Don’t be confused on Social Security
To the editor:
Probably most of us who are collecting Social Security retirement benefits remember Republican presidential candidate Mitt Romne/s gaffe when he was recorded telling supporters that he wasn’t going to give any consideration to any of the 47 percent of the population that don’t pay taxes.
Of course, a big chunk of that were those of us who have reached the point in our lives where we have begun drawing monthly Social Security benefits for which we paid a 6-percent payroll tax during our entire working career to obtain. (After Obama knocked the 6 percent tax down to 4 percent, he finally realized that he had reduced the amount of funding for the Social Security program by one third as that tax’s sole purpose is to fund Social Security benefits. He has since raised the tax back up to 6 percent.)
So, why wouldn’t Social Security payments be taxed? The simple answer is that the program, as mentioned, is funded solely with tax money so the monthly payments made to qualified recipients are disbursements from a tax-fueled account. Therefore, the payments made to recipients are not earned income so they are not taxable.
But, there’s a provision in the federal tax codes that if the annual disbursement exceeds $25,000, the “overage” is taxable. So, you ask, doesn’t that prove Social Security payments are taxable. The answer is that many people don’t realize that payment of the payroll tax is capped at the $250,000 annual income mark. So, if you earn $400,000 annually, $150,000 is not taxed.
Therefore, here’s the problem with that. That leaves a big gray area in equating that capping to the benefits received. Now, this is my interpretation. As the IRS has this provision that any SS benefits over $25,000 are taxable, it appears to me, at least, that the IRS just decided to use 10 percent of $250,000 as the bench mark even though that might not be truly accurate.
If you’re still not convinced, I’m offering up my own situation as proof. When the (RS announced in tax year 2011 that the IRS would figure your taxes for you, I took them upon that. As I just had my SS payments as income, it was, to me, a “pure” test. The answer I got from the IRS was that I didn’t owe a dime. (My “income” total was $21,324.) I should also add that as Minnesota Revenue also taxes on the basis of earned income, the state can’t tax the SS benefits any differently than the IRS.
Therefore, as you can see, I receive a lot more monthly than many others do so that’s why I’m deeply concerned in hearing that people who receive considerably less than I do are being told they have to pay tax on their benefits. Women are particularly vulnerable because many got a late start in the work force because they were raising families, and farmers didn’t get into the program until 1957-58. They’re vulnerable, too, because they had to make a “profit” in order to pay the tax so that’s not always been able to be done.
Another reason, I believe, for the confusion about taxing SS benefits is the fact that the retirement program started by FDR back in the “30s has been altered somewhat by the addition of what is best described as a welfare program in which people of any age can get monthly payments from SSA as the result of various types of illness or afflictions. Since ifs not part of the retirement program, those payments are considered to be earned income.
Now, don’t get me wrong. I’m not saying there shouldn’t be a program for that. I’m just saying that it shouldn’t be melded in with a retirement program because it is seriously draining SSA’s resources to the point that ifs threatening the entire program. Also, I understand that over $1 billion in benefits now go out annually to people from other countries who work here on a green card for two years (enough to qualify) and then go back home to await receiving monthly payments from SSA. So, I’m hoping Congress will do something about preserving our SSA. They could start by removing the cap on collection of payroll tax. Think of what that would do for the program if all the millionaires and billionaires had to pay the payroll tax on all of their annual earned income.