Quote:
Originally Posted by drbmd03
I normally don't reply to posts but feel obligated on this one. I worked for Jackson Hewitt for 6 tax seasons. What is not being discussed with regards to the blanket statement that 90% of SS recipients will not be taxed on their SS is VERY misleading. While the senior additional $6,000 for single filers and $12,000 for married filers does increase the amount of tax free SS, what is not discussed is that within the IRS tax code there is a formula for calculating how much of your SS is taxable. This formula to my knowledge has not been changed and I seriously doubt with the senior deduction only valid through 2028 that it will be changed. An example is you take 1/2 of your SS and add all your other income to that amount. If the amount for a single filer is under the $25,000 threshold then none of your SS is taxable. Any amount of that total is above $25,000 then all of that amount up to 85% of your SS is taxable. So yes the $6,000 extra for a single filer allows you that extra taxable income but anything beyond is still taxable. This is an individual or married couple base by base situation.
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Just to provide an example of SS and this rule, I went to the the SS web site and entered the following information for the calculations using the 2024 tax year and rates:
Using a SS income of $44,000 per year, $3,667 per month, which is
about the FRA max earnings, for two income couple equals $88,000 annual in SS income.
Then I used 0, ZERO, income for the other information, which is unlikely for anyone, but gives a base idea of the additional deduction value.
The SS taxable income was $6,000 for a married couple filing jointly, using the 2024 85% formula.
So the 2025 deduction changes the formula by adding enough additional deduction to offset the last 15% of taxable SS income, and a small cushion for those retiring later than FRA getting a larger amount.
So, for those with IRA income, or IRA conversions, the impact is helpful but people will still have to pay some amount of income taxes on the IRA/investment income. So actually modeling out the impact on your particular situation will answer your specific situation.. .
I am leaning towards a small reduction in taxes paid on taxable income for most villagers, but better than no change and much better than increased tax rates for the same amount of income.
However, the impact to the treasury income is probably less than the headline due to most people with max FRA benefits will also have retirement plan sourced income.
Good luck out there!