New Bill Ends Tax on Social Security Benefits, but There's a Catch
What You Need to Know
About 40% of retirees pay income taxes on a portion of their benefits.
While this tax is unpopular, the revenue goes back to the trust funds, making up about 4% of Social Security’s revenue.
The bill would fill the gap through congressional appropriations, which could lead to benefit cuts, Social Security advocates say.
Rep. Jefferson Van Drew, R-N.J., has introduced legislation, The Social Security Tax Freedom Act, that would remove the requirement for Social Security benefits to be included in taxable income.
Under the bill, H.R. 9359, the missing tax revenue would be made up through congressional appropriations, a change that Social Security advocates warn would change the very nature of the program and put benefits at risk for future cuts.
“People who rely on Social Security have already more than contributed their fair share through years of payroll taxes and hard work,” Van Drew said in a statement. “They have busted their backs for decades, and now, when it is time for them to enjoy the benefits, they see portions of their hard-earned benefits reduced by even more taxes. It is just outrageous.”
The bill ”would violate the earned right nature” of the Social Security program by dipping into general government funding, Dan Adcock, director of government relations and policy for the National Association to Preserve Social Security and Medicare, told ThinkAdvisor in an email.
“We favor Rep. John Larson’s Social Security 2100 Act and similar bills in the House and Senate that expand and strengthen the program by demanding that the wealthy begin contributing their fair share.”
The rationale behind the taxation of benefits “is to treat them the same way that private employer-sponsored retirement plan benefits are taxed, with the one difference that the proceeds are dedicated to Social Security,” added Nancy Condon, president of Social Security Works, in another email. “Notwithstanding the rationale, the taxation is extremely unpopular.”
