There seems to be no way around taxes, even when talking about Social Security income. But the truth is that these taxes are a fairly new thing. In 1984, people whose income went over a certain level were taxed by the federal government on their benefits.
The law was put in place after Congress totally changed the program to keep the Social Security trust fund from running out of money.
When the new tax policy began in 1984, less than 10% of beneficiaries owed tax on their benefits. This meant that only the wealthiest Americans had to pay.
However, the Social Security Administration (SSA) reports that because the thresholds have not been updated often enough to keep up with the cost of living, about 40% of beneficiaries now owe tax on their checks.
Trump’s Social Security campaign promise
During the election, Donald Trump, the Republican candidate for president, promised to get rid of the tax. He said on social media, “Seniors should not pay tax on Social Security.” Later, he said the same thing in interviews, making it a firm part of his campaign vows.
His supporters, mostly older people, want this new policy to be put into place, even though it might be harder to understand and less useful than they think.
Social Security benefits are not taxed on their own at the federal level (and only nine US states tax Social Security benefits). This is the first thing that everyone should know. Income from all sources is taxed.
Combined income is calculated by adding up adjusted gross income (AGI) plus interest that is not taxed plus half of a person’s Social Security benefit. This means that people who only get benefits and have no other savings are already tax-free on their income.
The amount of money you need to save in order to pay taxes is pretty high, though some people may have to pay the least. Here’s what the SSA gives seniors to help them figure out if their payments 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 you would only be taxed on 50% of your benefits anyway, since the tax is based on all of your income.
It does not look like this tax will be gone any time soon, which is bad news for seniors. Social Security is already short on money, and getting rid of the tax on payments would make the situation worse.
The bad news about getting rid of the tax on Social Security income
Trump is not the only one who wants to get rid of this tax. Earlier this year, Rep. Angie Craig (D-Minn.) proposed a bill that would exempt Social Security from being taxed starting in 2025.
This bill was similar to many others that came before it. Congress has not agreed to any of them because Social Security clearly does not have enough money.
The Social Security Board of Trustees says that the program will need $22.6 trillion in funding between now and 2098.
However, the Social Security trust funds will run out by 2035 if Congress does not help, which means that only 83% of scheduled payments will be paid. If the tax on joint income went away, this would get worse because it helps pay for the program.
Rep. John Larson (D-Conn.), in an August interview with CNBC, said that Trump’s idea is nice for his supporters, but it is not a good plan that will work.
Larson said, “He says he is going to get a tax break, but he does not say how he is going to pay for it.” The main idea behind his plan is to cut the Social Security trust fund.