Burman study on taxation of Social Security benefits published in National Tax Journal
May 31, 2014
The Effects of the Taxation of Social Security Benefits on Older Workers’ Income and Claiming Decisions
Leonard E. Burman, Norma B. Coe, Kevin Pierce & Liu Tian
National Tax Journal, May 2014
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, the authors 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, the authors 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.
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