Yet another middle class screwjob: taxation of social security benefits.

[Warren Stupidity]

Prior to 1983 social security benefits were not taxed. As part of the 1983 Amendments to the Social Security Act, otherwise known as The Dawn of The Raw Deal, benefits were taxed based on all income, including 50% of your SS benefits, with benefit taxation starting at 32,000 for a joint return. In 1983 this screw-job was palatable mostly because 32,000 was a reasonably comfortable income level for a retired couple.

In 2015, because we are in the Raw Deal era that started in 1983, the same $32,000 threshold applies. It has never been inflation adjusted. If it had been it would be around 76,000 dollars.

Note that the maximum monthly benefit for two people in 2015 is around 64,000. 32,000 of that (the 50% rule above) meets the benefit taxation threshold. Every dollar you earn would result in taxation of your SS benefits. The first 12,000 you earn would result in half of your SS benefits being subject to taxation. If your income outside of SS exceeds 12,000 85% of your SS income is taxable. And by "earn" I mean "any source of income, including otherwise non-taxable income". For example, "tax free" bonds, or more screw-jobberly, your 401K savings.

Who do taxable benefits hurt? Not the rich, that's for sure, they are already hurting so bad that congress is lining up to repeal the estate tax once again, and thankfully the middle class will help subsidize this with their taxable SS benefits.

[orpupilofnature57]

1. 600 % is hard to maintain, everybody has to do their part . n/t

[TreasonousBastard]

2. And once again I say...

that the estate tax can, and maybe should, be abolished but any inheritance should be taxed as ordinary income.

The tax haters keep talking about keeping what you earn but then keep taking from the workers to give to the non-working.

It's shameful to live on the dole if you lose your job, but be proud if you inherited it.

[yeoman6987]

3. My Mom died in November 2013

So I just did income taxes and yes the do tax on inheritance income cuz i am proof of it. The only thing we didn't get taxed on was life insurance which was the lowest check we received. All 3 of us received around 85K and 60K was taxed as ordinary income. I don't understand this BS of inheritance being tax free. It isn't and not for state either.

[peace13]

7. If the money came from an IRA or any other pretax account the beneficiary does pay income tax.

[yeoman6987]

20. That was it. Thanks! Although still a rip. Lol

Especially when they say no inheritance tax on all money under a certain amount. I am just glad that I got the answer. Thanks!

[TreasonousBastard]

8. I don't understand that...

Last I heard, there's Form 706, but estates under 5 million had no tax (or was it 3.5 million that year) and there is no other tax on the specific inheritances.

My mother died the same year and left less money, but there was no question of us paying tax on it.

I didn't find anything specific on the IRS site, but Turbo Tax says this:

https://turbotax.intuit.com/tax-tools/tax-tips/General-Tax-Tips/Video--Is-Inheritance-Money-Counted-as-Income-by-the-IRS-/INF19544.html

Hello, I’m Tammy from TurboTax with important news for taxpayers who receive an inheritance. You may be pleasantly surprised to know that inheriting money from a friend or family member will not cost you a single dollar in federal income tax. Instead, the U.S. tax system may impose a tax on the decedent’s estate—which is the source of your inheritance money—if its value exceeds a certain amount.

Most estates, however, don’t end up owing estate taxes, but either way, you are not responsible for paying it out of your inheritance. What you are responsible for is reporting the income your inheritance generates after you receive it. For example, if you inherit $10,000 and immediately deposit it into an interest-bearing savings account, you must report all the interest that the money earns on your next tax return.

There is one narrow exception to the general rule that the beneficiary does not pay inheritance tax. If you receive an inheritance from the estate of a “covered expatriate". A covered expatriate is a former U.S. citizen or long-term resident who renounces their citizenship or residency and has annual average net income for the most recent five tax years in excess of IRS thresholds, has a net worth of over $2 million or fails to certify under penalties of perjury that they have complied with all U.S. tax laws in the previous five years. When receiving an inheritance from a covered expatriate, you are responsible for the payment of tax—which you calculate using the highest possible rate that the estate tax laws allow for.

[REP]

15. It's 3.7M for 2014

My mother died last year, and neither I nor her estate owed taxes.

