President Donald Trump’s plan to eliminate federal taxes on social security benefits sounds simple: lowering taxes so that older adults retain more of their money. However, the plan is controversial due to its potential impact on the Social Security Trust Fund and the primary beneficiaries of the tax reduction.
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While Trump framed his initiative as a tax reduction for pensioners, the benefits that are disproportionately pensioners give.
So, who would benefit most from the Tax Plan of Trump?
Social security benefits are taxed on the basis of income.
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People who earn less than $ 25,000 ($ 32,000 for joint fillers) do not pay taxes.
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Those who earn between $ 25,000 and $ 34,000 ($ 32,000 to $ 44,000 for joint fillers) pay taxes on a maximum of 50% of the benefits.
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Pensioners who earn above these thresholds pay tax on a maximum of 85% of the benefits.
The income from these taxes help support the Social Security Trust Fund.
“Currently, a retired lawyer, for example, who earns an income above the thresholds, paying higher taxes on their social security benefits and essentially losing benefits,” said Wayne Winegarden, an economist at Pacific Research Institute. “Trump wants to stop taxing this income.”
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Trump’s plan would mainly benefit pensioners with a high income.
“In view of this progressive tax structure, the removal of taxation of income beneficiaries will benefit from an income above $ 25,000 ($ 32,000 for joint fillers),” said Winegarden. “The advantage of the policy grows with income to the limit.”
Winegarden explained: “If you stopped taxing the benefits of social security, that would mean that you would stop taxing beneficiaries who earn more and the high-paid lawyer who works part-time on their retirement. That is why these earners will benefit from a higher income.”
Pensioners with a higher income with income from pensions, investments and part -time work would also win. Those who withdraw funds of IRAs or 401 (K) s could see indirect benefits, because taxable recordings can push the pensioners from the middle class over tax thresholds.
“There are many people who would pay fewer taxes if the social security income was no longer taxed,” said Winegarden. “However, these people would all have higher incomes.”
Pensioners with a lower income, who already do not pay taxes on their benefits, would not see a direct profit.
Pensioners of the middle class who earn $ 25,000 to $ 70,000 can see some tax reduction, but the long -term risks for the future of social security can compensate for these benefits.
Kevin Walton, a registered social security analyst, said that eliminating taxes at benefits would remove $ 50 billion from social security annually.
“We have just accepted the Social Security Fairness Act, which will continue to exhaust the Trustfonds with another $ 190 billion,” said Walton. “The Trustfonds is bleeding.”
Winegarden emphasized the financial risks of Trump’s proposal.
“Puriating social security benefits is a way to reduce benefits for households with a higher income, and therefore it was originally implemented,” he said.
Without tax revenues that flows back into the fund, exhaustion can lead to discount reductions of a maximum of 33% in the coming years.
“This could increase the risk that taxpayers, including taxpayers with a lower and middle income, could not stop receiving social security benefits,” said Mark Luscombe, chief analyst for Wolters Kluwer’s Tax and Accounting Division North America.
Luscombe also said that there are tax proposals from Congress for Social Security that would increase the income threshold for withholding social security. These proposals have been designed to help prevent the trust of social security from becoming exhausted and would mainly benefit pensioners with a higher income.
Chris Orestis, a pension expert and President of Retirement Genius, said that Trump’s plan “is a tax benefit for the rich paid by employees.”
“In the short term, beneficiaries with a higher income benefit, employees who are not yet in the program and does not do anything for beneficiaries with a lower income,” said Orestis. “In the long term, the future beneficiaries of all stripes, but especially lower incomes.”
Older adults and future pensioners must take proactive steps to secure their financial future.
“The best thing you can do now is to increase your pension savings, so you don’t have to rely that much on your social security benefits,” said Krisstin Petersmarck, a national social security advisor and investment adviser.
Brent Matthew, a financial adviser and founder of Scottsdale Wealth Advisory, said pensioners should consider how the proposed tax changes can influence their medicare premiums, in particular those based on income.
“A reduction in taxable social security income can also lead to lower medicine premiums,” said Matthew. “However, this is also an example of the broad impact, any changes to the tax legislation and benefits structure.”
Note from the editor about political coverage: Gobankingrates is not -party -related and strives to objectively cover all aspects of the economy and to present balanced reports about politically oriented financial stories. You can find more coverage of this subject Gobankingrates.com.
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