The N&O and Char-O published an article today discussing the possibility of Social Security income being taxed, as included in the Senate tax plan. The article piggy-backs on a wide-spread effort of the AARP to scare seniors into opposing the tax plan because of the new tax treatment of social security income.
The narrative put forth is that fixed income seniors trying to live on their social security check and little to nothing else would be hit with this tax.
The facts are this: the Senate plan would treat Social Security income in the same manner the federal tax code does. It can be a little confusing, so here’s how it works:
First, you need to figure out your “combined income.” This is your adjusted gross income plus non-taxable interest plus half of your Social Security benefit.
If your combined income is under $25,000 for singles ($32,000 for couples filing jointly), then your benefits aren’t taxable.
If your combined income is between $25,000 and $34,000 for singles ($32,000 to $44,000 for couples), then you will have to pay income tax on up to 50 percent of your benefit.
If your combined income is over $34,000 for singles ($44,000 for couples), then you will have to pay income tax on up to 85 percent of your benefit.
An example of how this works: say a single senior receives even twice the average SS benefit – $30k – and receives another $15k in pension income and withdraws from a 401k. Their combined income would be: half of 30k plus the non-SS income (15k +15k= 30k). So this combined income would appear to subject them to the social security tax under the new Senate plan as it is above the $25k threshold. But you need to recall that the Senate plan would also have a zero tax bracket up to $7,500 for singles ($15k for married filers), so this person would pay no state income tax on their SS income under the Senate plan.
Moreover, only about one third of social security beneficiaries pay any federal income tax on their SS benefits – recall that the Senate plan would mirror the federal tax code on SS income treatment.
Indeed, at the request of the state AARP, the legislature’s fiscal research division calculated the impact of the Senate tax plan on seniors of differing scenarios (i.e. married and single, different income sources and amounts). In each of the ten scenarios, the seniors are either unaffected or would see their tax burden decrease under the Senate plan.
There is legitimate debates to be had over the Senate tax plan’s treatment of social security income. But misleading fear tactics and leading readers to believe that retired school teachers and poor seniors relying almost exclusively on social security will see their SS benefits taxed under the Senate plan gives the wrong impression.