Taxes appear to be unavoidable no matter what you’re talking about, including Social Security benefits, but the truth is that these taxes are relatively new.
In 1984, the federal government began taxing benefits for those with incomes above a certain threshold. The measure went into effect after Congress completely overhauled the program to protect the Social Security trust fund from insolvency.
When this new taxation policy began in 1984, only less than 10% of beneficiaries owed tax on their benefits, implying that only the wealthiest Americans had to pay.
However, because the thresholds have not been updated on a regular basis to ensure they keep up with the cost of living, approximately 40% of beneficiaries now owe tax on their checks, according to Social Security Administration data.
Trump’s Social Security campaign promise
During the election, Republican presidential nominee Donald Trump vowed to eliminate the tax, declaring firmly on his social media “Seniors should not pay tax on Social Security” He later repeated the premise in interviews, establishing it as one of his campaign promises.
His base, which consists of seniors, hopes to see this new policy implemented, though it may be more complicated and ineffective than they anticipate.
The first thing everyone should know is that Social Security benefits are not taxed separately at the federal level (or at the state level; only nine US states tax Social Security benefits).
What is taxed is the total income. Combined income is defined as the sum of adjusted gross income (AGI) plus nontaxable interest plus one-half of the Social Security benefit, so those with no other savings are already tax-free.
For those with some savings, the tax threshold is somewhat high, though some people may be required to pay the lowest amounts. The SSA provides the following information so that seniors can determine whether or not their benefits are taxed:
| Taxable Portion of Benefits
|
0%
|
50%
|
85%
|
| Single Filers
|
Under $25,000
|
$25,000 to $34,000
|
Above $34,000
|
| Joint Filers
|
Under $32,000
|
$32,000 to $44,000
|
Above $44,000
|
Remember that only 50% of your benefits will be taxed, as it is based on your combined income.
Eliminating the tax on benefits for seniors is unlikely due to Social Security’s shortfall, which would exacerbate the issue.
The harsh truth about eliminating the tax on Social Security benefits
Trump is not the only one who has proposed eliminating this tax; Rep. Angie Craig (D-Minn.) introduced a bill earlier this year that would exempt Social Security from taxable income beginning in 2025, and it followed many others. Congress has not approved any of them due to Social Security’s obvious funding shortfall.
The Social Security Board of Trustees estimates a $22.6 trillion funding shortfall through 2098, but without congressional assistance, the Social Security trust funds would be depleted by 2035, leaving only 83% of scheduled benefits payable. This would be worse if the combined income tax were eliminated, as it helps fund the program.
While Trump’s idea appeals to his base, it is not a viable plan, as Rep. John Larson (D-Conn.) explained in an August interview with CNBC. “He comes out and says he’s going to have a tax break but doesn’t say how he’s going to pay for that,” Larson told reporters. “In essence, his proposal would end up cutting the Social Security trust fund.”
Read Also :- It’s official – The list of all the Social Security changes that will affect retirees starting January 1, 2025
