Four Reasons to Abolish the Social Security Benefits Tax
September 2, 2016
Presidential candidate Hillary Clinton wants to expand Social Security for the most vulnerable retirees--specifically, widows and widowers whose incomes fall dramatically after their spouse dies. What she has not mentioned, however, is repealing a tax that targets lower-income retirees who have worked low-wage jobs: the Social Security benefits tax.
Passed as part of the 1983 Social Security reforms, the benefits tax applies to a portion of Social Security benefits for single retirees with modified adjusted gross incomes (adjusted gross income minus tax-exempt interest) over $25,000 and married couples over $32,000. The Omnibus Budget Reconciliation Act of 1993 added a second tax tier for single retirees with incomes over $34,000 and married couples over $44,000. To calculate the tax liability:
- Take one-half of an individual's or couple's Social Security benefits received in the tax year and add other taxable income (such as wage income or withdrawals from a tax-deferred retirement account).
- Subtract the excluded income described above to get the total modified adjusted gross income; and
- Subtract the standard or itemized deductions and personal exemptions, producing the amount of income subject to the benefits tax.
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