The Social Security program has provided benefits for millions of people in its eighty-five years of existence. Political compromises have kept the program going as the cost of living has increased faster than wages. One of these compromises resulted in the assessment of federal income taxes on some Social Security benefits. This only applies to taxpayers with income above a threshold amount. Even if an individual’s income is above the threshold, only part of their Social Security benefits are taxable. Not all benefits payable by the Social Security Administration (SSA) are subject to federal income tax, and our Los Angeles tax advisors can explain the extent to which tax rules apply.
Types of Social Security Benefits
The SSA is an independent federal agency, meaning that while it is part of the Executive Branch of the federal government, it is not part of a federal executive department. Much of the funding for SSA programs comes from payroll taxes. The agency administers numerous benefit programs, including:
– Retirement benefits, which are available to people who have made a minimum number of payments into the program through their payroll taxes, and who have reached the age of sixty-two;
– Social Security Disability Insurance (SSDI), which helps eligible individuals who are unable to support themselves because of an injury or medical condition;
– Survivors benefits, which provides assistance for family members of SSA beneficiaries; and
– Supplemental Security Income (SSI), which pays benefits to elder individuals, blind individuals, and individuals with disabilities.
Most of these benefits are taxable if the individual meets the income threshold. Dependent or survivor benefits received by a child are usually not taxable, unless the child has sufficient income to file their own income tax return. SSI benefits are not subject to federal income tax under any circumstances.