Senior Marriage Penalty

“It’s galling that they have a marriage penalty for seniors, when they’ve addressed it for everyone else,” Lonell Spencer, a 77-year-old retiree from Arcadia, Connecticut, told the Hartford Courant.

The penalty he’s referring to is the tax on Social Security income, which applies to every dollar of income over $32,000 for married couples, compared to $25,000 for a single taxpayer. Recent efforts to eliminate marriage penalties for most married taxpayers have not significantly affected married seniors because the taxable income threshold is only slightly higher for couples than it is for singles. Further, the median family income for those over 50 is $35,200, according to AARP’s annual report, The State of 50+ America, indicating that more than half the families would be subject to the Social security income tax if one or more family members are receiving Social Security benefits.

For nearly 50 years, Social Security benefits were tax-free; then in 1983 the rules were changed because the Social Security system was underfunded. Since then, while inflation adjustments have more than doubled the standard deduction and personal exemption write-offs, the tax on income from Social Security benefits has not been adjusted for inflation. If it had been, the Hartford Courant reports, then the threshold would be $50,000. Instead, the tax actually begins accelerating at $44,000 for married couples. According to The State of 50+ America,the real income of those over 50 has not increased since 1999. In fact, real income for 2004, the last period for which The State of 50+ America collected data, is actually lower than the real income levels of 1999.

The issue is not just about taxing Social Security benefits. The law was intended to tax “high income” taxpayers but increasingly affects middle-income seniors, the Fresno Bee reports. The State of 50+ America found that more than half the income of 50.1 percent of Americans over 62 comes from sources other than Social Security. In addition, the financial assets of those over 65, adjusted for inflation, increased by 94 percent between 1992 and 2004, and more Americans over 50 are employed, The State of 50+ America reports.

Unlike other “marriage penalties,” the senior marriage penalty has not received much attention. That is likely to change as baby boomers reach retirement age and get caught by the tax, Mark Luscombe, principal tax analyst for CCH, a Wolters Kluwer company, told the Fresno Bee. A search of the AARP web site however, indicates that either the issue has not yet become a significant issue to boomers or that it has not been incorporated into the organization’s lobbying efforts to date.

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