ASSISTANT SECRETARY 

The Honorable Joseph R. Biden 

President of the Senate 

Washington, DC 20510 

Dear President Biden: 

DEPARTMENT OF T HE TREASURY 

WASHINGTON, D.C. 20220 

March 18, 2014 

Section 121 ofthe Social Security Amendments of 1983 (P.L. 98-21), directs the Secretary ofthe 

Treasury to transfer from the general fund of the Treasury to the Social Security and Railroad 

Retirement trust funds amounts equivalent to the tax liabilities attributable to the taxation of 

Social Security and Railroad Retirement benefits. Section 121 further provides that the Secretary 

ofthe Treasury shall submit annual reports concerning (1) the transfers made that year, and the 

methodology used in determining the amount of such transfers and the funds of accounts to 

which made, and (2) the anticipated operation of the transfers during the next five years. 

Pursuant to Section 121, enclosed is the "Report on the Taxation of Social Security and Railroad 

Retirement Benefits in Calendar Years 2005 through 2009." 

Sincerely, 

;j I 

!~ I I>' ("''h • }~ 

Alastair M. Fitzpayne 

Assistant Secretary for Legislative Affairs 

Enclosure 
ASSISTANT SECRETARY 

The Honorable John A. Boehner 

Speaker of the House 

U.S. House ofRepresentatives 

Washington, DC 20515 

Dear Speaker Boehner: 

DEPARTMENT OF THE TREASURY 

WASHINGTON, D.C. 20220 

March 18, 2014 

Section 121 of the Social Security Amendments of 1983 (P.L. 98-21), directs the Secretary ofthe 

Treasury to transfer from the general fund of the Treasury to the Social Security and Railroad 

Retirement trust funds amounts equivalent to the tax liabilities attributable to the taxation of 

Social Security and Railroad Retirement benefits. Section 121 further provides that the Secretary 

ofthe Treasury shall submit annual reports concerning (1) the transfers made that year, and the 

methodology used in determining the amount of such transfers and the funds of accounts to 

which made, and (2) the anticipated operation of the transfers during the next five years. 

Pursuant to Section 121, enclosed is the "Report on the Taxation of Social Security and Railroad 

Retirement Benefits in Calendar Years 2005 through 2009." 

Sincerely, 

{ .,,.., /t.,,_,.! -~ Alastair M. Fitzpayne 

Assistant Secretary for Legislative Affairs 

Enclosure 
DEPARTMENT OF THE TREASURY 

WASHINGTON, D.C. 20220 

ASSISTANT SECRETARY 

March 18, 2014 

The Honorable Kathleen Sebelius 

Secretary 

Department of Health and Human Services 

200 Independence A venue SW 

Washington, DC 20201 

Dear Secretary Sebelius: 

Section 121 of the Social Security Amendments of 1983 (P.L. 98-21), directs the Secretary ofthe 

Treasury to transfer from the general fund of the Treasury to the Social Security and Railroad 

Retirement trust funds amounts equivalent to the tax liabilities attributable to the taxation of 

Social Security and Railroad Retirement benefits. Section 121 further provides that the Secretary 

ofthe Treasury shall submit annual reports concerning (1) the transfers made that year, and the 

methodology used in determining the amount of such transfers and the funds of accounts to 

which made, and (2) the anticipated operation of the transfers during the next five years. 

Pursuant to Section 121, enclosed is the "Report on the Taxation of Social Security and Railroad 

Retirement Benefits in Calendar Years 2005 through 2009." 

Sincerely, 

'\ 

I ,. 

-l

r 

_)[al 

1 • 

t Vi /,~ . ,_,., , \,.J t,..o...... 

Alastair M. Fi~a~e Assistant Secretary for Legislative Affairs 

Enclosure 
DEPARTMENT OF THE TREASURY 

WASHINGTON, D.C. 20220 

ASSISTANT SECRETARY 

The Honorable Carolyn W. Colvin 

Commissioner 

Social Security Administration 

Altmeyer Building 

6401 Security Blvd. 

Baltimore, MD 21235 

Dear Commissioner Colvin: 

March 18,2014 

Section 121 of the Social Security Amendments of 1983 (P.L. 98-21), directs the Secretary ofthe 

Treasury to transfer from the general fund of the Treasury to the Social Security and Railroad 

Retirement trust funds amounts equivalent to the tax liabilities attributable to the taxation of 

Social Security and Railroad Retirement benefits. Section 121 further provides that the Secretary 

of the Treasury shall submit annual reports concerning (1) the transfers made that year, and the 

methodology used in determining the amount of such transfers and the funds of accounts to 

which made, and (2) the anticipated operation of the transfers during the next five years. 

Pursuant to Section 121, enclosed is the "Report on the Taxation of Social Security and Railroad 

Retirement Benefits in Calendar Years 2005 through 2009." 

Sincerely, 

tv( ·" l ~ {A,P"/ ·'-

Alastair M. Fitzpayne 

Assistant Secretary for Legislative Affairs 

Enclosure 
DEPARTMENT OF THE TREASURY 

WASHINGTON, D.C. 20220 

ASSISTANT SECRETARY 

The Honorable MichaelS. Schwartz 

Chairman 

Railroad Retirement Board 

1310 G StreetNW 

Washington, DC 20005 

Dear Chairman Schwartz: 

March 18, 2014 

Section 121 ofthe Social Security Amendments of 1983 (P.L. 98-21), directs the Secretary ofthe 

Treasury to transfer from the general fund of the Treasury to the Social Security and Railroad 

Retirement trust funds amounts equivalent to the tax liabilities attributable to the taxation of 

Social Security and Railroad Retirement benefits. Section 121 further provides that the Secretary 

of the Treasury shall submit annual reports concerning ( 1) the transfers made that year, and the 

methodology used in determining the amount of such transfers and the funds of accounts to 

which made, and (2) the anticipated operation of the transfers during the next five years. 

Pursuant to Section 121, enclosed is the "Report on the Taxation of Social Security and Railroad 

Retirement Benefits in Calendar Years 2005 through 2009." 

Enclosure 

Sincerely, 

1 

~ ~l ~ 

Alastair M. Fitzpayne 

Assistant Secretary for Legislative Affairs 
ASSIST ANT SECRETARY 

The Honorable Joseph C. Szabo 

Administrator 

Federal Railroad Administration 

1200 New Jersey Avenue SE 

Washington, DC 20590 

Dear Administrator Szabo: 

DEPARTMENT OF THE TREASURY 

WASHINGTON, D.C. 20220 

March 18, 2014 

Section 121 ofthe Social Security Amendments of 1983 (P.L. 98-21), directs the Secretary ofthe 

Treasury to transfer from the general fund of the Treasury to the Social Security and Railroad 

Retirement trust funds amounts equivalent to the tax liabilities attributable to the taxation of 

Social Security and Railroad Retirement benefits. Section 121 further provides that the Secretary 

ofthe Treasury shall submit annual reports concerning (1) the transfers made that year, and the 

methodology used in determining the amount of such transfers and the funds of accounts to 

which made, and (2) the anticipated operation of the transfers during the next five years. 

Pursuant to Section 121, enclosed is the "Report on the Taxation of Social Security and Railroad 

Retirement Benefits in Calendar Years 2005 through 2009." 

Enclosure 

Sincerely, 

f:&,., ~ h,\f'Tc 

Alastair M. Fitzpayne 

Assistant Secretary for Legislative Affairs 
ASSISTANT SECRETARY 

The Honorable Joseph R. Biden 

President of the Senate 

Washington, DC 20510 

Dear President Biden: 

DEPARTMENT OF THE TREASURY 

WASHINGTON, D.C. 20220 

March 18, 2014 

Section 121 ofthe Social Security Amendments of 1983 (P.L. 98-21), directs the Secretary ofthe 

Treasury to transfer from the general fund of the Treasury to the Social Security and Railroad 

Retirement trust funds amounts equivalent to the tax liabilities attributable to the taxation of 

Social Security and Railroad Retirement benefits. Section 121 further provides that the Secretary 

of the Treasury shall submit annual reports concerning ( 1) the transfers made that year, and the 

methodology used in determining the amount of such transfers and the funds of accounts to 

which made, and (2) the anticipated operation of the transfers during the next five years. 

Pursuant to Section 121, enclosed is the "Report on the Taxation of Social Security and Railroad 

Retirement Benefits in Calendar Years 2005 through 2009." 

