The tax on Social Security income has not been adjusted for inflation since it was enacted 23 years ago.
The law, aimed at taxing a portion of Social Security benefits for "high income" filers, already affects millions of middle-income seniors, who each pay thousands of dollars in additional tax as a result of it. And as baby boomers edge closer to retirement, it's certain to ensnare millions more, Mark Luscombe said, principal tax analyst with CCH, a Riverwoods, Ill.-based publisher of tax information.
The tax on Social Security benefits is triggered when a senior's wage, pension, investment and dividend income exceeds a set threshold. At that point, a senior who fills out a return by hand must complete an 18-line worksheet that ultimately determines how much of his or her otherwise tax-free Social Security benefits will become taxable. (Most tax software programs do the calculation automatically, so those who file that way may not even notice the extra tax.)
For a single senior, each dollar of income over $25,000 makes 50 cents of his or her Social Security benefits taxable. For married couples, that threshold is $32,000.