Social Security: How Tax-Exempt Interest Reduces Your Benefit

Social Security benefits are subject to income tax.  There is a 'provision' in the tax code from a bill Ronald Reagan signed in 1983 making a portion of Social Security benefits subject to taxation for the first time. In 1993 Bill Clinton signed another bill making even more benefits subject to taxation. However, where it gets painful to most taxpayers, is that NEITHER of these bills were indexed for inflation!  This means more and more taxpayers are paying tax on Social Security simply because inflation is making them appear wealthier than they are.  In the 1983 bill you had to have over $32,000 of income before your any of your Social Security benefits were taxed. Guess what?  In 2018, literally 35 years later, you still need to have over $32,000 of income before your Social Security benefits are taxed. In fact, if Social Security taxation were indexed to inflation you'd need $102,000 in today's dollars to have your benefit subject to tax.  https://www.ssa.gov/OACT/ProgData/retirebenefit1.html That is how the lack of indexing is bringing more and more people to pay tax on their Social Security benefits.  It's a stealth tax on the middle and lower middle classes if there ever was one.  On top of that, a little known provision in the 1983 bil subjected TAX-EXEMPT interest to be included in determining if a portion of your Social Security was taxed. Yes, Tax-Exempt interest is free from INCOME tax. But it certainly is NOT free from taxation of your Social Security. Did you know that? So, if you are living off Social Security and tax-exempt interest, there is a good chance you're still paying income taxes! If you are thinking about retirement, you need to understand how Social Security is taxed and prepare accordingly.  Taxes eat away at your retirement income.   There are strategies to implement, NOW, to avoid paying more taxes than you need, which we talk about in other videos on the Heritage Wealth Planning channel.