Social Security became effective on January 1, 1937, following the enactment of the Social Security Act in 1935. This legislation aimed to provide financial assistance to the elderly, disabled, and survivors of deceased workers.
The ongoing deliberations concerning the sustainability of the Social Security Trust Fund have prompted proposals aimed at reforming the system to ensure its long-term viability.
The existence of this discourse is unsurprising, as politicians have utilized the Social Security (SS) system, funded by the citizens, to increase benefits for other purposes, leveraging the SS trust fund to underwrite the new benefits. Amendments enacted in 1939, 1950, 1965, 1983, and 1983 have introduced additional benefits, including the increase in the retirement age from 65 to 66 years of age, as well as the implementation of the Cost-of-Living Adjustment (COLA).
In addition, the government uses loans from the SS Trust to fund other projects. These loans are held government securities that represent obligations of the federal government. (In other words, the taxpayer)
AT THE BEGINNING OF 2024,
THE SS TRUST WAS OWED $2.79 TRILLION.
A few of the expenses from the loans were for defaulted student loans and student loan forgiveness. The SS Trust is funded in part by payroll taxes.
The taxation of Social Security benefits for retirees is determined by their combined income, which includes adjusted gross income (AGI), nontaxable interest, and half of the Social Security benefits received. Here’s a detailed breakdown of how this works:
TAXABLE PORTION OF YOUR SOCIAL SECURITY BENEFITS
**Income Thresholds**:
- **Single Filers**:
- - No tax if combined income is below $25,000.
- - Up to 50% taxable if combined income is between $25,000 and $34,000.
- - Up to 85% taxable if combined income exceeds $34,000.
- **Married Couples Filing Jointly**:
- - No tax if combined income is below $32,000.
- - Up to 50% taxable if combined income is between $32,000 and $44,000.
- - Up to 85% taxable if combined income exceeds $44,000.
These taxes have never been indexed or increased since inception, so they became inflationary for the taxpayer.
State Taxes
While many states do not tax Social Security benefits, some do. For example, New Mexico has specific thresholds that might exempt many retirees from state taxes on these benefits. Arizona does not tax SS benefits. Minnesota has the highest state taxes which are up to 9.85%.
Conclusion
The elimination of SS taxes on taxpayers will increase their net disposable income. There will be a fight to prevent this from being passed by legislators as the old guard likes to use the Trust as a slush fund. If this is successful more disposable income will be available toward the purchase of a house you can call home.
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