As he prepares to retake office in January, one of Donald Trump’s most talked-about campaign pledges is his plan to remove taxes on Social Security benefits.
Although this action is being hailed as a financial victory for seniors, some warn that it may have serious repercussions for the Social Security system’s long-term viability.
To understand the potential impacts of Trump’s proposal, knowing how Social Security benefit taxes operate is essential. Since 1984, certain retirees have had to pay federal taxes on some Social Security payments. This move was made as a component of a broader plan to improve the system’s financial stability. More pensioners are now compelled to pay taxes on their pensions due to the 1993 expansion of the taxation laws.
A retiree’s provisional income, which comprises half of their yearly Social Security payments, adjusted gross income (AGI), and any tax-exempt interest from sources such as municipal bonds, determines the tax.
Since 1993, the current income criteria have not altered, meaning that more pensioners are now liable to these taxes as incomes and benefits have grown. Up to 50% of Social Security payments are taxable at the federal level for those who file as single, head of household, or qualified widow(er) and have a provisional income between $25,000 and $34,000.
Benefits may be taxed up to 85% if provisional income is over $34,000. The limits rise to $32,000 to $44,000 for 50 percent taxation and beyond $44,000 for 85% taxes for married couples filing jointly. It’s crucial to remember that this indicates that up to 85% of benefits are added to taxable income rather than being taxed at 85%.
What is Included in Trump’s Proposal?
Trump’s proposal to remove Social Security benefit taxes aims to give pensioners financial relief. Given that inflation has surpassed cost-of-living adjustments (COLA) and that benefits have lost 20% of their buying power since 2010, his campaign contends that this move is a long time.
No matter how much they make, pensioners will no longer have to pay federal taxes on their Social Security income if Trump’s proposal is approved. This translates into higher take-home pay and financial independence for many seniors, particularly those who primarily rely on Social Security as their principal source of income.
This is a significant victory for retirees on the surface. Household cash flow would improve, particularly for older adults on fixed incomes. Experts, however, have expressed grave worries about the broader effects on the long-term viability of the Social Security system.
