Tax Strategies to Manage the Bite
It comes as an unpleasant surprise to many retirees, especially those filing their federal tax returns for the first time in retirement, that a portion of their Social Security benefit is taxed at their normal tax rate. It’s viewed by many as a form of “double taxation,” since as a worker you paid FICA tax on your “contribution” to Social Security, only to find out that you’ll now pay federal income tax on the distribution of those funds. It’s a bit of a political football in Washington, with many legislative bills filed through the years to have it repealed, consistently without success. After all, the tax on Social Security benefits brought over $36 billion into the program in 2019 and, given Social Security’s precarious financial future, removing that chunk of revenue would only worsen the situation.
A post on Baron’s by Nick Fortuna discusses strategies to perhaps soften the tax bite on Social Security–and other–income sources, and might give readers some good ideas for the 2021 tax year. Check it out here…