taxable retirement income can include distributions from:
- Traditional IRAs, 401(k)s, 403(b)s, 457s, TSP or tax-deferred accounts
- All federal, state, local, and private pensions
- Any traditional annuity payment
- Wages or self-employment income
- Interest and dividends from taxable investment accounts
- Capital gains from the sale of assets
- Rental or business income
It is important to complete a retirement income analysis to understand how much, if any, of your Social Security benefit payments could be included in your taxable income for income tax purposes. The objective is to keep as much of your Social Security income tax-free as possible. We provide an easy-to-use worksheet to help you evaluate this. Click here to get started.
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