The main benefit of the tax on Social Security benefits, which is only levied on those who have substantial incomes other than Social Security, is that it reinforces the Social Security system. The tax amount collected on Social Security benefits is distributed back into Social Security and Medicare trust funds.
Taxes on Social Security benefits are based on a recipient's income, and those whose only source of income is Social Security usually not only owe no taxes, but may not need to file a tax return. Income tax on Social Security benefits is based on a three-tier tax system. Single beneficiaries earning $25,000 or less, or married couples filing jointly who earn $32,000 or less owe no income tax on their Social Security benefits as of 2015. Singles earning $25,000 to $34,000 and couples earning $32,000 to $44,000 must pay income tax on up to 50 percent of their benefits. Those with incomes higher than these thresholds pay income tax on 50 to 85 percent of their benefits on a rising scale as income increases.
Calculation of income to determine Social Security benefits taxation is made by assessing modified adjusted gross income. This includes not only income from all normal taxable sources, but also nontaxable interest income and 50 percent of income from Social Security benefits. Approximately half of those who collect Social Security owe at least some tax on the benefits.