Higher income individuals pay more in taxes and sometimes lose benefits, but not to the extent that it makes them worse off than those who don’t earn as much. Image: supawat bursuk/Shutterstock.com
We recently wrote about various earnings tests and described how earned income is different from taxable income. Earned income is, per Social Security, gross wages and net self-employment income. Taxable income is more than that. It can include investment income, pensions like FERS, lump sum leave payments, and more.
When we consider taxable income, we are looking at numbers the Internal Revenue Service considers as “adjusted gross income” or, sometimes, “modified adjusted gross income”. These numbers, if high enough, can trigger extra taxes and fees. They are often used in “means tests” which can result in taxpayers having to pay more for government services or receiving less in government benefits.
Let’s look at some cases in which having a higher income can negatively affect us tax or fee wise.
In the “Great Recession” in 2008, legislation was enacted that provided a stimulus payment of $600 for single filers and $1,200 for joint filers. But if your income was over $75,000 (single filing status) or $150,000 (joint filing status) you were not eligible for the payments.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 paid up to $1,200 per adult and $500 per child but was reduced if your income was over $75,000 (single filing status) or $150,000 (joint filing status).
In 2021, the American Rescue Plan offered $1,400 per individual and $2,800 for joint filers, with an additional $1,400 for each qualifying dependent. But the same thresholds for reducing the payments that were in effect in the two previous cited incidents were in effect.
Medicare Part B premiums face an income related monthly adjustment. Higher income individuals pay a higher monthly premium than those below the income thresholds. Here are the 2024 income limits.
Single filing status | Premium
Less than $103,000 | $174.70
Between $103,001 and $129,000 | $244.60
Between $129,001 and $161,000 | $349.40
Between $161,001 and $193,000 | $454.20
Between $193,001 and $500,000 | $559.00
Over $500,000 | $594.00
Joint filing status | Premium
Less than $206,000 | $174.70
Between $206,001 and $258,000 | $244.60
Between $258,001 and $322,000 | $349.40
Between $322,001 and $386,000 | $454.20
Between $386,001 and $750,000 | $559.00
Over $750,000 | $594.00
Going back to the days before the “Tax Cut and Jobs Act” of 2017, those who itemized their deductions had their deductions reduced if their income was above a certain level.
Higher income individuals pay more in taxes and sometimes lose benefits, but not to the extent that it makes them worse off than those who don’t earn as much. Using the Medicare Part B premiums as an example, if my income as a joint filer was over $750,000, I could afford the $594.00 monthly premium more easily than the average wage earner could afford the base premium of $174.70.
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See also,
Legal: How to Challenge a Federal Reduction in Force (RIF) in 2025
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