Help me understand how Social Security works. The way I understand it is that I give the government $10 dollar from my paycheck and then the government gives it back to me when I am done working… I don’t understand how is that income?
There is no relationship between the payroll tax and the benefits you, a spouse, a child, an ex-spouse or survivor may collect. Funding is a tax, benefits are part of a separate law. One can and has been changed without regard to the other.
Millions of Americans collect SS benefits never having paid a penny in taxes.
What you pay in social security “tax” is before income taxes. So it’s the same as you purchasing an annuity with pre-tax income. That annuity would then be taxable when you receive those payments, because that’s when it becomes income.
It seems fair to me, since we don’t know what we’ll get out of SS, income taxing it on the back end so that recipients get that burden is logical.
Help me understand how Social Security works. The way I understand it is that I give the government $10 dollar from my paycheck and then the government gives it back to me when I am done working… I don’t understand how is that income?
There is no relationship between the payroll tax and the benefits you, a spouse, a child, an ex-spouse or survivor may collect. Funding is a tax, benefits are part of a separate law. One can and has been changed without regard to the other.
Millions of Americans collect SS benefits never having paid a penny in taxes.
What you pay in social security “tax” is before income taxes. So it’s the same as you purchasing an annuity with pre-tax income. That annuity would then be taxable when you receive those payments, because that’s when it becomes income.
It seems fair to me, since we don’t know what we’ll get out of SS, income taxing it on the back end so that recipients get that burden is logical.
Also, the government gives that $10 to a current retiree. The $10 you receive when you retire comes from a then current worker.
I was only trying to explain the tax logic. How they work the money doesn’t change the tax implications.