Tax Rate on Social Security

[Perryinva]

^^^^ And that’s what I meant. I fully agree with pb4uski & Midpack on this, that while the original taxation of SS after that income level was only affecting the wealthy when enacted, it didn’t take rocket scientists to see that the number of people receiving SS and the amounts were quickly going make the system insolvent as the population curves became apparent. So for those who only get SS as income, (which is difficult to distinguish between wealthy untaxable income or purely low earners or unlucky or lazy) they are still getting all SS untaxed. For everyone else, you are taxed on the earnings of your SS contribution and not the actual contributions. Wealthy people don’t really need the added net income (lottery win) a tax free SS would get at the expense of the solvency of the system.

 

[Bruceski44]

This thread is beginning to poke at a peeve of mine. That is the "one size fits all" mindset of Federal limits. For example, a couple with income of $42,000 per year is poverty level in SoCal where I live, but might be a comfortable level in other parts of the country. The same goes for ACA subsidy levels. I did not work and invest my whole life just to live in poverty upon my retirement. We do not live extravagantly, but out income is well over $110,000 per year. And I know I can relocate; if I could just take my large family with me, I'd already be gone. And really, where I live has nothing to do with the lack of parity engendered by applying one federal limit for the entire country.

 

[Dtail]

Re SS, if one lives in a HCOL, it is also easier to reach the maximum earnings subject to SS tax and thus possibly earn the maximum payout.
This doesn't even it all out between SoCal and LCOL places, but.....

 

[athena53]

And how would you (and like minded individuals) offset the revenue loss for your state and federal spending? Most states and our federal government already have deficits for miles, past and future. And the myopic “tax the wealthy and corporations” isn’t an answer. How much more do you want your/our kids and grandkids to pay so seniors “can have theirs?”

My objection was to the states collecting taxes on SS. Federal taxes on SS are supposedly plowed back into SS to keep the system solvent. Up to that time states were doing whatever they were doing without taxing SS and then it was SO easy to just take the Federal AGI including taxable SS and use that as a base for State taxes without taking out taxable SS. Woo- hoo! Windfall! I doubt they decreased other State taxes to offset the new revenue.

Now, of course, it would be hard to unwind because those states have gotten used to the money.

 

[Perryinva]

I agree too, but how would one ever fairly do otherwise? There are wealthy and poor in all areas regardless of COL of the area. High COL areas typically have more affect on higher income households than lower income ones.

 

[Crabby Mike]

My objection was to the states collecting taxes on SS. Federal taxes on SS are supposedly plowed back into SS to keep the system solvent. Up to that time states were doing whatever they were doing without taxing SS and then it was SO easy to just take the Federal AGI including taxable SS and use that as a base for State taxes without taking out taxable SS. Woo- hoo! Windfall! I doubt they decreased other State taxes to offset the new revenue.

Now, of course, it would be hard to unwind because those states have gotten used to the money.

Don't forget, only 13 states (last I heard) tax Social Security. Another factor in where to retire.

 

[athena53]

Don't forget, only 13 states (last I heard) tax Social Security. Another factor in where to retire.

I know. Sadly, I do like this area otherwise and my son (only child) and 3 grandchildren are a 3-hour drive away. I'm close to the KS/MO state line and BOTH sides tax SS. DS is in Iowa. They don't. Well, that's where I'll head when I can no longer live in this house, but I hope that won't be for a long time.

 

[ziggy29]

Don't forget, only 13 states (last I heard) tax Social Security. Another factor in where to retire.

I think that is rotten. Money paid into SS was already taxed. If you want to tax SS income, you should make the SS contributions pre-tax or else it feels like many of the same dollars are being taxed twice.

 

[Midpack]

My objection was to the states collecting taxes on SS. Federal taxes on SS are supposedly plowed back into SS to keep the system solvent. Up to that time states were doing whatever they were doing without taxing SS and then it was SO easy to just take the Federal AGI including taxable SS and use that as a base for State taxes without taking out taxable SS. Woo- hoo! Windfall! I doubt they decreased other State taxes to offset the new revenue.