Sincerely, 

't il ' , .{ •" :J/-<-< r l r-/rv-r.v}~ I I 

Alastair M. Fitzpayne 

Assistant Secretary for Legislative Affairs 

Enclosure 
ASSISTANT SECRETARY 

The Honorable John A. Boehner 

Speaker of the House 

U.S. House ofRepresentatives 

Washington, DC 20515 

Dear Speaker Boehner: 

DEPARTMENT OF THE TREASURY 

WASHINGTON, D .C. 20220 

March 18, 2014 

Section 121 of the Social Security Amendments of 1983 (P.L. 98-21), directs the Secretary ofthe 

Treasury to transfer from the general fund of the Treasury to the Social Security and Railroad 

Retirement trust funds amounts equivalent to the tax liabilities attributable to the taxation of 

Social Security and Railroad Retirement benefits. Section 121 further provides that the Secretary 

ofthe Treasury shall submit annual reports concerning (1) the transfers made that year, and the 

methodology used in determining the amount of such transfers and the funds of accounts to 

which made, and (2) the anticipated operation of the transfers during the next five years. 

Pursuant to Section 121, enclosed is the "Report on the Taxation of Social Security and Railroad 

Retirement Benefits in Calendar Years 2005 through 2009." 

Sincerely, 

~~ .,,._., {.'?'! ,_... 

Alastair M. Fitzpayne 

Assistant Secretary for Legislative Affairs 

Enclosure 
DEPARTMENT OF THE TREASURY 

WASHINGTON , D .C. 20220 

ASSISTANT SECRETARY 

March 18, 2014 

The Honorable Kathleen Sebelius 

Secretary 

Department of Health and Human Services 

200 Independence Avenue S W 

Washington, DC 20201 

Dear Secretary Sebelius: 

Section 121 ofthe Social Security Amendments of 1983 (P.L. 98-21), directs the Secretary ofthe 

Treasury to transfer from the general fund of the Treasury to the Social Security and Railroad 

Retirement trust funds amounts equivalent to the tax liabilities attributable to the taxation of 

Social Security and Railroad Retirement benefits. Section 121 further provides that the Secretary 

ofthe Treasury shall submit annual reports concerning (1) the transfers made that year, and the 

methodology used in determining the amount of such transfers and the funds of accounts to 

which made, and (2) the anticipated operation of the transfers during the next five years. 

Pursuant to Section 121, enclosed is the "Report on the Taxation of Social Security and Railroad 

Retirement Benefits in Calendar Years 2005 through 2009." 

Enclosure 

Sincerely, 

A( /· l~x ; ;!-lfr-; ~~ 

Alastair M. FiJpa}'ne 

Assistant Secretary for Legislative Affairs 
DEPARTMENT OF THE TREASURY 

WASHINGTON, D .C. 20220 

ASSISTANT SECRETARY 

The Honorable Carolyn W. Colvin 

Commissioner 

Social Security Administration 

Altmeyer Building 

6401 Security Blvd. 

Baltimore, MD 21235 

Dear Commissioner Colvin: 

March 18 ~ 2014 

Section 121 of the Social Security Amendments of 1983 (P.L. 98-21), directs the Secretary of the 

Treasury to transfer from the general fund of the Treasury to the Social Security and Railroad 

Retirement trust funds amounts equivalent to the tax liabilities attributable to the taxation of 

Social Security and Railroad Retirement benefits. Section 121 further provides that the Secretary 

of the Treasury shall submit annual reports concerning (1) the transfers made that year, and the 

methodology used in determining the amount of such transfers and the funds of accounts to 

which made, and (2) the anticipated operation of the transfers during the next five years. 

Pursuant to Section 121, enclosed is the "Report on the Taxation of Social Security and Railroad 

Retirement Benefits in Calendar Years 2005 through 2009." 

Sincerely, 

~J r Lq ·" <-~ I f 11 ~, ).>llr' 

Alastair M. Fitzpayne 

Assistant Secretary for Legislative Affairs 

Enclosure 
DEPARTMENT OF THE TREASURY 

WASHINGTON, D.C. 20220 

ASSISTANT SECRETARY 

The Honorable Michael S. Schwartz 

Chairman 

Railroad Retirement Board 

1310 G Street NW 

Washington, DC 20005 

Dear Chairman Schwartz: 

March 18, 2014 

Section 121 of the Social Security Amendments of 1983 (P.L. 98-21), directs the Secretary of the 

Treasury to transfer from the general fund of the Treasury to the Social Security and Railroad 

Retirement trust funds amounts equivalent to the tax liabilities attributable to the taxation of 

Social Security and Railroad Retirement benefits. Section 121 further provides that the Secretary 

of the Treasury shall submit annual reports concerning (1) the transfers made that year, and the 

methodology used in determining the amount of such transfers and the funds of accounts to 

which made, and (2) the anticipated operation of the transfers during the next five years. 

Pursuant to Section 121, enclosed is the "Report on the Taxation of Social Security and Railroad 

Retirement Benefits in Calendar Years 2005 through 2009." 

Sincerely, 

Alastair M. Fitzpayne 

Assistant Secretary for Legislative Affairs 

Enclosure 
ASSISTANT SECRETARY 

The Honorable Joseph C. Szabo 

Administrator 

Federal Railroad Administration 

1200 New Jersey Avenue SE 

Washington, DC 20590 

Dear Administrator Szabo: 

DEPARTMENT OF THE TREASURY 

WASHINGTON, D.C. 20220 

March 18, 2014 

Section 121 of the Social Security Amendments of 1983 (P.L. 98-21), directs the Secretary of the 

Treasury to transfer from the general fund of the Treasury to the Social Security and Railroad 

Retirement trust funds amounts equivalent to the tax liabilities attributable to the taxation of 

Social Security and Railroad Retirement benefits. Section 121 further provides that the Secretary 

of the Treasury shall submit annual reports concerning ( 1) the transfers made that year, and the 

methodology used in determining the amount of such transfers and the funds of accounts to 

which made, and (2) the anticipated operation of the transfers during the next five years. 

Pursuant to Section 121, enclosed is the "Report on the Taxation of Social Security and Railroad 

Retirement Benefits in Calendar Years 2005 through 2009." 

Enclosure 

Sincerely, 

t.f,, ~-., ,; /, r~ ·' < 

Alastair M. Fitzpayne 

Assistant Secretary for Legislative Affairs 
Report on the Taxation of 

Social Security and Railroad Retirement Benefits 

in Calendar Years 2005 through 2009 

Report to the Congress, 

the Secretary of Health and Human Services, 

the Social Security Administration, 

the Railroad Retirement Board, 

and the Federal Railroad Administration 

February 2014 
TABLE OF CONTENTS 

()1)1J(:1L.I()~ ~ s;~1{ ................................................................... ! 

CHAPTER 1: :METHODOLOGY AND ESTIMATES OF THE TAX LIABILITY 

ATTRIBUTABLE TO THE TAXA1L.ION OF BENEFITS FOR 

CALENDAR YEARS 2005 THROUGH 2009 •••••••••••••••••••••••••••••••••••••• 5 

I. Methodology for Estimating Tax Liability .............................................. 5 

II. Estimates of Tax Liability Attributable to the Taxation of Benefits in Calendar 

Years 2005 through 2009 .................................................................. 6 

CHAPTER 2: :METHODOLOGY FOR ESTIMA1L.ING TRANSFERS AND 

CALCULA1L.ING ADJUST:MENTS TO TRANSFERS FOR LIABILITY IN 

CALENDAR YEARS 2005 THROUGH 2009 ••••.••••.•••.••••••••.••••.••.••••• 13 

I. Methodology for Estimating Quarterly Transfer Amounts ........................ 13 

II. Methodology for Adjustments to Transfers of Estimated Amounts ............... 14 

ill. Transfers of Estimated Amounts and Adjustments to Transfers for Liability in 

Calendar Years 2005 through 2009 ............ ......... ......... ...................... 14 

CHAPTER 3: FORECAST OF TRANSFERS TO TRUST FUNDS FOR CALENDAR 

YEARS 2010 THROUGH 2014 ...................................................... 17 

I. Forecasting Methodology ................................................................ 17 

II. Forecasts of Transfers to the Trust Funds ............................................ 17 
INTRODUCTION AND SUMMARY 

I. Introduction 

Since January of 1984, the Treasury Department has been required to estimate the 

individual income tax liabilities attributable to the inclusion of Social Security (Federal Old Age 

and Survivors and Federal Disability Insurance) and Railroad Social Security Equivalent benefits 

in adjusted gross income (AGI) for each liability year. These estimated tax liabilities are 

transferred from the general fund to the Federal Old Age and Survivors Insurance (FOASI), 

