The effects of the taxation of social security benefits on older workers' income and claiming decisions

Leonard Burman, Norma B. Coe, Kevin Pierce, Liu Tian

Research output: Contribution to journalArticle

2 Scopus citations

Abstract

Social Security benefits are taxed under a complex regime that raises marginal effective tax rates by up to 85 percent, which could discourage the labor supply of older workers and affect the decision to claim benefits. Using a nonparametric graphical methodology, this paper investigates whether older taxpayers reduce income to avoid the tax. While previous research found that the labor supply of older workers is significantly affected by the Social Security earnings test, we find little evidence of a response to benefit taxation in a large panel of data compiled from individual income tax and information returns. Similarly, while taxation of benefits provides an incentive for many to delay claiming, we find no evidence of such an effect. Overall, the findings suggest that older taxpayers have little understanding of the rules governing Social Security benefit taxation.

Original languageEnglish (US)
Pages (from-to)459-486
Number of pages28
JournalNational Tax Journal
Volume67
Issue number2
DOIs
StatePublished - Jun 1 2014

Keywords

  • Benefit taxation
  • Income tax
  • Social Security

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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