Now, of course, it would be hard to unwind because those states have gotten used to the money.

I understand that. So where exactly would you propose making up the revenue your state gets from taxing SS benefits? Who are you going to ask to pay more for you? When was there a windfall, a revenue surplus in your state? I’d bet your state was faced with spending deficits and taxing SS is how they closed the deficit. Some states increase property taxes, some income taxes, some tax SS, sales taxes, tourist fees, or whatever else. Picking out one revenue scheme as unfair while ignoring the others is convenient.

 

[FREE866]

From what I've read and the people I know receiving SS they take home ~80% of their SS after taxes.

 

[GenXguy]

From what I've read and the people I know receiving SS they take home ~80% of their SS after taxes.

It's not a flat tax, so it depends on combined income using the formula mentioned earlier and what tax bracket you would be paying in. Someone receiving the average SS benefit with no other income would not pay any taxes on SS benefits today. Here's an online calculator.

https://www.fool.com/retirement/2016/06/06/social-security-tax-calculator-are-your-retirement.aspx

But the threshold for taxation is easier to reach every year because it's not indexed to inflation, making more SS benefits taxable every year. I posted 3 links earlier in the thread, here's another.

https://www.marketwatch.com/story/p...-punished-by-social-security-taxes-2019-01-07

 

[Sunset]

^^^ Eventually with no change, everyone getting SS will pay tax on it since the deduction is not indexed to inflation.

 

[Perryinva]

Taxation schemes vary wildly from state to state for various reasons. It makes sense that everyone pay something, but I’ll bedammed if I can figure out why some do one thing totally different than another. The income tax free states just have other sources of revenue that replace income tax, like tourist tax, increased property tax, or corporate taxes etc. When deciding if I wanted to relocate, and there were very few choices that met my criteria, nowhere had a clear advantage based on total overall cost. I would never base it on pure cost, but instead whether the cost difference is worth the benefits of the location. Everyone is different because everyone has different criteria. What I pay overall here is cheap, IMHO, for what I have and receive. In any tax free state I investigated, the increased property tax and insurance (and even added utility, car insurance, food & fuel costs etc) for someplace I would buy and live easily eclipsed the savings of no income tax for our income, and often were just less desirable to us (or an “absolutely not!! “ from DW). If I became a single renter sometime way down the road, that might sway me, but I don’t see that happening, honestly until it makes no difference.

 

[athena53]

From what I've read and the people I know receiving SS they take home ~80% of their SS after taxes.

I get to keep about 75% of mine after State and Local are taken out.

Years ago I met Bob Myers, one of the first actuaries for Social Security. (I had to study his 800-page book on the subject for an actuarial exam.) There were rumblings about making SS needs-based back then- this would have been before taxation of SS began. He said it was a bad idea because it would discourage people from building up savings for retirement knowing that they'd get less SS because they had income from other sources.

And here we are. We should be encouraging people to save for retirement, not punishing them.

 

[athena53]

Don't forget, only 13 states (last I heard) tax Social Security. Another factor in where to retire.

Well, I found out something interesting yesterday. When I need to move out of my house into to Assisted Living or something in that vein I plan to move to Iowa near DS and DDIL. Iowa does not tax SS. A friend who'd done contract work in IA said he stopped accepting work there because the company paid at a fairly low level and Iowa's taxation rates were so high.

Curious, I approximated my IA taxable income by subtracting the taxable portion of SS from my MO taxable income and then applied IA tax rates. My liability for 2018 in MO was $5,000. In IA it would have been close to $8,000.

Never mind.

 

[Perryinva]

Yep, it’s all circumstances. A renter living on just SS and after tax or Roth income is looking for a totally different tax distribution than an expensive home owner with taxable income from pensions and pre tax withdrawals.

 

[FREE866]

I get to keep about 75% of mine after State and Local are taken out.

Gotcha
I'm in NY so I believe there is no state tax on SS benefits

For planning purposes I'm figuring 80%