Even while Social Security doesn’t always fully cover a person’s retirement needs, it nonetheless provides everyone with a platform upon which to build when making plans for their golden years. As it has been one of the important programs for the American safety net. Despite the fact that Social Security benefits were only provided by the government, some people might not be aware of this fact, it will also attract taxes. However, a newly proposed bill may change that.
Taxes on Social Security Benefits
Payments received from Social Security will typically be subject to taxation till now. To determine whether or not you are required to pay taxes on your Social Security benefits, you will first need to calculate your combined income using the formula below:
Combined Income = Adjusted Gross Income (AGI) + Nontaxable Interest + half of Social Security benefits
If your combined income is greater than $25,000, you need to pay some taxes on your Social Security benefits given that you are a single filer, the head of the home, or an eligible widow or widower with a kid who is dependent on you. The limit will be a little higher at $35,000 for joint filers or married couples. The exact amount on which you need to pay taxes will depend on the total income you earn in that particular year. However, it will max out at 85% of your benefits.
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Twelve states, including Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia, tax either a portion or the entirety of the Social Security payments received by its people. The taxation will vary from one state to the other.
What are the changes in the new bill?
A new proposal is roaming around Capital Hill and may soon see that no Social Security taxes will be paid to the federal government. As the proposal from Rep. Angie Craig (D.-Minn.) states “You Earned It, You Keep It Act“.
Craig said in a statement that Social Security is a promise given to All Americans that if they work hard and follow the rules, the dignity of a secure retirement should be their ultimate gift. So, to cover up the losses, the new bill proposes to raise the cap on Payroll taxes to $250000 instead of the old cap of $147000. This way high earners will save some money on their Social Security benefits. In the case, of elders who solely depend on retirement benefits, however, don’t need to pay anything.
The Bottom Line
First of all, it is still a proposal and it may take some time for it to turn into the actual reality. Regardless of whether the law has enough support on Capitol Hill, an election is coming up, and if the Republicans win the House, it will surely die, at least for now.
However, there is still a possibility. Even though there are few benefits for the average American who receives Social Security. But, it could add up to something worth going for. Currently, many retirees are paying taxes on their Social Security benefits. This new bill will help to alleviate some of the tax burdens in the future. Hope for the best. For more of these kinds of articles or information, follow us in our newsletter.