🇺🇸 USA: No Social Security Tax?

Elderly man holding Social Security check in USA, happy with tax exemption.

Introduction

While many Latin American countries aggressively tax their retirees, the United States maintains significant exemptions on Social Security benefits. What few realize is that millions of Americans do not pay a cent in federal taxes on their retirement benefits . This is the result of a public policy designed to protect the most vulnerable, but it also raises debates about sustainability, equity, and alternatives for other nations.

This article analyzes how this tax exemption on Social Security works in the US , its consequences and lessons for Brazil and other Latin American countries.

What is Social Security?

Social Security is the American equivalent of Social Security. Created in 1935, the program provides retirement, disability and survivor's benefits , and is funded through mandatory contributions on wages (FICA – Federal Insurance Contributions Act).

According to the Social Security Administration (2024) , more than 70 million Americans receive benefits monthly, with about 50 million of them being retirees .

Social Security Tax Exemption: how does it work?

Not all Social Security beneficiaries are exempt from taxes. But the U.S. system protects the lower and middle income brackets in a progressive way:

• Those who earn up to US$25,000/year (individuals) or US$32,000/year (couples) does not pay federal tax on the benefit.

• Above this limit, up to 85% of benefits may be taxed , depending on total income.

This model is very different from what occurs in Brazil, for example, where all retirement benefits above the minimum wage can be taxed at progressive income tax rates.

📘 Reference: UNITED STATES. Social Security Administration. Benefits Planner. 2024. Available at: https://www.ssa.gov

Why does the US adopt this model?

The idea behind the partial or total exemption from Social Security taxes is clear: to guarantee financial dignity to the most vulnerable elderly , who often depend exclusively on this benefit to live.

Furthermore, the federal retirement tax is politically unpopular . Candidates who propose raising the tax face strong resistance from unions and the American Association of Retired Persons (AARP).

Impact on the lives of retirees

✔️ Practical examples:

• A senior citizen who earns $1,400 per month (average amount) and has no other source of income is completely exempt from federal income tax .

• A retiree with retirement benefits + investment income may have part of their benefits taxed (up to 85%).

This means that most low-income seniors in the US have their net retirement income preserved , which increases their autonomy.

And in Brazil?

In Brazil, social security is highly taxed . Anyone earning more than R$2,112 per month is already subject to income tax , even if they have contributed for decades. Only those earning up to R$1,903.98 are exempt, and the new exemption bracket announced for R$2,824 is still under debate and depends on regulation.

Furthermore, supplementary pension benefits (INSS + private funds) are also taxed.

🧾 Comparing the models: USA: Tax protection for those who live only on basic retirement. Brazil: Tax on almost all retirees, including the poorest.

The sustainability of the American system

Many critics point out that this tax break could jeopardize the health of the system in the long run. After all, the population is aging, and the taxpayer base is shrinking.

However, measures such as increasing the minimum age and adjusting contribution percentages have been implemented to balance the accounts.

The lesson for Latin American countries

Latin America could take inspiration from the American model to reduce or eliminate taxation on vulnerable retirees .

As an argument for social justice, it makes no sense to tax those who live on the bare minimum after a lifetime of contributions.

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Conclusion

The US Social Security tax exemption demonstrates a model that prioritizes social justice and protection for low-income seniors . While it does not exempt everyone, the system protects those who need it most—an example that could be followed by countries seeking to reduce inequality and ensure a dignified old age .

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📚 References

1. UNITED STATES. Social Security Administration . Benefits Planner: Income Taxes and Your Social Security Benefits . [S. l.], 2024. Available at: https://www.ssa.gov/benefits/retirement/planner/taxes.html . Accessed on: 04 Jul. 2025.

2. UNITED STATES. Internal Revenue Service (IRS) . Publication 915: Social Security and Equivalent Railroad Retirement Benefits . Washington, DC, 2024. Available at: https://www.irs.gov/publications/p915 . Accessed on: 04 Jul. 2025.

3. BRAZIL. Brazilian Federal Revenue Service . Income Tax Table 2025 . Brasília, 2025. Available at: https://www.gov.br/receitafederal . Accessed on: July 4, 2025.

4. AARP. American Association of Retired Persons . Social Security: What You Need to Know . Washington, DC, 2024. Available at: https://www.aarp.org . Accessed on: 04 Jul. 2025.

5. ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD). Pensions at a Glance 2023: OECD and G20 Indicators . Paris: OECD Publishing, 2023. Available at: https://www.oecd.org/publications/pensions-at-a-glance-2023 . Accessed: July 4, 2025.