As a beneficial program for retired and disabled Americans, Social Security is a much appreciated and successful program. Over 64 million people in America are estimated to be receiving social security benefits today. The SSA (Social Security Administration)’s disability awards are given based on an objective medical record review to determine eligibility for the same. The important thing to note is that a person’s social security benefits could be taxed.
Taxation of benefits was implemented in the year 1984. This allowed the IRS to apply federal ordinary income tax rates up to half of a person’s or couple’s social security benefits, based on their income. If a person’s or a couple’s modified adjusted gross income (MAGI) plus one-half of the benefits come to more than $25,000 or $32,000 respectively, it would be taxed. In 1993, a second federal tier of taxation was added – if a person’s or couple’s income exceeded $34,000 or $44,000 respectively, using the same MAGI and one-half benefits formula, up to 85% of their social security benefits would be subject to federal ordinary income tax. The income thresholds decided in 1983 and 1993 have never been adjusted for inflation. As a result, a larger number of senior citizens are being taxed on their social security benefits at the federal level. Studies show that almost half of all seniors are paying tax on their benefits.
Apart from the federal government, some American states also tax social security benefits. These states are:
- New Mexico
- North Dakota
- Rhode Island
- West Virginia
Earlier, 4 states – Minnesota, North Dakota, Vermont, and West Virginia – used to tax social security income in line with the federal tax schedule. However, now these states have introduced exemptions/thresholds that are more retiree friendly. It is expected that West Virginia will not be taxing social security taxes any more by the year 2022. Some states are retiree friendly in that they require seniors to earn a considerable amount of savings before beginning to tax their social security benefits. In Missouri, single filers can earn up to $85,000 in AGI (Adjusted Gross Income) and couples filing jointly can earn up to $100,000 in AGI before the taxation of benefits begin. Rhode Island is a retiree friendly state that adjusts income thresholds every year for inflation. Its AGI thresholds were $81,900 for individual taxpayers and $102,400 for married couples filing jointly in the 2018 tax year.
Social security lawyers, the medical chart review companies assisting them with quality medical record review solutions, and social security recipients must all stay updated with the changes social security makes in its rules from time to time. People about to retire need to consider various aspects before deciding in which state they would prefer to lead their retired life. They must be fully aware about the amount they will receive from social security as well as about the future of the benefits program. There could be more benefit cuts in the future, and of course a person cannot live on these benefits alone. It is best therefore, to ensure that social security benefits are not the only source of one’s retirement income.