Social Security: Isn't Taxing Benefits Unfair?

Before you go, we thought you'd like these...
Before you go close icon

Millions rely on Social Security, but many don't realize it can be taxable until after they retire. Many believe that paying taxes on Social Security benefits that were themselves funded by payroll taxes is unfair.

Source: Phillip Ingham, Flickr.

In this installment of our Social Security Q&A series, Dan Caplinger, The Motley Fool's director of investment planning, answers a question from Donald, who notes that he has a real problem with how Social Security gets taxed and wants to know why he pays what he sees as double tax. Dan notes that although most people think of their benefits as being funded by the Social Security payroll taxes they pay during their careers, the government doesn't see it that way, with court cases holding that there's no property right to Social Security benefits just because you pay payroll taxes. As a result, the IRS can impose tax on those benefits as completely separate income, with as much as 85% of your benefits being added to your taxable income and taxed at your ordinary income tax rate. Dan concludes that those taxes might not be fair, but Congress would have to change the tax laws in order to stop those benefits from being taxed.

How to get even more income during retirement
Social Security plays a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

Have general questions about Social Security? Email them to, and they might be the subject of a future video!

The article Social Security: Isn't Taxing Benefits Unfair? originally appeared on

Dan Caplinger has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

People are Reading