Federal Disability Insurance (FDI), and Railroad Social Security Equivalent Benefit Account 

(SSEBA) trust funds on a quarterly basis. Since 1994, transfers have also been made to the 

Federal Hospital Insurance (Medicare) trust fund (FHI). The amounts transferred to these trust 

funds are calculated as the difference between forecasts oftax liabilities made with and without 

the inclusion of forecasted levels ofbenefits in AGI. Both the taxation ofbenefits and the 

transfers to the trust funds are required by the Social Security Amendments of 1983 (P.L. 98-21), 

as amended by the Railroad Retirement Solvency Act of 1983 (P .L. 98-76), the Consolidated 

Budget Reconciliation Act of 1985 (P .L. 99-272), and the Omnibus Budget and Reconciliation 

Act of 1993 (OBRA 93) (P.L. 103-66). P.L. 98-21 also requires that correcting adjustments be 

made to the amounts transferred to the trust funds if the estimates of the tax liability attributable 

to the benefits are subsequently shown to differ from final amounts. 

In addition, P.L. 98-21 requires the Treasury Department to submit annual reports to the 

Congress, the Secretary of Health and Human Services, and the Railroad Retirement Board 

containing both a description of the methodology used to estimate the transfers to the trust funds 

and a forecast of transfers over the five subsequent years. The Treasury Department's Office of 

Tax Analysis (OTA) is responsible for estimating the original transfers to the trust funds, 

calculating the correcting adjustments when final amounts ofliability become available, and 

preparing these mandated reports. This report covers a five year period, and describes (1) the 

original liability estimates and transfers to the trust funds for calendar years 2005 through 2009, 

(2) the necessary correcting adjustments to the transfers for those same calendar years, and (3) 

the forecast ofliability and transfers for calendar years 2010 through 2014. 1 

To determine if any benefits were taxable in calendar years 2005 through 2009, taxpayers 

had to add both tax-exempt interest income and one-half of Social Security and Railroad Social 

Security Equivalent benefits to AGI. This augmented AGI is referred to as provisional income. 

If provisional income exceeded thresholds of$25,000 for single filers and $32,000 for joint 

filers, taxpayers were required to include in AGI the lesser of one-half of the benefits or one-half 

of the excess of provisional income over the thresholds. If provisional income exceeded $34,000 

for single filers and $44,000 for joint filers, taxpayers were required to include in AGI the lesser 

of: 

1. 85 percent of the recipient's Social Security or Railroad Social Security Equivalent 

benefit, or 

2. the sum of 

a. the smaller of (i) the amount included under the lower thresholds or (ii) $4,500 

(for single filers) or $6,000 (for joint filers) 

1 
plus 

b. 85 percent of the excess of the recipient's provisional income over the applicable 

second provisional income threshold? 

None of the provisional income thresholds are indexed for inflation. Certain married 

beneficiaries not filing joint returns had a provisional income threshold of zero. The AGI of 

these individuals included the lesser of85 percent ofthe beneficiary's Social Security or Railroad 

Social Security Equivalent benefit or 85 percent of the recipient's provisional income. Overall, 

for the highest income beneficiaries, a maximum of 85 percent of Social Security or Railroad 

Social Security Equivalent benefits was includable in AGI. 

For beneficiaries whose provisional incomes are above the first threshold but below the 

second threshold, the tax liabilities attributable to the included benefits are transferred to the 

FOASI and FDI (Social Security) trust funds and the Railroad Social Security Equivalent benefit 

trust fund. For beneficiaries whose provisional incomes are above the second threshold, the tax 

liabilities attributable to the additional included benefits are transferred to the FHI (Medicare) 

trust fund. 

To summarize, the Office of Tax Analysis estimates the income tax liability attributable 

to the partial inclusion ofFOASI, FDI and SSEBA benefits in adjusted gross income and 

estimates the amounts to be transferred to the corresponding trust funds plus the FHI (Medicare) 

trust fund.3 Subsequently, OTA makes adjustments to correct the amounts put into each fund. 

Throughout the report, some tables will show benefits and/or tax liability by income source 

(FOASI, FDI or SSEBA benefits) while others will show the amounts transferred to the various 

trust funds (FOASI, FDI, SSEBA or FHI). 

II. Summary 

The Summary Table shows OTA's original tax liability estimates by benefit source and 

the transfers made to the trust funds based on those estimates, the adjusting transfers 

subsequently made, and the resulting net amounts transferred to each trust fund for each calendar 

year. For example, for calendar year 2005, OTA initially estimated that the tax liability 

attributable to partial inclusion of Social Security and Railroad Social Security Equivalent 

benefits was $24,237 million. Of this amount, $22,456 million was attributable to the inclusion 

ofFOASI benefits, $1,604 million was attributable to the inclusion ofFDI benefits, and $177 

million was attributable to the inclusion of SSEBA benefits. 

Based on these estimates, transfers of$13,698 million, $1,068 million, $9,354 million, 

and $117 million were made from the general fund to the FOASI, FDI, FHI, and SSEBA trust 

funds, respectively. OT A subsequently determined that the amount of tax liability calculated 

from actual 2005 tax return data was $653 million less than the amount originally transferred. 

Transfers to the FOASI, FDI, and FHI trust funds were overstated by $64 million, $323 million, 

and $274 million respectively, while transfers to the SSEBA trust fund were understated by $8 

million. Correcting adjustments to the FOASI, FDI, and SSEBA trust funds were made in April 

2009 and October 2011. Correcting adjustments to the FHI trust fund were made in June 2009 

and January 2012.4 The resulting net amount transferred for calendar year 2005 liability was 

2 
$23,584 million. Of this amount, $13,634 was transferred to the FOASI trust fund, $745 million 

was transferred to the FDI trust fund, $9,080 was transferred to the FHI trust fund, and $125 

million was transferred to the SSEBA trust fund. 

This report provides the detail supporting the tax liability and transfer amounts. Chapter 

1 presents OTA's methodology for estimating the tax liability attributable to the inclusion of 

benefits in AGI and presents a comparison of estimates to actual amounts of income tax liability 

calculated from tax return data for calendar years 2005 through 2009. Chapter 2 presents the 

methodologies for estimating the initial amounts to be transferred to the trust funds and the 

subsequent correcting adjustments. The chapter also presents those initial transfer amounts and 

the correcting adjustments for 2005 through 2009 liabilities. Chapter 3 presents the forecast of 

transfers of estimated amounts to the trust funds for calendar years 2010 through 2014. 

3 
Summary Table 

Calendar Y can· Millions of Dollars 

2005 2006 2007 2008 2009 

Original Liability Estimate Attributable To 

FOASI Benefits 22,456 24,896 28,057 29,425 32,304 

FDI Benefits 1,604 1,837 2,081 2,427 2,708 

SSEBA Benefits 177 190 207 217 228 

Total Original Liability Estimates 24.237 26,923 30,345 32,069 35,240 

Original Transfers Made To 

FOASI Trust Fund 13,698 15,437 17,047 18,564 19,778 

FDI Trust Fund 1,068 1.253 1,389 1,598 1,916 

FHI Trust Fund 9,354 10.108 11,774 11,763 13,402 

SSEBA Trust Fund 117 125 135 144 144 

Total Original Transfers 24,237 26,923 30,345 32,069 35,240 

Subsequent Correcting Adjwttncnts Made To 

FOASI Trust Fund Transfers -64 438 987 -683 -2,357 

FDI Trust Fund Transfers -323 -401 -420 -594 -870 

FHI Trust Fund Transfers -274 618 598 425 -1,497 

SSEBA Trust Fund Transfers 8 24 35 24 20 

Total Trust Fund Transfers -653 679 1,200 -828 -4,704 

Net Amounts Transferred To 

FOASI Trust Fund 13.634 15,875 18,034 17,881 17,421 

FDI Trust Fund 745 852 969 1,004 1,046 

FHI Trust Fund 9,080 10,726 12,372 12,188 11,905 

SSEBA Trust Fund 125 149 170 168 164 

Total Net Amounts 23,584 27,602 31,545 31.241 30,536 

Dcparttnent of the Treasury 

Office ofT ax Analysis 

4 
CHAPTER 1: METHODOLOGY AND ESTIMATES OF THE TAX LIABILITY 

ATTRIBUTABLE TO THE TAXATION OF BENEFITS FOR CALENDAR 

YEARS 2005 THROUGH 2009 

I. Methodology for Estimating Tax Liability 

The Office ofTax Analysis (OTA) is responsible for estimating the annual tax liability 

attributable to the partial inclusion of Social Security and Railroad Social Security Equivalent 

benefits received in AGI, making quarterly transfers from the general fund to the trust funds 

based on these estimates, and calculating correcting adjustments to amounts initially transferred. 

