IRS policy means fewer dollars and much nonsense
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Dear Mr. Berko:
My wife and I will be eligible for full Social Security benefits next month, and I will continue to work because we need the money. But I need to know how much of our Social Security income will be taxed when we begin receiving our checks, and I can’t figure out all the stupid instructions on the tax form. So I’d appreciate it if you could give me some idea how much in taxes I might have to pay. Together my wife and I will get about $2,000 a month in benefits and will earn about $2,000 a month in my part time job. Also, I’m hearing lots of talk that Social Security is in very serious trouble and that there isn’t enough money in the Social Security Trust Fund to pay benefits for all the Baby Boomers (we are Baby Boomers) who are becoming eligible. How can that be if we keep raising the tax base to bring in more money each year? But Social Security, while it’s helpful, really isn’t enough money for most of us when we retire. Look at us, for instance. I’m going to be 66 soon and can’t quit working because we need money to pay bills and live. My brother-in-law and I both worked in the mills and made about the same money. But he got the breaks and I didn’t. It isn’t fair to a lot of us when there are people like my brother-in-law and his wife who get as much Social Security as we do and don’t have to work, and they also got a new car this year.
G.R., Bethlehem, Pa.
Dear G.R.:
I sense some anger and envy here. It’s not your brother-in-law’s fault that he doesn’t need to continue working after age 66. And I doubt it’s your brother-in-law’s fault that you still gotta work to make ends meet. Many Americans prefer to work on their beer bellies while watching ESPN. So it’s become fashionable today to avoid personal responsibility by blaming others for our failures.
Social Security was never intended to be your sole retirement income. It was supposed to augment your retirement plans and savings. But many Americans like you lack the genetic material to help themselves retire. So you become part of the brigade of supplicants who complain to their congressmen that the system is unfair.
Meanwhile, there is no legally authorized or congressionally approved Social Security Trust Fund. There are no Social Security dollars in any trust fund of any kind. The Trust Fund is a Santa Claus for adults designed by Washington to make you feel more secure. And yes, Social Security has huge money problems, but that’s a column for another day.
The degree of difficulty in determining whether or not and how much of your Social Security income is taxable ranks right up there with finding solutions to world hunger, global warming, population control, world peace and solving the Arab/Israeli problem. It’s as simple as that.
My accountant told me to read Internal Revenue Service Publication 915, so I did. I read it again. And again. And it still didn’t make any sense. So I asked my CPA to explain it to me, and here’s your answer.
He tells me that married folks with a modified adjusted gross income (MAGI) of $32,000 might be required to pay taxes on their Social Security income. This law, however, does not specifically address folks of the same gender. So almost everyone who earns $25,000 or more will have to ante up between a few dollars and a fistful of dollars.
“That’s fine,” I said to him. “It makes sense; but what is this thing you call MAGI? It doesn’t refer to the Three Wise Men, and I don’t think I’ve ever heard it before. And please don’t quote from one of those convoluted IRS publications that make even less sense than a Franz Kafka novel.”
“Well,” he said, “depending on your personal circumstances you may have to pay taxes on as much as 85 percent of Social Security income.
“For example, if you and your wife have $24,000 in Social Security and $24,000 from part-time employment, you must add half your Social Security ($12,000) to your $24,000 employment income, which gives you a base income of $36,000.” That’s simple so far.
Now it becomes costive. You must add to your other income and I quote: “either half of your Social Security income ($12,000) or half of the amount by which your income exceeds the $32,000 threshold at which your benefits become taxable ($36,000 – $32,000). The excess amount is $4,000, and half of that is $2,000. The tax code specifies that you are to use the smaller number, or $2,000. So now all you have to do is add the $2,000 of taxable Social Security income to your employment income and your new total taxable income becomes $27,000.” I think.
It has been suggested that only predators, deviates and narcissists in Congress could write copy like that. But please check with your accountant for verification. And he might tell you that IRS Publication 915 is a very nearly perfect argument for a flat tax.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@comcast.net. © Copley News Service
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