Asked 1/13/2010
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I understand the goverment is going to tax social security and medicare. I have been retired 5 years,after paying into social security for 50 years-I am now 68,and my wife is 65. I have a small monthly pension,and covered by healthcare through the company I worked for 40 years. I have small variable annuity that pays me $450 a month-taxes paid. Now rumor has it that in order to pay for the new healthcare bill-the government is going to tax my social security and medicare parts A and B. What is your opinion? |
Answer 1/2 - Submitted 3/7/2010
Rumors about Medicare and Social Security seem to be plentiful. First let me say that Medicare will not be taxed. It is not considered income and you pay a premium for Part B coverage. Medicare Part A has no premium and was already paid for by you through payroll taxes.
As for taxing Social Security, it is not a rumor it already is taxed depending on your income level.
In 1981 the National Commission on Social Security Reform (sometimes referred to as the Greenspan Commission after its Chairman) was appointed by Congress and President Reagan to work on the financing crisis in Social Security. The result of their study included several amendments that were passed by Congress, signed by President Reagan and made into law in 1983. The specific rule applying to the taxation of Social Security benefits for the first time is copied below:
If the taxpayer's combined income (total of adjusted gross income, interest on tax-exempt bonds, and 50% of Social Security benefits and Tier I Railroad Retirement Benefits) exceeds a threshold amount ($25,000 for an individual, $32,000 for a married couple filing a joint return, and zero for a married person filing separately), the amount of benefits subject to income tax is the lesser of 50% of benefits or 50% of the excess of the taxpayer's combined income over the threshold amount. The additional income tax revenues resulting from this provision are transferred to the trust funds from which the corresponding benefits were paid. Effective for taxable years beginning after 1983.
Any changes to the current level of taxation of Social Security will take separate legislation by congress. The funding possibilities for healthcare reform do include taxing what are considered "cadillac health policies" and high income taxpayers. There has never been and to date there are no provisions in the healthcare reform bill to further tax anyone in your income level.
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