House Republicans have released an interesting new tax plan targeting seniors. It has a super nice $4,000 personal deduction for seniors (65+)! This common sense initiative would give financial relief to retirees who are unfairly taxed on their Social Security benefits. The deduction is available to taxpayers who take the deduction, whether or not they take the standard deduction. This is true even when, for example, they choose to itemize their tax returns.
The proposed $4,000 deduction would significantly benefit lower-income seniors, many of whom struggle with the tax implications of their Social Security income. As it stands, up to 50% of Social Security benefits may be taxed for individuals with a combined income between $25,000 and $34,000. For married couples, this threshold is defined between $32,000 and $44,000. Beneficiaries can end up paying taxes on up to 85% of their benefits. This only holds true if their income exceeds $34,000 for individuals or $44,000 for couples filing jointly.
The new deduction will begin to phase out for single filers making more than $75,000 in modified adjusted gross income. For married couples filing jointly, it will start to phase out for incomes over $150k. This design provides for benefits to go to those with the greatest need. It reduces the burden on those with higher incomes.
If the $4,000 deduction were permanently enacted, it would have a 10-year cost of nearly $200 billion. This implementation carries large monetary costs. It’s important to note that this ambitious initiative will not be funded by a transportation-specific revenue source, but rather by Kentucky’s general income tax revenue. That means it won’t directly draw on Social Security’s trust funds.
This temporary provision will only be in place for tax years 2025 through 2028. It establishes an open enrollment period for each eligible senior to take advantage of this new property tax deduction. If this proposal is enacted into law, a median-income retiree with $50,000 a year in income would save close to $500 in tax liability. This amendment would bring considerable improvements for millions of retirees.
To Elizabeth Huston, the White House Assistant Press Secretary, this deduction is “one of the historic tax breaks.” She emphasized her staunch support for all bills and appropriations that aid seniors in meeting their fiscal responsibilities.
Even in the face of this overwhelmingly rosy picture, other experts have started to express alarm at the sheer size of the proposal. We talked to Garrett Watson, director of policy analysis at the Tax Foundation, about his impressions of the current proposal. He pointed out that it’s probably only a fifth of the tax cut they initially promised on the campaign trail. That’s why the proposed new deduction is so welcome, giving relief to a small degree. It will likely fall short of the larger tax reforms so many were anticipating.
The creation of this new deduction is emblematic of broader conversations around tax policy and how it affects our most vulnerable communities. Over half of seniors rely on Social Security for the majority of their income, and these seniors would benefit from any action that reduces their tax burden. As legislators make decisions on this proposal, its proposed impacts on the financial security of retirees will certainly be one of the key areas of focus.
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