Is taxable income reduced by the amount of FICA tax?

Asked October 11, 2016, 8:32 PM EDT

If FICA tax is paid out of after-income-tax income, it would seem inconsistent to tax social security benefits.

San Mateo County California

3 Responses

Federal taxable income is not reduced by FICA taxes. While I think you are looking for a more substantial answer or opinion about FICA taxes and the taxability of Social Security benefits, I am not a tax historian that could elaborate more on why this position was taken. I CAN point you to this page at the Social Security Administration:

It does note that Social Security isn't taxed until you have other income in addition to your social security. However, the income limits for Social Security benefit taxation haven't changed in some time due to the limits not being adjusted for inflation.

Thank you very much Andrew. Retirees have to be dirt poor to avoid taxation of benefits.

It is true that Social Security taxation thresholds were not indexed for inflation. However, there are strategies for keeping taxable income low in order to avoid the thresholds. One of the strategies for maximizing retirement wealth is to use special accounts to avoid taxation. For example, Health Savings Accounts and Roth IRAs allow for spending that is not included on the tax return. However, planning to use these tools often needs to happen long before retirement.

Good luck.