Updated: Mar 22, 2022
The Social Security Trustees’ Report expects about $10.6 billion more in tax revenue this year
Social Security recipients may be in for an unpleasant surprise when they see their benefits are taxed more than usual this year.
Social Security is taxed based on provisional income and a designated threshold, and the more money a retiree brings in, the more likely they are to pay taxes on those benefits. Although Americans continued to live through a pandemic in 2021, there are a few reasons why they may be liable for a higher tax bill, including retiring in that year while receiving benefits or delaying required minimum distributions in the prior year.
Either way, not everyone is prepared, said Mary Johnson, an analyst at the Senior Citizens League. Retirees may think because they don’t earn a salary anymore that they wouldn’t be subject to taxation on their benefits, said Michelle Gessner, a certified financial planner and founder of Gessner Wealth Strategies. “Retirees forget that even though they may not have earned income in retirement, they will have taxable income that includes Social Security benefits, interest income, pension income and the distributions they take from their IRAs,” Gessner said. “When all of that adds up, they are often shocked to see that they are not in the lower tax bracket that they had expected – even without earned income.” About 40% of Social Security recipients pay taxes on their benefits, the Social Security Administration said.