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 Citations (Scopus)

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

Fingerprint

Taxation
Older workers
Income
Social security
Labor supply
Tax
Income tax
Methodology
Incentives
Effective tax rates

Keywords

  • Benefit taxation
  • Income tax
  • Social Security

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

The effects of the taxation of social security benefits on older workers' income and claiming decisions. / Burman, Leonard; Coe, Norma B.; Pierce, Kevin; Tian, Liu.

In: National Tax Journal, Vol. 67, No. 2, 01.06.2014, p. 459-486.

Research output: Contribution to journalArticle

@article{1036b12fbc1840a9b391b20c6b876971,
title = "The effects of the taxation of social security benefits on older workers' income and claiming decisions",
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.",
keywords = "Benefit taxation, Income tax, Social Security",
author = "Leonard Burman and Coe, {Norma B.} and Kevin Pierce and Liu Tian",
year = "2014",
month = "6",
day = "1",
doi = "10.17310/ntj.2014.2.07",
language = "English (US)",
volume = "67",
pages = "459--486",
journal = "National Tax Journal",
issn = "0028-0283",
publisher = "National Tax Association",
number = "2",

}

TY - JOUR

T1 - The effects of the taxation of social security benefits on older workers' income and claiming decisions

AU - Burman, Leonard

AU - Coe, Norma B.

AU - Pierce, Kevin

AU - Tian, Liu

PY - 2014/6/1

Y1 - 2014/6/1

N2 - 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.

AB - 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.

KW - Benefit taxation

KW - Income tax

KW - Social Security

UR - http://www.scopus.com/inward/record.url?scp=85019692084&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85019692084&partnerID=8YFLogxK

U2 - 10.17310/ntj.2014.2.07

DO - 10.17310/ntj.2014.2.07

M3 - Article

VL - 67

SP - 459

EP - 486

JO - National Tax Journal

JF - National Tax Journal

SN - 0028-0283

IS - 2

ER -