[former9thward]

17. You are correct.

The poster is leaving out some information or it was badly handled.

[yeoman6987]

19. I think a poster up a few answered it for me

I think it was in IRAs and mutual funds so we did have to pay what was pretaxed.

[former9thward]

21. Yes, I inherited some IRAs my Dad had

and I pay taxes on them anytime I withdraw even though it has been many years.

[yeoman6987]

22. I find that so unfair. Ugh!

The ultra rich puts it heavy duty trusts so they don't have to pay taxes on it.

[REP]

16. You may want to file an amended return

http://wills.about.com/od/Understanding-Estate-Taxes/qt/Will-You-Have-To-Pay-Taxes-On-Your-Inheritance.htm

I didn't even have to report my inheritance.

[hfojvt]

31. but retired people are also

non-working

Why should a retired person who makes $30,000 a year have $20,000 in untaxed income while a working person with the same income does not? In fact the working person really only has an income of $27,705 after FICA taxes.

I never have made $32,000 in my life, not even when I was working two jobs. And a non-working couple should complain about having to pay tax on SOME of their income when they make MORE than that?

[TreasonousBastard]

33. Good question. On the...

bottom line, of course, is that any time anyone's ox is gored, even a little bit, they'll scream to the heavens about the unfairness of it all. Personally, sitting here in my tiny corner of the universe I don't really know what is fair. I do know, however, that retirees seem to have a lot more power speaking for them in the halls of Congress than working people do.

Out where I live, it's becoming pretty much a retirement community. The simple fact is that most working people, or kids starting out, can't afford the median $467,000 for a house and rental apartments are scarce. Hence, many people that do move in are doing very well in their retirements and some seem to be living better than when they worked.

But, many of them didn't do much better than the median income for most of their working lives and did a good job saving. They also often held two mortgages for their primary home and the summer place here that they intended to retire to. And by the time they retired, the house they left was often worth at least as much as the one out here, so they're doing OK. Should they be penalized for not blowing their income while they worked?

Like everything else, it gets complicated and there are no easy answers.

[hfojvt]

34. I think the easy answer is

treat all income the same

$30,000 income is $30,000 income

whether it is from

social security
pension
wages
long term capital gains
dividends
etc.

Other than tax free munis (which are that way to save local governments interest costs) there is NO tax free income or tax favored income - period. (I will say that for my real estate gain it did not seem fair that I did not get to deduct the about $2,000 worth of real estate taxes that I paid over the twenty years from the calculation of the gain (thanks to Bush it was all taxed at 0% for me anyway))

That's actually a tougher stance than current law, where social security is tax free for lower income retirees and where 15% of it is still tax free for higher income retirees. People over the age of 65 already get an extra $1,200 per person that younger people don't get.

I think that is less than what they used to get (I thought it used to be an extra exemption (worth about $3,900 per person)) but it still would have saved me $180 last year.

[Mojorabbit]

35. Haven't they already paid tax(fica) on it while they were working? nt

[hfojvt]

36. not for the most part

last year I paid $1,765 in FICA taxes. My estimated benefits are $599 a month if I retire at 62, $880 a month if I retire at 67.

So for one year I paid $1,765 in taxes and for one year I will get about $7,200 in benefits.

Of course I work more years than I will probably get benefits.

As of 2009 I had paid, they said $15,822 in FICA taxes. Based on my salary of 2009 (14,482) Working until 2024 at that salary would net me $217,230 in wages on which I would pay $13,468 in FICA taxes for a total paid of about $29,200 which I will earn back in benefits less than five years in my retirement. If I live as long as my dad, who is going to turn 82 this year (knock on wood) I will collect benefits for 20 years. About $144,000 in benefits, compared to $29,200 in FICA taxes paid.

Then if I was lucky enough to make another $22,000 in income besides my FICA benefits, and thus (oh woe is me) have to pay taxes on them, I would only be paying taxes on 85% of my benefits. Thus $1,080 would still be tax free income - a credit the younger, working person does NOT get.