OT A provides this information to the Treasury Department's Bureau of the Fiscal Service, which 

has the authority to transfer funds between the general revenue fund and the trust funds as 

necessary. 

OTA estimated the amount oftax liability attributable to the inclusion of Social Security 

benefits in AGI for each of the years 2005 through 2009 using results from OTA's Individual 

Income Tax Model (ITM).5

• 

6 The ITM is OTA's primary tool for preparing revenue estimates 

and analyzing taxpayer behavior. For this application, the ITM was used to account fully for 

changes in all individual income tax provisions resulting from the inclusion ofbenefits in AGI. 

That is, in addition to the direct effect on tax liability of including benefit income, the use of 

deductions and credits, as well as the calculations of alternative minimum tax liabilities, can be 

affected by the inclusion ofbenefits in AGJ.1 

The ITM is built on a stratified random sample of individual income tax returns contained 

in the Internal Revenue Service's Statistics oflncome (SOl) file. ITM computations are 

weighted to produce results that are representative of the entire population oftaxpayers. Tax 

returns alone, however, do not provide sufficient data to estimate the tax liability effects of the 

partial inclusion of Social Security and Railroad Social Security Equivalent benefits in AGI. 

Therefore, imputations are added to the ITM to compensate for the missing data. The Social 

Security Administration and the Railroad Retirement Board provide information on the total 

amounts ofbenefits paid to recipients. These amounts are distributed among appropriate 

taxpayers on the ITM using, as a guide, two important data sources: (1) a file ofForm SSA-1099 

and Form RRB-1099 information returns that are matched to the SOl file; and (2) Current · 

Population Survey data from the Census Bureau to aid in matching benefits to recipients who 

were not required to file a tax return. Records on the ITM are extrapolated to future years in 

accordance with the Administration's macroeconomic forecast in use at the time of the 

extrapolation. In general, the ITM is extrapolated twice per calendar year: once as part of the 

production of the Administration's budget, submitted to Congress each February, and once as 

part of the production of the Administration's mid-session review, submitted to Congress each 

summer. As part of each extrapolation, total Social Security and Railroad Social Security 

Equivalent benefits are projected to grow at the rates indicated in benefits forecasts provided by 

the Social Security Administration and the Railroad Retirement Board. 

The base year for the ITM extrapolation is updated approximately every three years. 

Estimates for calendar years 2005 and 2006 were made using a 200 1-based ITM. That is, OT A 

extrapolated sample tax returns, SSA-1099 forms, RRB-1099 forms, and CPS data for 2001. 

5 
Estimates for 2007,2008, and 2009 were made using a 2004-based ITM. OTA extrapolated 

sample tax returns, SSA-1099 forms, RRB-1099 forms and CPS data for 2004. 

The ITM uses the tax return information, the imputations, and extrapolations to estimate 

the amount of Social Security and Railroad Social Security Equivalent benefits included in AGI 

and the Federal income tax liability attributable to the inclusion of those benefits for all of the 

filing units in the model. To do this, each tax unit's liability is estimated with and without the 

inclusion ofbenefits received by that tax unit. The difference between those two levels of 

income tax liability equals the tax liability attributable to the inclusion ofbenefits. The ITM 

results are used to calculate both the percentage oftotal benefits included in AGI and the average 

effective marginal tax rates applicable to the taxable benefits. Final estimates of tax liability 

attributable to the partial inclusion ofbenefits are produced using a spreadsheet-based model. 

This model blends the estimates of the percent ofbenefits in AGI and the average effective 

marginal tax rates with more recent tax return information (not available when the ITM is 

extrapolated) and the most current tax collection information. As will be discussed in Chapter 2, 

Section I, these liability estimates are transferred to the FOASI, FDI, FHI, and SSEBA trust 

funds. 

The Social Security Amendments of 1983 require adjustments to the trust funds if actual 

tax return data subsequently reveal that the initial transfers were incorrect. To determine if 

adjustments are required, it is necessary to determine the actual tax liability attributable to the 

inclusion ofbenefits in AGI. To calculate this actual tax liability, the IRS created data files 

based on Form 1040 records for each ofthe calendar years 2005 through 2009. All filers who 

reported taxable Social Security or Railroad Social Security Equivalent benefits on their Form 

1040 were included in these data files (as opposed to the data used to determine the original 

transfer estimates, which are sample data). The methodology for determining the adjustments to 

the estimated transfers is discussed in Chapter 2, Section II. 

II. Estimates of Tax Liability Attributable to the Taxation of Benefits in 

Calendar Years 2005 to 2009 

Tables 1.A through 1.E compare the assumptions and parameters used to determine the 

estimates of tax liability with the parameters calculated from actual tax return and benefit data 

for each calendar year from 2005 to 2009. As noted above, the parameters used in the estimates 

are determined from a base year ofSOI sample data, other data sources, and an extrapolation 

algorithm while the parameters used to calculate actual liabilities are based on IRS population 

data. 

For example, the top section ofTable l.A shows that OTA estimated that $123,409 

million of$521,090 million in total benefits (23.68 percent) would be included in AGI for 

calendar year 2005. The estimated tax liability attributable to those benefits was $24,237 

million, for an average effective marginal tax rate of 19.64 percent. The bottom section of the 

table shows that, based on calendar year 2005 tax return and benefits data, $123,583 million of 

$525,649 million in total benefits (23.51 percent) were included in AGI. The actual tax liability 

attributable to those benefits was $23,584 million, for an average effective marginal tax rate of 

19.08 percent. 

6 
Continuing the example, the total liability estimate for calendar year 2005 was the sum of 

the estimates of the tax liability attributable to the partial inclusion of FOASI, FDI, and SSEBA 

benefits. The top section ofTable l.A shows that OTA estimated that $113,271 million of 

$433,007 million in FOASI benefits (26.16 percent) would be included in AGI. The estimated 

tax liability attributable to those benefits was $22,456 million, for an average effective marginal 

tax rate of 19.83 percent. The bottom section of the table shows that, based on calendar year 

2005 tax return and benefits data, $115,530 million of $434,803 million in FOASI benefits 

(26.57 percent) were included in AGI. The actual tax liability attributable to those benefits was 

$22,221 million, for an average effective marginal tax rate of 19.23 percent. 

In 2005, the estimated inclusion rates for benefits in AGI and average effective marginal 

tax rates for FDI beneficiaries are lower than those for FOASI recipients. The top section of 

Table l.A shows that OTA estimated that $9,135 million of$82,617 million in FDI benefits 

(11.06 percent) would be included in AGI. The estimated tax liability attributable to those 

benefits was $1,604 million, for an average effective marginal tax rate of 17.56 percent. The 

bottom section of the table shows that, based on calendar year 2005 tax return and benefits data, 

$6,953 million of$85,376 million in FDI benefits (8.14 percent) were included in AGI. The 

actual tax liability attributable to those benefits was $1,172 million, for an average effective 

marginal tax rate of 16.86 percent. 

Also in 2005, the estimated inclusion rates for benefits in AGI and average effective 

marginal tax rates for Railroad SSEBA beneficiaries are slightly lower than for FOASI 

beneficiaries but higher than for FDI recipients. The top section of Table l.A shows that OTA 

estimated that $1,003 million of$5,466 million in SSEBA benefits (18.35 percent) would be 

included in AGI. The estimated tax liability attributable to those included benefits was $177 

million, for an average effective marginal tax rate of 17.65 percent. The bottom section of the 

table shows that, based on calendar year 2005 tax return and benefits data, $1,100 million of 

$5,470 million in SSEBA benefits (20.12 percent) were included in AGI. The actual tax liability 

attributable to included SSEBA benefits was $191 million, for an average effective marginal tax 

rate of 17.36 percent. 

