A Social Security Tax Surprise
A social security tax surprise are not the words a retiree or soon to be retiree wants to hear. Unfortunately, for all of us, this surprise is unavoidable.
People who have researched their social security benefits know their check could be taxed up to 85% of the benefit. Hidden in that tax scheme is the surprise.
Making matters unpalatable is the fact more than half of the people receiving benefits today pay the social security tax surprise. And, this is up from the 1 in 10 who paid the tax when benefits became taxable.
This statistic begs the question, how did we jump from 1 in 10 to 5 in 10? This because the government failed benefit recipients in a very crucial way.
The lawmakers failed to index social security benefits for inflation when they enacted the two tiered tax. This means the threshold numbers have remained the same since 1983 the year benefits became taxable.
You have just read a social security tax surprise. Are you surprised? Most people are very surprised.
Now, For Some Numbers
Those 1983 numbers will shock you given today’s cost of living. They are classified by how you file. And, there are only two filing categories, single or married.
Singles who make more than $25,000 and couples who report more than $32,000 can have up to 50% of their benefits taxed. The higher rates, up to 85%, kick in at $34,000 per year for singles and $44,000 for couples.
The two tax rates are not the surprise. The IRS makes those numbers known far and wide. It doesn’t do the same for the non-indexing for inflation faux pas.
If these threshold numbers had been indexed for inflation a social security tax surprise would not exist. The threshold for a single person would be $64,000 and a married couple would be at $82,000.
Pre-senes need to plan for this surprise. Already retired people can, of course, plan but they are already in the tax trap. The hole gets deeper when you turn 701/2.
Minimum mandatory withdrawal requirements kick in at 701/2. This means without careful planning you could be pushed into the 85% bracket when you start drawing from your 401k, IRA or other retirement account.
People not taking their required withdrawals not only face the surprise tax but steep penalties for not taking the withdrawals. This is a true triple whammy.
Quick, Taxing Thoughts
A social security tax surprise is definitely a retirement kick in the pants. All “WE” seniors are trying to do is file for the social security benefits we paid for.
However once you know about it you can prepare for it.
Rather than try to list all of the considerations the advice is to schedule an appointment with a SS rep at your local SS office. Or, in the alternative, visit https://ssa.gov and do an online search.
Senior Outreach Ministries achieves it’s objectives with the capital we’ve either earned or received from donors. The Proud 2 B A Senior Ribbon for example. Donate $5, get a ribbon and help us help a hungry Senior Citizen in need. All proceeds remain in the Ministries to be used per our mission statement. We are a volunteer church. No one receives a salary or wage. Please help us help less fortunate hungry Seniors. We never have and never will ask the government for grants, funds or hand outs. Thank You in advance.