A new bill in Congress referred to as the “You Earned It, You Keep It Act,” could change how millions of American retirees are taxed. The aim of this is simple, to mitigate taxes on Social Security benefits.
As it stands, many retirees Social Security benefits are subject to federal income taxes. Now, for people living on fixed incomes, this may lead to unnecessary financial burden.
The bill intends on giving the elderly citizens more room to breathe financially. However, there are still important things to remember.
Why Social Security Gets Taxed Now
Back in the day, when Social Security benefits in the 1930s, benefits were tax-free. However, as of the 1980s, that changed when Congress had decided that wealthier individuals should pay taxes on a portion of their benefits.
However, as time went by, the income limits did not keep up with the rising costs of inflation. This implies that even if they don’t consider themselves “wealthy,” many middle-class retirees now pay taxes. Approximately 50% of all Social Security recipients currently owe taxes on their benefits, with some having to pay taxes on as much as 85% of their payout.
How Retirees Would Benefit
Should this become law, retirees would no longer have to pay taxes on Social Security checks. This simply means that they will have more money in their pockets.
The extra money could add up at the end of the month and assist with essential expenses such as food, housing and medical expenses.
The Hidden Cost
It’s important to remember that the step doesn’t come without consequences. Ending taxes on Social Security benefits could cost hundreds of billions of dollars over the next decade. That’s money the government currently relies on to help fund Social Security.
If they no longer receive this revenue, officials will have to make changes such as raising payroll taxes, reducing other aspects of government spending or even reducing benefits in future.
Many critics are concerned that even though current retirees would reap the benefits of immediate savings, younger workers and future retirees could end up with the burden of paying more into the system.
Who Wins and Who Loses?
- Winners: Those who are now retired and those who will soon be collecting Social Security. They would benefit from a tax-free increase and keep a larger portion of their monthly pay cheque.
- Losers: Younger workers and future retirees who might face higher contributions, reduced benefits, or both.
In addition to this, wealthier retirees who have other savings options will benefit a lot from the tax cut; however, the lower-income earners may not see a benefit at all.
Support and Opposition
There are many supporters of this bill who say that retirees have already contributed years of their share through payroll taxes, and they deserve all the money they worked hard. Their argument is that in a time where the price of groceries is continuously increasing, seniors need more and not less of their money.
The opposers on the other hand say that Social Security is already facing funding issues and if they mitigate taxes, the programs trust fund could be depleted even faster than predicted. They are concerned that even though the proposal may look good now, it may create bigger problems in the future.
What Happens Next?
For many retirees on fixed incomes, this bill can be seen as a ray of light. However, it’s important to be mindful of the future.
The goal is a peaceful retirement, and it is important to plan ahead. Beneficiaries are urged to keep updated with verified information so that they are able to make wise decisions to ensure financial stability.
It’s important to also try and look into other forms of savings and investment, this will ensure that retirees are well secured during their retirement years.