7 
Table I .A 

Comparison of Parameters Used to Estimate Tax Liability Attributable to the 

Partial Inclusion of Benefits In AGI with Parameters Calculated from Actual Amounts 

Calendar Year 2005/1 

Benefit Source 

Federal Old-Age and Survivors Insurance 

Federal Disability Insurance 

Railroad Social Security Equivalent Benefits 

Total 

Federal Old-Age and Survivors Insurance 

Federal Disability Insurance 

Railroad Social Security Equivalent Benefits 

Total 

Department of the Treaswy 

Office of Tax Analysis 

Total 

Benefits 

Paid/2 

433,007 

82,617 

5,466 

521,090 

434,803 

85,376 

5,470 

525,649 

Benefits 

Includable 

inAGI/2 

113,271 

9,135 

1,003 

123,409 

115,530 

6,953 

1,100 

123,583 

Percent of 

Total Benefits 

Includable in AGI 

Estimate Parameters /3 

26.16% 

11.06% 

18.35% 

23.68% 

Actual Parameters /4 

26.57% 

8.14% 

20.12% 

23.51% 

Tax Liabilities 

on Benefits 

Includable 

lnAGI /2 

22,456 

1,604 

177 

24,237 

22,221 

1,172 

191 

23,584 

1/ Estimated tax liabilities were updated on a semi-annual basis to conform with updates to the Administration's macroeconomic forecast. 

Average Effective 

Marginal Tax Rate 

on Benefits 

Includable In AGI 

19.83% 

17.56% 

17.65% 

19.64% 

19.23% 

16.86% 

17.36% 

19.08% 

The table compares the parameters used in the final estimates of tax liability with the parameters derived from actual tax return and benefits data. 

Rounding of results may prevent exact matching of total. Benefits paid to non-resident aliens are not included in the FOASI or FDI benefits paid figures. 

21 Benefits amounts and tax liabilities in millions of dollars, excluding benefits paid to non-resident aliens. 

3/ The total benefits paid data are estimates provided by the Social Security Administration and the Railroad Retirement Board; the other data are 

estimated from the Office of Tax Analysis Individual Income Tax Model. 

41 The total benefits paid data are derived from the 2010 Annual Statistical Supplement to the Social Security Bulletin and information supplied 

by the Railroad Retirement Board; the Benefits in AGI and tax liability data are derived from the Internal Revenue Service's Individual Masterfile. 

8 
Table 1.8 

Comparison of Parameten Used to Estimate Tn Uablllty Attributable to the 

Partial Inclusion of Benefits In AGI wltb Parameten Calculated from Actual Amounts 

Calendar Year Z006/I 

Benefit Soun:e 

Federal Old-Age and Survivors Insurance 

Federal Disability Insurance 

Railroad Social Security Equivalent Benefits 

Total 

Federal Old-Age and Survivors Insurance 

Fcdcml Disability Insurance 

Railroad Social Security Equivalent Benefits 

Total 

Department of the Treasury 

Office of Tax Analysis 

Total 

Benefits 

Paid/Z 

461,365 

91,535 

5,627 

558,528 

459,897 

92,368 

5,672 

557,937 

Benefits 

Includable 

inAGI/Z 

125,369 

10,357 

1,066 

136,791 

132,521 

8,033 

1,322 

141,875 

Percent of 

Total Benefits 

Includable in AGI 

Estimate Parametcn; 13 

27.17% 

11.31% 

18.94% 

24.49% 

Actual Paramctcn; /4 

28.82% 

8.70% 

23.30% 

25.43% 

Tax Liabilities 

on Benefits 

Includable 

lnAGI/Z 

24,896 

1,837 

190 

26,923 

26,023 

1,348 

231 

27,602 

1/ Estimated tax liabilities were updated on a semi-annual basis to conform with updates to the Administmtion's macroeconomic forecast. 

Average Effective 

Marginal Tax Rate 

on Benefits 

Includable In AGI 

19.86% 

17.74% 

17.83% 

19.68% 

19.64% 

16.78% 

17.48% 

19.46% 

The table compares the parameters used in the fmal estimates of tax liability with the pammetcn; derived from actual tax return and benefits data. 

Rounding of results may prevent exact matching of total. Benefits paid to non-resident aliens arc not included in the FOASI or FDI benefits paid figures. 

21 Benefits amounts and tax liabilities in millions of dollars, excluding benefits paid to non-resident aliens. 

3/ The total benefits paid data arc estimates provided by the Social Security Administmtion and the Railroad Retirement Board; the other data arc 

estimated from the Office of Tax Analysis Individual Income Tax Model. 

41 The total benefits paid data arc derived from the 20 I 0 Annual Statistical Supplement to the Social Security Bulletin and information supplied 

by the Railroad Retirement Board; the Benefits in AGI and tax liability data arc derived from the Internal Revenue Service's Individual Mastcrflle. 

9 
Table I.C 

Comparison of Parameten Used to Estimate Tu Llablllty Attributable to the 

Partlallntlusloa of BeaeOts In AGI wltb Parameten Calculated from Actual Amounts 

Calendar Year 2007 /1 

Benefit Source 

Federal Old-Age and Survivors losW'80ce 

Federal Disability losW'80ce 

Railroad Social Security Equivalent Benefits 

Total 

Federal Old-Age and Survivon lnsW'80ce 

Federal Disability Insurance 

Railroad Social Security Equivalent Benefits 

Total 

Department of the Treasury 

Office ofTax Analysis 

Total 

Benefits 

Paid/2 

484,883 

98,910 

S,12S 

589,517 

485,312 

99,070 

S,82S 

590,207 

Benefits 

Includable 

inAGI/2 

137,081 

11,581 

!,lSI 

149,814 

151,482 

9,309 

1,522 

162,313 

Percent of 

Total Benefits 

Includable in AGI 

Estimate Parameten /3 

28.27% 

11.71% 

20.11% 

25.41% 

Actual Parameten /4 

31.21% 

9.40% 

26.12% 

27.50% 

Tax Liabilities 

on Benefits 

Includable 

lnAGI/2 

28,057 

2,081 

207 

30,345 

29,737 

1,542 

266 

31,S4S 

II Estimated tax liabilities were updated on a semi-annual basis to conform with updates to the Administration's macroeconomic forecast. 

Average Effective 

Marginal Tax Rate 

on Benefrts 

Includable In AGI 

20.47% 

17.97% 

17.98% 

20.26% 

19.63% 

16.57% 

17.48% 

19.43% 

The table compares the parameten used in the final estimates of tax liability with the panuoeten derived fiom actual tax return and benefits data. 

Rounding of results may prevent cJUIC! matching of total. Benefits paid to non-resident aliens are not included in the FOASI or FDI benefits paid figures. 

21 Benefits amounts and tax liabilities in millions of dollan, excluding benefits paid to non-resident aliens. 

31 The total benefits paid data are estimates provided by the Social Security Administration and the Railroad Retirement Board; the other data are 

estimated from the Office of Tax Analysis Individual Income Tax Model. 

41 The total benefits paid data are derived from the 2010 Annual Statistical Supplement to the Social Security Bulletin and information supplied 

by the Railroad Retirement Board; the Benefits in AG I and tax liability data are derived from the Internal Revenue Service's Individual Masterfile. 

10 
Table I.D 

Comparison of Parameten Used to Estimate Tn Liability Attributable to the 

Partial Inclusion of Benefits In AGI wltb Parameten Calculated from Actual Amounts 

Calendar Year ZOOS /1 

Benefit Soun:e 

Federal Old-Age and Survivors Insurance 

Federal Disability Insurance 

Railroad Social Security Equivalent Benefits 

Total 

Federal Old-Age and Survivors Insurance 

Federal Disability Insurance 

Railroad Social Security Equivalent Benefits 

Total 

Department of the Treasury 

Office of Tax Analysis 

Total 

Benefits 

Paid/Z 

505,234 

103,562 

5,926 

614,72 1 

508,483 

106,286 

5,935 

620,704 

Benefits 

Includable 

inAGI/Z 

149,481 

12,917 

1,243 

163,641 

153,559 

9,725 

1,530 

164,815 

Pen:ent of 

Total Benefits 

Includable in AGI 

Estimate Par.uneters /3 

29.59% 

12.47% 

20.97% 

26.62% 

Actual Par.uneters 14 

30.20% 

9.15% 

25.78% 

26.55% 

Tax Liabilities 

on Benefits 

Includable 

lnAGI/Z 

29,425 

2,427 

217 

32,069 

29,381 

1,598 

262 

31,241 

II Estimated tax liabilities were updated on a semi-annual basis to confonn with updates to the Administration's macroeconomic forecast. 

