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 Dear Tax Talk:
I was under the impression that taxpayers over age 65 collecting Social Security income would not be taxed on that income even if they continued to work and earn income. Friends told me I could have my Social Security income taxed at 85 percent, which seems un-American to penalize citizens who are still working after reaching 65 and then have the IRS tax them at a rate even the Sopranos would be envious of. I can't believe it's true. What can you tell me and other seniors who are still lucky to be employed?
-- Frank
 Dear
Frank,
You must be thinking about another America. In my America what one hand gives, the other takes away. It used to be if you continued to work after age 65, your benefits from Social Security were proportionately reduced. If memory serves me, it was $1 in lost benefits for every $3 you earned. After age 70, you could work without benefit reduction.
Since 1986, Social Security benefits
have been taxed if your modified adjusted gross
income exceeds a threshold. When the law was created,
only up to half of your benefits were taxed. This
was considered fair and, thus, American, since
your employer paid half of the Social Security
taxes.
Later the percentage went to 85 percent of benefits, back to un-American. It doesn't mean that Uncle Sam is taking 85 percent of your benefits, but rather that up to 85 percent of the benefits are included in taxable income. Uncle Sam's cut of that amount that he gave you depends on your tax rate, which can range from zero to 35 percent.
Consider yourself lucky that you didn't retire before the 3-for-1 benefit reduction was repealed.
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