About not paying income tax on Social Security Benefits - Motley Fool
President Trump has suggested that seniors should not have to pay income tax on their Social Security benefits, and (obviously) most seniors would agree. Some studies say that eliminating income tax on Social Security benefits would provide a welcome $3,000 financial boost for a typical senior household. This, of course, would be especially helpful to those with a lower retirement income stream and who rely heavily on Social Security to make ends meet. However, it’s important to also look at the ramifications of eliminating income tax on Social Security benefits.
Income tax on SS benefits is just one of only three streams of Social Security revenue – the others being income from worker payroll taxes, and interest on SS Trust Fund reserves. Since 2021, the total SS income from those three sources has been inadequate to pay full benefits to all recipients, so the reserves in the Trust Funds are now used to provide the extra money needed to pay full benefits to all. This means that the Trust Fund reserves are being steadily depleted and, when those funds run out – currently projected in 2034 – everyone’s benefit will be reduced. So the problem is, with income tax on benefits being an important source of SS revenue, eliminating that revenue stream will cause depletion of the SS reserves to occur sooner than 2034, resulting in a cut to everyone’s benefit. That is, unless Congress enacts program reform soon. This Motley Fool article by Kailey Hagen explains the dynamics of eliminating income tax on Social Security benefits.
As an example of the leading thoughts on reforming Social Security, the Association of Mature American Citizens (AMAC, Inc.) believes Social Security must be preserved and modernized to meet the demands of 21st-century economics. AMAC’s position is that this can be achieved without payroll tax increases via slight program modifications, including cost of living adjustments and payments to high-income beneficiaries. AMAC also supports an increase in the thresholds where benefits are subject to income tax, along with indexing of these thresholds annually to account for inflation. The AMAC position also calls for eliminating the reduction in benefits for those choosing to work before full retirement age, and advocates for improved savings tools for future retirees. AMAC is resolute in its mission that Social Security be preserved for current and successive generations and has gotten the attention of lawmakers in D.C., meeting with many congressional offices and staff over the past decade.