There is an income tax in this country that applies only to a very specific type of income, and then only when you have other income. I'm talking about the tax on Social Security benefits.
As part of the income tax overhaul in the 1980s, Congress put a tax in place on Social Security benefits. The formula was quite simple. For a single person, if half of your Social Security, plus all your other income exceeds $25,000, then your Social Security starts to be taxable.
When this was enacted 30 years ago it affected only a small percentage of people who were doing very well for the time. But this formula was not indexed to inflation. Now, 30 years later, the thresholds remain the same. And thus this tax is affecting more people every year, and a larger portion of their income every year.
This is an insidious tax in so many ways:
If you have saved all your life to provide for your retirement, then you are punished by tax on your Social Security.
While the so-called "marriage penalty" has been removed from much of the tax code, it's still present here. A $25,000 threshold for a single person, but only $32,000 for a married couple.
All income is counted for purposes of this calculation. Even income that is not taxed itself, such as tax-free interest, counts toward determining how much of your Social Security is taxable.
If you have an IRA that you are not planning to draw from until age 70 ½, those withdrawals could cause more of your Social Security to be taxed.
Many retired Americans would like to keep working, even if only part time. We hear that employers value older workers for their experience and reliability. The tax on Social Security is a disincentive for many retirees to remain in the workforce.
There is currently a bill in committee in the House of Representatives that would repeal this tax, HR 589, co-sponsored by Rep. Alex Mooney. I urge you to write the congressman at www.mooney.house.gov to express support.
Richard M. Boyd
Charleston