[doc03]

4. Thank you, someone else has finally woke up to this ripoff.

Me being single that threshold is $25000. My SS and pension goes over that threshold so anything over that is taxed and it subjects my SS to tax. I withdrew $12500 from my IRA last year and the federal tax on it was 35%. We were led to believe when we retire that our IRA would be subject to a lower tax rate. Last year $13475 of my SS was taxed, we are being taxed twice on the same income.

On edit: Until this tax starts affecting most married couples we are stuck with it IMHO.

[Warren Stupidity]

5. It is a sliding scale from 50 to 85%.

[doc03]

6. Sorry I corrected that n/t

[SickOfTheOnePct]

10. The idea that IRAs would be taxed at a lower rate

is because most people fall into a lower tax bracket upon retirement. It's not like there is some special rate for IRAs.

And if all of your withdrawal was taxed at 35%, which is a marginal rate, then you've got a hefty amount coming in. And no, that's not a bad thing in any way, but you shouldn't be surprised that a large income will be taxed at a higher marginal rate, retired or not.

And I'm missing something, as I don't see how the same income is being taxed twice?

[doc03]

11. Example I was taxed on my income last year which I have no problem with,

but that income subjected $13475 of my SS to tax. I am in the 15% tax bracket but the $12500 I withdrew from my IRA was taxed 35%. Another thing most of that income from an IRA is capitol gains that is only taxed at 15%.

[SickOfTheOnePct]

14. I'm against taxation of SS benefits

but you were taxed on your income, and then you were taxed on part of your SS. That's not being taxed on the same income twice.

[doc03]

12. I wasn't aware I was in the one percent, I am glad you reminded me of that. That is pretty

good a retired steelworker is wealthy and deserves to be taxed like hell on the money they were able to save for retirement.

[SickOfTheOnePct]

13. I never said you were in the 1%

but the 35% marginal rate doesn't kick in until taxable income exceeds around $400,000. If part of that 35% is a penalty for withdrawal before age 59.5, then that's a penalty, not income tax. If it's not a penalty, and if your income didn't exceed $400,000 then it sounds like somehow your taxes got jacked up, and badly. IRAs withdrawals are taxed as ordinary income, so 35% for a withdrawal is very high.

[former9thward]

18. To be taxed at 35%

and single you have to be over $405,101 in income. There must be something else going on with the IRA or someone made a mistake.

http://www.efile.com/tax-rate/federal-income-tax-rates/

[dixiegrrrrl]

28. I found a web page that figures your Soc. Sec. tax.

click in a few numbers and the figures pop up.

https://www.calcxml.com/calculators/how-much-of-my-social-security-benefit-may-be-taxed?skn=

[doc03]

9. I have posted on this every year since 2012 and it always falls flat. It seams nobody

cares unless they are on the receiving end of this rip-off. Until inflation puts them in that position they don't care.

[Wilms]

23. k/r n/t

[dixiegrrrrl]

24. Just to be clear.....

If Soc. Sec. is your only income, then any taxes start at a much higher level, right?
Thought I heard 80,000 is the first taxable amount of just Soc. Sec. income.

[Warren Stupidity]

25. No. Ordinary wage income is taxed at the same rate as everyone else.

The issue is taxation of your ss benefits. Those taxes kick in as soon as your total income from all sources, including 50% of your ss benefits, exceeds 32,000, a threshold set in 1983 and never adjusted.

[dixiegrrrrl]

26. Must emphasize that we are talking " total adjusted gross income"

Need to account for the deductions and exemptions.

The good news is that I don't have to sweat the Fed and state income taxes.

The bad news is I don't have to sweat the Fed and state income taxes.

[Warren Stupidity]

29. MAGI not AGI

Your adjusted gross income. It is your AGI plus otherwise non-taxable sources, plus of course half of your SS benefits.

[randome]

27. Another Reagan tax increase.

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[Warren Stupidity]

30. Tip O'Neil.

Bipartisan Reagan-O'Neill Social Security Deal in 1983 Showed It Can Be Done



http://www.usnews.com/opinion/articles/2009/04/02/bipartisan-reagan-oneill-social-security-deal-in-1983-showed-it-can-be-done

[randome]

32. I'd forgotten about that. Still, it was Reagan's presidency that imposed this tax.

The 'fiscally conservative' party.

I was working for the Social Security Admin when this came down. It was a deplorable change.
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