Average Effective 

Marginal Tax Rate 

on Benefits 

Includable In AGI 

19.68% 

18.79% 

17.46% 

19.60% 

19.13% 

16.43% 

17.12% 

18.96% 

The table compares the par.uneters used in the final estimates of tax liability with the parameters derived from actual tax return and benefits data. 

Rounding of results may prevent exact matching of total. Benefits paid to non-resident aliens are not included in the FOASI or FDI benefits paid figures. 

21 Benefits amounts and tax liabilities in millions of dollars, excluding benefits paid to non-resident aliens. 

31 The total benefits paid data are estimates provided by the Social Security Administration and the Railroad Retirement Board; the other data are 

estimated from the Office of Tax Analysis Individual Income Tax Model. 

41 The total benefits paid data are derived from the 20 I 0 Annual Statistical Supplement to the Social Security Bulletin and information supplied 

by the Railroad Retirement Board; the Benefits in AGI and tax liability data are derived from the Internal Revenue Service's Individual Masterflie. 

11 
Table I.E 

CompariJoo of Parameten Used to Estimate Tas LlabiiJty Attributable to the 

Partial Inclusion of Benefits In AGI wltb Parameters Calculated from Actual Amounts 

Calendar Year 200911 

Benefit Source 

Fedenll Old-Age and Survivors Insurance 

Federal Disability Insurance 

Railroad Social Security Equivalent Benefits 

Total 

Fedenll Old-Age and Survivors Insurance 

Fedenll Disability Insurance 

Railroad Social Security Equivalent Benefits 

Total 

Depanment of the Treaswy 

Office ofTax Analysis 

Total 

Benefits 

Paid/2 

554,003 

115,666 

6,154 

675,822 

556,549 

118,314 

6,308 

681,171 

Benefits 

Includable 

inAGI/2 

169,952 

16,122 

1,318 

187,392 

157,029 

10,404 

1,558 

168,990 

Percent of 

Total Benefits 

Includable in AGI 

Estimate Parameters 13 

30.68% 

13.94% 

21.42% 

27.73% 

Actual Parameters 14 

28.21% 

8.79% 

24.69% 

24.81% 

Tax Liabilities 

on Benefits 

Includable 

lnAGI/2 

32,304 

2,708 

228 

35,240 

28,613 

1,669 

254 

30,536 

II Estimated lax liabilities were updated on a semi-annual basis to conform with updates to the Adminislration's macroeconomic forecast. 

Average Effective 

Marginal Tax Rate 

on Benefits 

Includable In AGI 

19.01% 

16.80% 

17.30% 

18.81% 

18.22% 

16.04% 

16.31% 

18.07% 

The table compares the parameters IISed in the fioal estimates of lax liability with the parameters derived from actual tax return and benefits data. 

Ro110ding of results may prevent exact matching of total. Benefits paid to non-resident aliens are not included in the FOASJ or FDI benefits paid figures. 

21 Benefits amo110ts and tax liabilities in millions of dollars, excluding benefits paid to non-resident aliens. 

3/ The total benefits paid data are estimates provided by the Social Security Adminislration and the Railroad Retirement Board; the other data are 

estimated from the Office of Tax Analysis Individual Income Tax Model. 

41 The total benefits paid data are derived from the 20 I 0 Annual Statistical Supplement to the Social Security Bulletin and information supplied 

by the Railroad Retirement Board; the Benefits in AGI and lax liability data are derived from the Internal Revenue Service's Individual Masterfile. 

12 
CHAPTER 2: METHODOLOGY FOR ESTIMATING TRANSFERS AND 

CALCULATING ADJUSTMENTS TO TRANSFERS OF LIABLITY IN 

CALENDAR YEARS 2005 THROUGH 2009 

I. Methodology for Estimating Quarterly Transfer Amounts 

Based on the estimates of annual liability given in Chapter 1, the Department ofthe 

Treasury's Office ofTax Analysis constructed estimates of the quarterly transfers from the 

general fund to the FOASI, FDI, FHI, and SSEBA trust funds. Since OBRA 93 created the 

second thresholds for inclusion of benefits in AGI, and directed that the additional tax liability be 

directed to the FHI trust fund, OTA estimated the annual liability attributable to the inclusion of 

FOASI, FDI, and SSEBA benefits in AGI on both a pre-OBRA 93 and a post-OBRA 93 basis. 

The amounts of liability transferable to the FOASI, FDI, and SSEBA trust funds were the preOBRA 93 liability estimates. The amount of liability transferable to the FHI trust fund was 

taken as the difference between the post-OBRA 93 total liability estimate and the pre-OBRA 93 

total liability estimate. OTA then estimated the quarterly transfer amounts associated with the 

current and subsequent calendar years. Separate methodologies were used to transfer the preOBRA 93 and post-OBRA 93 quarterly amounts due to differences in statutory requirements. 

With respect to pre-OBRA 93 transfers, statutory requirements dictate that liability 

should be transferred quarterly as it accrues. Therefore, the quarterly transfers are made on the 

first day of the calendar quarters beginning with the months of January, April, July, and October. 

As noted in Chapter 1, Section I, the ITM generally is re-extrapolated twice per year, thus for a 

given liability year, the total amounts transferable to the FOASI, FDI, or SSEBA trust funds are 

the amounts of liability estimated from the most recent forecast of estimated annual liability 

(based on the most recent extrapolation), less any amounts ofliability already transferred for that 

year (which were based on prior extrapolations). This net difference is divided over the 

remaining quarters still available for transfers. 

With respect to post-OBRA 93 transfers, statutory requirements dictate that liability 

should be transferred quarterly as it is collected. Therefore, that calendar year liability is 

transferred in five installments, representing four quarterly estimated payments and one final 

payment of liability. Transfers to the FHI trust fund are made on the fifteenth day of the quarter 

beginning with the months April, June, September, and January. The total April15 transfer to 

the FHI trust fund always contains two installments - one estimated payment for the current 

year's liability and one final payment for the prior year's liability. As with the pre-OBRA 93 

transfers, the total amount transferable to the FHI trust fund for a given liability year is the 

amount of liability estimated from the most recent forecast of estimated annual liability (again 

based on the most recent extrapolation), less any amounts ofliability already transferred for that 

year (which were based on prior extrapolations). This net difference is divided over the 

remaining installments still available for transfers. 

13 
II. Methodology for Adjustments to Transfers of Estimated Amounts 

The Social Security Amendments of 1983 require adjustments to the trust funds if actual 

tax return data subsequently reveal that the initial transfers were incorrect. To calculate the 

actual tax liability for each of the calendar years 2005 through 2009 resulting from the partial 

taxation of Social Security and Railroad Social Security Equivalent benefits, the IRS created data 

files for each year based on Form 1040 records. All filers who report taxable Social Security or 

Railroad Social Security Equivalent benefits on their Form 1040 are included in these data files. 

Although the Form 1040 provides information on the total amount of benefits includable in 

taxable income, it does not indicate whether the filer received FOASI, FDI, or SSEBA benefits. 

Such information is needed to allocate revenues accurately to the trust funds. To obtain this 

information, the Form 1040 records belonging to those beneficiaries who reported taxable 

benefits are matched to Form SSA-1 099 records provided by the Social Security Administration 

and Form RRB-1099 records provided by the Railroad Retirement Board.8 

Using this matched file ofForm 1040, Form SSA-1099 and RRB-1099 records, the IRS 

calculates the tax liability attributable to the taxation of Social Security and Railroad Social 

Security Equivalent benefits, for both pre-OBRA 93 and post-OBRA 93 liability. For each 

taxpayer, the total tax liability attributable to the taxation ofbenefits is calculated as the 

difference between tax liability with and without benefits included in AGI. The pre-OBRA 93 

tax liability is calculated as the difference between tax liability with benefits includable under 

pre-OBRA 93 law and with no included benefits. The post-OBRA 93 tax liability is the 

difference between the total tax liability and the pre-OBRA 93 tax liability. The total difference 

taken over all taxpayers equals the tax liability attributable to the taxation ofbenefits. 

