In an attempt to head off the anticipated revenue shortage expected for Social Security, lawmakers set up a tax for the richest seniors eligible for benefits in the 1980s. The idea was a form of "means testing" for benefits in order to limit or stop benefits to taxpayers defined as wealthy. At the time it was anticipated that only about 10% of beneficiaries would be taxed on any portion of their benefits. Nevertheless, the law included no mechanism to adjust for inflation.
Consequently, the same raw numbers from 1983 are still used today to determine whose benefits get taxed and how much of those benefits gets taxed. As My San Antonio points out in "Care to Guess How Many Seniors Could Be Taxed on Their Social Security Benefits by 2030?" that means many more Americans are taxed today than was originally intended.
As of 2010, 47.1% of beneficiaries were taxed on some portion of their Social Security benefits. That number is expected to rise to 58% in 2030 if no changes to the law are made.
As you near retirement be aware of these taxes and plan accordingly for the impact they may have.
For more information on Social Security please visit my website.
Reference: My San Antonio (April 10, 2016) "Care to Guess How Many Seniors Could Be Taxed on Their Social Security Benefits by 2030?"