Will Social Security Become Tax-Free? #217
Could Social Security become tax-free? As the political scene heats up leading up to the 2024 Presidential Elections, and both candidates make their case for election, the topic of taxation has come up.
Former President Trump has promised that Social Security won’t be taxed if he’s elected. What could that mean for you? How is it currently taxed? I cover the details in this episode of Retire with Ryan.
You will want to hear this episode if you are interested in...
[1:35] How to get a copy of my new book!
[2:20] The potential impact of Social Security not being taxed
[4:50] I don’t believe we’ll see it happen: here’s why
[5:52] How Social Security is currently taxed
The potential impact of Social Security not being taxed
If nothing changes, less than 10 years from now, there will be a cut in Social Security benefits. People getting Social Security in 2033 will see a 20% pay cut. No one wants this to happen.
But there isn’t enough money going into the Social Security trust fund. Social Security being taxed is one of the things that’s kept the fund solvent. If it’s no longer taxed, a different solution will need to be put in place.
Ultimately, I believe that this "promise" from Trump is just a catchy headline to get himself reelected (and something that Congress can only enact). Secondly, some people receiving Social Security are already not taxed.
How Social Security is currently taxed
Taxation of Social Security is based on your adjusted gross income (AGI). So if your adjusted gross income + Non-taxable interest + ½ of your Social Security benefits = Your "combined income."
IRA, 401K, and other retirement account distributions, dividends, rental payments, and anything else that counts as income will be included in your AGI calculation.
Then non-taxable interest is added to the calculation (such as municipal bond interest). Lastly, ½ of your current Social Security benefit can be added (and half of your spouses if married). Your combined income is used to determine how much tax you’ll pay on Social Security.
If your income is less than $25,000, you won’t pay any taxes on Social Security. For a married couple filing jointly, the number has to be under $32,000.
If your combined income is in between $25,000–$34,000, you’re taxed on up to 50% of your Social Security benefits. Once your income is over $34,000, then 85% has to be reported on income tax to be taxed. Your tax rate is dependent on your final income.
Learn more about the taxation process in this episode.
Resources Mentioned
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