It's a simple document, just a summary of benefits paid. But it carries a question. A calculation. For many, it leads to a line on their tax return they never anticipated. A tax on their Social Security. The system that requires this calculation was born in 1983. The architects drew a line in the sand. For an individual, that line was $25,000. For a married couple, $32,000. If your income crossed it, a portion of your benefits became taxable.
Those numbers have not changed.
Not once.
The calculation itself is a quiet affair. You take your adjusted gross income. You add any nontaxable interest. Then, you add one-half of your Social Security benefits for the year. The sum is called your "provisional income." It is this number that is measured against the unmoving thresholds from 1983. A part-time job greeting people at the hardware store.
A small withdrawal from a 401(k). The pension earned from thirty years of sorting mail. Each dollar contributes to the total. NBC News has reported on this phenomenon, noting how the portion of beneficiaries paying this tax has grown from one in ten to now nearly half. The net, once intended for a few, now catches many.
Another threshold was added in 1993. A second, higher line.
This one captured up to 85% of benefits for taxation.
The income trigger for this was $34,000 for an individual and $44,000 for a couple. These numbers, too, are frozen. Think of a retired nurse in New Mexico. She lives off her Social Security and a small pension. Maybe she sells her pottery at a local market to help with the rising cost of property taxes.
She was careful with her money.
Followed the rules. But the rules of the tax code were written for a different economy, a different cost of living. Her modest success at the market stand pushes her over the line. A line drawn thirty years ago.
This is the heart of the matter. The lack of adjustment. Everything else has changed.
The price of milk, a gallon of gas, a doctor's visit. All have risen with inflation.
The Social Security benefits themselves receive cost-of-living adjustments. But the income thresholds for taxing those benefits remain fixed in a different era. The $25,000 figure from 1983 is equivalent to over $77,000 in today's dollars. The original target was a small group of higher-income retirees. The current reality is a machinist in Ohio who picks up a consulting gig to afford a new transmission for his truck.
A woman in Colorado who downsized, invested the proceeds from her home sale, and now finds the interest income puts her benefits on the chopping block.
They are not wealthy. They are simply living in a world where the old numbers no longer mean what they once did.
Here's one of the sources for this article: Visit websiteNow, Sen. Ruben Gallego, D-Arizona, introduced a bill on Thursday — titled the You Earn It, You Keep it Act — to eliminate taxes on Social Security ...◌◌◌ ◌ ◌◌◌
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