After comparing the IRS liability calculations with the OT A liability estimates, OT A 

calculates adjustments to the original transfers. These adjustment amounts are equal to the 

difference between the IRS liability calculations and OTA's original liability estimates. The 

adjustment amounts are included as an adjustment to the estimated liability transfers described in 

Section I. 9 Thus, the net transfer for that quarter reflects the transfer for the current period 

liability and the adjustment to the estimate of prior period liability. 

Ill. Transfers of Estimated Amounts and Adjustments to Transfers for Liability 

in Calendar Years 2005 through 2009 

Table 2 shows the estimated liability amounts transferred to the FOASI, FDI, FHI and 

SSEBA trust funds in each calendar year from 2005 to 2009. For example, in calendar year 

2005, total transfers of $13,698 million, $1,068 million, and $117 million were made to the 

FOASI, FDI, and SSEBA trust funds, respectively, and total transfers of$9,354 million were 

made to the FHI trust fund. Amounts were transferred quarterly to the FOASI, FDI and SSEBA 

trust funds between January 1 and October 1 of2005. Amounts were transferred quarterly' to the 

FHI trust fund between April 15, 2005 and April 15, 2006. 

Table 2 also shows the IRS calculations of final trust fund amounts, and the resulting 

adjustments to the FOASI, FDI, FHI, and SSEBA trust funds due to the reconciliation of OT A 

estimates and IRS calculations. For example, as a result of the reconciliation of estimated and 

14 
actual 2005 tax liability, adjustments of -$64 million, -$323 million, -$274 million, and $8 

million were made, for the FOASI, FDI, FHI, and SSEBA trust funds, respectively. The final 

column ofTable 2 shows the quarter in which each adjustment was made. 

15 
Table2 

Comparison of OT A Estimated Transfers, IRS Calculated Transfers, and 

Corresponding Adjustments for Calendar Years 2005 to 2009/1 

OTA IRS 

Estimated Calculated Adjustment Adjustment 

Year and Trust Fund Transfers Transfers Amount Date 

CY 2005 LiabiHty 

FOASI 13,698 13,634 -64 12 

FDI 1,068 745 -323 12 

FHI 9,354 9,080 -274 12 

SSEBA ill 125 ~ 12 

Total 24,237 23,584 -653 

CY 2006 LlabiHty 

FOASI 15,437 15,875 438 January 1, 2012 

FDI 1,253 852 401 January 1, 2012 

FHI 10,108 10,726 618 April 15, 2012 

SSEBA 125 149 24 January I, 2012 

Total 26,923 27,602 679 

CY 2007 LlabiUty 

FOASI 17,047 18,034 987 April!, 2012 

FDI 1,389 969 420 April 1,2012 

FHI 11,774 12,372 598 Aprill5, 2012 

SSEBA 135 170 35 April!, 2012 

Total 30,345 31,545 1,200 

CY 2008 LlabiUty 

FOASI 18,564 17,881 -683 April I, 2012 

FDI 1,598 1,004 -594 April 1, 2012 

FHI 11,763 12,188 425 April 15, 2012 

SSEBA 144 168 24 April!, 2012 

Total 32,069 31,241 -828 

CY 2009 Liability 

FOASI 19,778 17,421 -2,357 January I, 2013 

FDI 1,916 1,046 -870 January I, 2013 

FHI 13,402 11,905 -1,497 January 15, 2013 

SSEBA 144 164 20 January I, 2013 

Total 35,240 30,536 4,104 

Department of the Treasury 

Office ofT ax Analysis 

1/ Amounts in millions of dollars. 

2/ This adjustment was made in two steps. Preliminary adjustments of -$4 million, $35 million, and -$8 million to 

the FOASI, FDI, and SSEBA trust funds, respectively, were included with the April!, 2009 transfer. A preliminary 

adjustment of -$255 million to the FHI trust fund was included with the June I 5, 2009 transfer. Subsequent to these 

adjustments, IRS issued new totals for calendar year 2005 tax liability. Second adjustments of -$60 million, -$358 

million, and $16 million to the FOASI, FDI, and SSEBA trust funds, respectively, were included with the October I, 

20 II transfer. A second adjustment of -$19 million to the FHI trust fund was included with the January 15, 2012 

transfer. The total adjustments were -$64 million, -$323 million, -$274 million, and $8 million, for the FOASI, FDI, 

FHI, and SSEBA trust funds, respectively. 

16 
CHAPTER 3: FORECAST OF TRANSFERS TO TRUST FUNDS FOR 

CALENDAR YEARS 2010 TO 2014 

I. Forecasting Methodology 

The Social Security Amendments of 1983 require that the annual report include a forecast 

of transfers to the trust funds for the next five years. The forecast years are currently calendar 

years 2010 to 2014, since no correcting adjustments have been made to those years' liability 

transfers. This forecast was produced using the same methods that were used to produce the 

initial estimates of calendar year 2005 through 2009 liability and trust fund transfers, described 

in Chapters 1 and 2. The calendar year forecasts for 2010 through 2014 were produced using 

results from an ITM based on 2007 SOl data and imputations, similar to the 2001- and 2004-

based lTMs described in Chapter 1. 

As noted in Chapter 1, tax returns alone do not provide sufficient data to estimate the 

revenue effects of the partial inclusion of Social Security and Railroad Social Security 

Equivalent benefits in AGI. Therefore, imputations of total Social Security and Railroad Social 

Security Equivalent benefits are added to the 2007-based version of the lTM to compensate for 

the missing data. The total benefit amounts are distributed among appropriate recipients on the 

lTM using Form SSA-1099 and Form RRB-1099 information returns that are matched to the tax 

returns in the SOl file. As with the 2004-based lTM, the most recent Current Population Survey 

data from the Census Bureau is used as a guide to the non-filing population. The cross-sectional 

records of the lTM are extrapolated to future years in accordance with the Administration's 

macroeconomic forecast in use at the time of the extrapolation. As part of the extrapolation, total 

benefits are projected to grow at the rates indicated in the forecasts provided by the Social 

Security Administration and the Railroad Retirement Board. 

II. Forecast of Transfers to the Trust Funds 

Table 3 presents the estimates of liability incurred in calendar years 2010 through 2014 

and the amounts transferred to the trust funds. The transfers of estimated liability for calendar 

years 2010 through 2012 have been completed and include adjustments attributable to prior 

years' liabilities. The FOASl, FDl, FHl, and SSEBA transfers for calendar year 2011liability 

include adjustments due to the reconciliation of calendar year 2005 estimated and actual 

liabilities.10 The transfers for calendar year 2012liability include adjustments due to the 

reconciliation of calendar years 2006, 2007 and 2008 estimated and actual liabilities. The 

transfers for calendar year 2013 include adjustments due to the reconciliation of calendar year 

2009 estimated and actual liabilities. In total, for liability incurred in calendar years 2010 through 

2014, OTA forecasts that $122,992 million, $9,902 million, $84,689 million, and $930 million 

will be transferred from general revenues to the FOASl, FDl, FHl, and SSEBA trust funds. The 

adjustments for prior period liabilities total -$1,675 million for FOASl, -$2,643 million for FDl, 

$125 million for FHl, and $119 million for SSEBA. The net transfer to the trust funds is 

estimated to be $214,439 million. 

17 
Table3 

Forecast of Transfers, Net of Adjustments, to tbe FOASI, FDI, FHI and SSEB Trust Funds 

for Calendar Year Liability In 2010 to 2014 

Calendar Year Liabili in Millions of Dollars 

Com leted Transfers Estimated Tmnsfers Totals 

Trust Fund 2010 2011 2013 2014 2010-2014 

FOASI 

Estimated Transfer /1 21,931 22,109 25,764 25,331 27,857 

Prior Year Adjustment 12 Q -60 742 -2.357 Q 

Net Transfer 21,931 22,049 26,506 22,974 27,857 

FDI 

Estimated Transfer /1 1,848 1,935 1,994 1,972 2,152 

Prior Year Adjustment 12 Q -358 -1,415 -870 Q 

Net Transfer 1,848 1,577 579 1,102 2,152 

FHI 

Estimated Transfer II 14,442 15,693 16,761 17,918 19,875 

Prior Year Adjustment 12 Q -19 1,641 -1,497 Q 

Net Transfer 14,442 15,674 18,402 16,421 19,875 

SSEBA 

Estimated Transfer II 159 160 194 200 217 

Prior Year Adjustment 12 Q .lQ 83 20 Q 

Net Transfer 159 176 277 220 217 

Totals 

Estimated Transfer /I 38,380 39,897 44,713 45,421 50,101 

Prior Year Adjustment 12 Q -421 1,051 -4.704 Q 

Net Transfer 38,380 39,476 45,764 40,717 50,101 

Department of the Treasury 

Office of Tax Analysis 

Notes: 

II Estimated Transfers are amounts transfered to the trust funds for liability incurred in the year indicated. Note that the final 

two estimated liabilty transfers to the FHI trust fund for a given year occur in January and April of the following year. 

