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reversed a longstanding practice of excluding Social Security
benefits from income. See S. Rept. 98-23, at 25 (1983), 1983-2
C.B. 326, 327. Congress concluded that “social security benefits
are in the nature of benefits received under other retirement
systems,” and like other retirement benefits, should be taxed to
the extent “they exceed a worker’s after-tax contributions”.
Id. at 25-26, 1983-2 C.B. at 328. The maximum portion of taxable
benefits was set at one-half in recognition of the fact the
Social Security benefits are partially financed by the after-tax
contributions of employees and self-employed individuals. Id.
In short, by taxing only a portion of the benefits, Congress
intended to allow taxpayers some cost recovery for their
contributions (i.e., for the taxes they pay into the Social
Security system). Section 86 was amended for 1994 and succeeding
years to require that if the sum of a taxpayer’s modified
adjusted gross income plus one-half of Social Security benefits
exceeds $44,000, the taxpayer must include in income up to 85
percent of the Social Security benefits. Omnibus Budget
Reconciliation Act of 1993 (OBRA), Pub. L. 103-66, sec. 13215(b),
107 Stat. 476.
The method chosen by Congress to tax Social Security
benefits differs from the manner in which other retirement
benefits are taxed; viz, allowing taxpayers to exclude from
retirement benefits an amount representing an aliquot share of
their investment in the retirement plan. See, e.g., sec. 72.
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