Tonster521 mentioned something that I have been thinking about since I completed my 2022 tax submission. You mentioned the "exclusion approach" whereby income from annuities and pensions would be excluded from the calculation used to determine the portion of my Social Security income that would be taxable. I've been considering this because 2022 was the year I first started receiving payments from Social Security.
I wasn't surprised that my SS income was partially taxable (in fact, I agree with the concept of taxing a portion for higher income recipients), What surprised me was that my other retirement income ( reported on 1099-R forms) was included in the taxability calculation. I was a bit surprised for two reasons:
1. The original Social Security Act was implemented specifically to encourage (you might say strongly encourage) individuals to set back a portion of their earnings during their work years so they would have a safety net when they retired. So, when the government uses my 1099-R income to determine taxability on my SS income, they are, in effect, penalizing me for doing a good job of setting back money for retirement, which is exactly what the original SS Act encouraged me to do. So, the person who spends their additional income during their work years instead of setting it back for retirement, get to keep 100% of their SS income, whereas those of us who did what the government asked us to do are penalized. (Please, keep in mind, I am not talking about folks who did not have extra income to put back. That I understand and support completely)
2. Including my 1099-R income in the taxability calculation seems like a double taxation on my retirement income basis. For instance, if I am in a 20% tax bracket and 85% of my SS income is taxable, then the IRS will take 20% of my 1099-R income and an additional 17% (0.85 times 0.20) of my SS income. (correct me if my math is wrong.)
My other incomes, e.g. wages, interest, stock sales, etc., being included in the taxability calculation makes sense to me, but including my 1099-R income makes it appear like the government is talking out of both sides of their mouth. On the one hand, they encourage me to put back money for retirement, while on the other hand they take back part of what I receive in Soc Sec. Sort of like saying, "do exactly what we tell you to do so we can punish you for it".
Just my ramblings......