2/ Prior Year Adjustments are amounts transferred to or from the trust funds that correct the original estimated liabilities transferred 

for prior years. Because the final two estimated liability transfers to the FHI trust fund for a given year occur in January and April 

of the following year, a Prior Year Adjustment to a given year's FHI estimated transfer may occur in the next calendar year. 

Adjustments made in CY 2011 were for liability incurred in CY 2005. Subsequent to making original adjustments in CY 2009, 

the IRS reported new CY 2005 liability totals. The second correcting adjustments to the FOASI, FDI, and SSEBA trust funds 

were made in October 20 II. The second correcting adjustment to the FHI trust fund was made in January 2012. 

122,992 

-1,675 

121,317 

9,902 

-2.643 

7,259 

84,689 

125 

84,814 

930 

ill 

1,049 

218,513 

-4.074 

214,439 

Adjustments made in CY 2012 were for liability incurred in CY 2006, CY 2007 and CY 2008. Adjustments to the FOASI, FDI, 

and SSEBA trust funds were made in January 2012 (for CY 20061iability) and Apri12012 (for CY 2007 and CY 2008 liability). 

Adjustments to the FHI trust fund were made in Apri12012 (for CY 2006, CY 2007 and CY 2008 liability). 

Adjustments made in CY 2013 were for liability incurred in CY 2009. Adjustments to the FOASI, FDI, FHI, and SSEBA trust 

funds were made in January 2013. 

18 
BffiLIOGRAPHY 

Cilke, James C. "The Treasury Individual Income Tax Simulation Model." mimeo. Department 

of the Treasury. Office ofTax Analysis. April1994. 

Social Security Administration. 2002 Annual Statistical Supplement to the Social Security 

Bulletin. Washington, D.C.: Government Printing Office, December 2002. 

U.S. Department of the Treasury. Office of Tax Analysis. Report on the Taxation of Social 

Security and Railroad Retirement Benefits in Calendar Year 1984. March 1987. 

U.S. Department of the Treasury. Office ofTax Analysis. Report on the Taxation of Social 

Security and Railroad Retirement Benefits in Calendar Year 1985. August 1987. 

U.S. Department of the Treasury. Office ofTax Analysis. Report on the Taxation of Social 

Security and Railroad Retirement Benefits in Calendar Year 1986. February 1989. 

U.S. Department of the Treasury. Office ofTax Analysis. Report on the Taxation of Social 

Security and Railroad Retirement Benefits in Calendar Years 1987 and 1988. March 1991. 

U.S. Department of the Treasury. Office ofTax Analysis. Report on the Taxation of Social 

Security and Railroad Retirement Benefits in Calendar Year 1989. March 1992. 

U.S. Department of the Treasury. Office of Tax Analysis. Report on the Taxation of Social 

Security and Railroad Retirement Benefits in Calendar Year 1990. January 1993. 

U.S. Department of the Treasury. Office ofTax Analysis. Report on the Taxation of Social 

Security and Railroad Retirement Benefits in Calendar Year 1991. September 1994. 

U.S. Department of the Treasury. Office ofTax Analysis. Report on the Taxation of Social 

Security and Railroad Retirement Benefits in Calendar Year 1992. January 1997. 

U.S. Department of the Treasury. Office ofTax Analysis. Report on the Taxation of Social 

Security and Railroad Retirement Benefits in Calendar Year 1993. July 1998. 

U.S. Department ofthe Treasury. Office ofTax Analysis. Report on the Taxation of Social 

Security and Railroad Retirement Benefits in Calendar Years 1994, 1995, and 1996. January 

2001. 

U.S. Department ofthe Treasury. Office ofTax Analysis. Report on the Taxation of Social 

Security and Railroad Retirement Benefits in Calendar Years 1997 through 2004. January 

2009. 

19 
ENDNOTES 

1. This report covers a five year period due to certain delays in determining the final levels of benefits in 

AGI and final tax liability for calendar years 2005 and 2006. The IRS updated the systems and programs 

used to determine the final levels and there were delays in transitioning to the new methods. While the 

report covering 2005 and 2006 was in production, final levels of benefits in AGI and fmal tax liabilities 

for calendar years 2007, 2008, and 2009 became available. Therefore the five calendar years have been 

combined into one report. 

2. The $4,500 and $6,000 amounts represent half the distance between the first and second provisional 

income thresholds for single and joint filers, respectively ($25,000 and $34,000 for singles, $32,000 and 

$44,000 for joints). The second provisional thresholds and the associated benefits-in-AGI inclusion rule 

were enacted as part of OBRA 93 and apply to all calendar years beginning on or after January 1, 1994. 

OBRA 93 also stipulated that the additional tax liability arising from those provisions be directed to the 

FHI trust fund. 

3. Liability estimates and the associated transfers are updated semi-annually (in December and May) to 

conform with updates to the Administration's macroeconomic forecast. All transfers are made using the 

most recently created forecast. 

4. In June 2008, the IRS provided OTA with preliminary totals of tax liability with and without the inclusion 

of Social Security benefits for calendar year 2005. The April and June 2009 correcting adjustments were 

made based on these totals. In September 2011, the IRS provided OTA with revised totals for calendar 

year 2005. The second correcting adjustments made in October 2011 and January 2012 were based on 

these totals. 

5. A detailed description of the Individual Income Tax Model can be found in Cilke (1994). 

6. OTA does not estimate the liability attributable to the receipt ofFOASI and FDI benefits by non-resident 

aliens. Prior to calendar year 1995, one-half of any Social Security benefit received by a non-resident 

alien was subject to a 30 percent tax rate, and this amount was automatically withheld by the Social 

Security Administration. For calendar years 1995 and after, the portion of benefits subject to withholding 

is raised to 85 percent (P .L. 1 03-465). 

Each month, the Social Security Administration sends a certification of the amount withheld to the 

Treasury Department's Bureau of the Fiscal Service. The withheld amount is transferred to general 

revenues and then back to the FOASI and FDI trust funds. Since the Social Security Administration has 

information on the actual amounts withheld, OT A does not estimate these withheld amounts. 

Similarly, the Railroad Retirement Board automatically withholds taxes on Railroad Social Security 

Equivalent benefits received by non-resident aliens. However, a different procedure is used to transfer 

these amounts to the SSEBA. OTA includes an estimate of the withheld amounts in its initial estimates of 

transfers to the trust funds and subsequently verifies these estimates with the Railroad Retirement Board. 

The tables in this report do not include FOASI or FDI benefits received by non-resident aliens or the taxes 

attributable to these benefits. However, the tables do show the Railroad Social Security Equivalent 

benefits received by non-resident aliens. 

7. For example, as AGI increases, the amount of deductible medical, casualty and certain miscellaneous 

expenses may change. Similarly, the increased income tax liability resulting from the inclusion of benefits 

in AGI may enable some taxpayers to use tax credits that otherwise might not be usable in that year due to 

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insufficient income tax liability. 

8. The Form SSA-1099 records provided to the IRS distinguish between retirement and disability benefits, 

even though the Form SSA-1099s sent to taxpayers do not include this information. 

9. The April 1, 2012 and April 15, 2012 liability transfers both included adjustments for multiple prior 

years because the adjustments for those years were determined over a short time span. The April 1, 

2012 transfer included adjustments for CY 2007 and CY 2008. The April 15, 2012 transfer included 

adjustments for CY 2006, CY 2007 and CY 2008. 

10. The adjustments for Calendar Year 2005 liability were made in two steps. In June 2008, the IRS 

provided OTA with preliminary totals of tax liability with and without the inclusion of Social Security 

benefits for calendar year 2005. The estimated liability transfers for calendar year 2009 included these 

correcting adjustments. In September 2011, the IRS provided OTA with revised totals for calendar year 

2005. The estimated liability transfers for calendar year 2011 included these second correcting 

adjustments. See also endnote 4 and the notes to Tables 2 and 3. 

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