‘Double taxation’: Older Americans increasingly feeling bruised as Uncle Sam claws back their Social Security benefits
Social Security is a lifeline for millions of older Americans. And as of November 2024, the average retired worker was collecting $1,925.46 per month.
But as Social Security benefits rise from year to year due to cost-of-living adjustments (COLAs), more and more seniors risk getting hurt by a tax rule that was established decades ago.
In fact, the nonpartisan Senior Citizens League has previously blasted the rule as “a form of double taxation.” And it’s clear that many older Americans and senior advocates alike think a major change is in order.
Social Security’s primary source of funding is payroll tax revenue. Each year, a wage cap is established that dictates how much income is taxed per worker for Social Security purposes. In 2025, that amount is $176,100.
The reason some seniors feel they’re being double taxed is that they not only have to pay into Social Security during their working years, but are also then subject to taxes on their benefits during retirement. And worse yet, advocates argue the thresholds at which taxes apply to Social Security benefits are almost ridiculously low.
Most states don’t impose taxes on Social Security benefits. But at the federal level, taxes on benefits apply to singles with a combined income of $25,000 or more, and to married couples with a combined income of $32,000 or more. Combined income is calculated as adjusted gross income (AGI) plus tax-exempt interest income (such as municipal bond interest) plus 50% of recipients’ annual Social Security benefit.
As an example, if Joe is single with an AGI of $15,000 and no tax-extempt interest income, but he receives $1,925 per month from Social Security, his combined income is $26,550. This means Joe will face taxes on a portion of his Social Security benefits.
Meanwhile, because Social Security benefits are eligible for an annual COLA, those increases inevitably push more seniors over the combined income limits at which taxes on benefits apply. And the reason is that while Social Security benefits adjust annually for inflation, the combined income limits do not.
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In fact, the combined income limits have not been adjusted for inflation since 1984. Back then, it was estimated that 10% of Social Security recipients would be liable for taxes on their benefits. Today, the Social Security Administration reports that about 40% of beneficiaries pay federal taxes on that income.
The Senior Citizens League also says that had the combined income limits been adjusted the same way tax brackets are every year, as of 2023, the $25,000 level for singles would’ve been $73,000 and the $32,000 level for married couples would’ve been $93,200. In a 2023 survey it conducted, 58% of respondents said they felt the combined income levels need to be adjusted accordingly.
Making matters worse on the tax front is that in recent years, rampant inflation has led to higher-than-average Social Security COLAs. In 2022, benefits were eligible for a 5.9% COLA, followed by an 8.7% COLA in 2023. This has led to an uptick in seniors who are paying taxes on their monthly benefits.
If you’re a higher earner, paying taxes on Social Security may be inevitable. In 2025, the program’s maximum monthly benefit at full retirement age is $4,018 per month. On an annual basis, half that sum is about $24,100. This means that a single tax-filer eligible for that maximum benefit would need to keep their remaining income to under $1,000 to avoid having their Social Security being taxed.
While that may be difficult, it’s not impossible. One option is to avoid investments that count toward provisional income and also house retirement savings in a Roth IRA or 401(k). Because Roth withdrawals aren’t taxable, they don’t count as provisional income.
Additionally, Roth accounts don’t impose required minimum distributions (RMDs) like traditional IRAs and 401(k)s do. RMDs not only create an automatic tax burden, but also add to provisional income even when those distributions aren’t wanted.
Now it’s worth noting that President-elect Trump has pledged to do away with taxes on Social Security benefits. A change like that would clearly let many seniors off the hook.
But Social Security, as a program, also relies on those taxes to stay afloat. As it is, the program’s trustees estimate that Social Security’s combined trust fund reserves are set to be depleted in 2035, at which point benefit cuts may be unavoidable.
Eliminating taxes on Social Security benefits might help seniors in one regard. But if it leads to a broad reduction in benefits and speeds up the timeline for that happening, then it may not do retirees much good in the long run.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.