The Hump

This website was created to make suggestions on how the government might fix the problems with the current Social Security system, but we all know what chance we have of the government doing something logical that might be good for the country. Re-election is their primary goal. So, since we have to live with the current system, for a while at least, these pages were created to help us avoid one of the biggest problem that some of us will face, retirees paying the highest taxation levels of any American citizen, something we call The Hump.

The marriage penalty

Married 65K
Married, each earning $65,000 pre-retirement, $52,000 after retirement.

The pink and blue shaded areas in the illustration above represent the marriage penalty. The penalty exists because the breakpoints for the taxation of a married couple’s benefits, $32,000 and $44,000, are far less than two single people who are living together, $25,000 and $34,000. The government is penalizing them for being married.

$24,520 $3,740   $16,000 0% $0   $32,000 50% $0   $0
The taxation of a married couple's benefits starts at just $32,000
$24,520 $9,740   $22,000 0% $0   $44,000 85% $6,000   $6,000
They begin the 85% taxability bracket at $44,000.
$24,520 $12,740   $25,000 50% $0   $50,000 85% $11,100   $11,100
Taxation for the unmarried couple finially starts at $25,000 each,
when $11,100 of the married couple's benefit are already being taxed.
$24,520 $21,740   $34,000 85% $4,500   $68,000 85% $26,400   $17,400
Taxation for the unmarried couple has finially reaches the 85% level.
Up to this point the married couple has been surcharged 85%
while the unmarried couple was only surcharged 50%.
This has increased their marriage penalty to its highest level at $17,400.
$24,520 $30,731   $42,991 85% $12,142   $85,982 85% $41,684   $17,400
The taxation of the married couple's benefits has reach its max.
$24,520 $40,966   $53,226 85% $20,842   Maximum $41,684   $0
The marriage penalty comes back to zero
once the unmarried couple's taxable benefits reach the 85% level.

It’s not just that the married couple is being taxed on more of their benefits, but that taxation is also pushing them into higher tax brackets. Let’s look at the chart again.

Married 65K
Married, each earning $65,000 pre-retirement, $52,000 after retirement.

The married couple starts paying taxes at a gross per capita income of $32,920. Their 50% benefit taxation started at $28,320, so they start paying taxes at the 15% effective tax rate, not the 10% rate, and when they hit the 85% benefit taxation rate at a gross income of $34,320 their effective tax rate jumps to 18.5%.

An unmarried person doesn’t start paying taxes until a gross income of $35,200 and since they still do not qualify for any taxation of their benefits, they start at the 10% level.