According to recent reports, the upcoming income tax law will have an impact on millions of retirees and their IRS payments. Republicans, who control both houses of Congress, are attempting to extend expiring tax cuts from 2017, which were implemented during President Trump’s first term in office.
During his campaign, he proposed new ideas, such as eliminating income taxes on gratuities, overtime pay, and Social Security benefits. According to the White House, Trump intends to include these ideas in a future reconciliation measure.
Goodbye to income taxes thanks to a new measure that will impact retirees
According to Senate Majority Leader John Thune, Republican lawmakers will have to balance “a lot of moving parts,” so passage of the final three tax cuts is not guaranteed.
Along with other Republicans, he has advocated for a “two-step” strategy in which Trump’s tax proposals are included in a separate package. Nonetheless, Trump and Speaker Mike Johnson want just one bill.
Trump has stated that his proposal to eliminate benefits taxes will result in an increase in Social Security benefits for nearly half of all seniors.
According to the Social Security Administration, roughly 40% of recipients currently pay income taxes on their benefits. These are people with incomes that exceed certain thresholds, and the taxes they pay are reinvested in the Social Security Trust Fund.
Trump’s proposals to expand deportations, impose tariffs, and eliminate overtime and tip taxes would significantly worsen Social Security’s financial situation and harm its beneficiaries.
The Congressional Budget Office currently estimates that the Social Security Trust Fund will run out of money by 2034 unless reforms to support the program are implemented.
However, a study by the Committee for a Responsible Federal Budget found that Trump’s proposals would cause the program to become insolvent three years earlier, in 2031. If current trends continue, seniors’ overall benefits will be reduced by 33% in 2035, rather than 23%.
On Friday, White House press secretary Karoline Leavitt told reporters that Trump has “made it very clear to our allies on Capitol Hill” that he wants to eliminate income taxes on Social Security payments, overtime compensation, and tips. She claimed it was a critical component of the reconciliation package.
The most difficult task may be focusing on eliminating taxes on Social Security payouts. The Senate’s Byrd rule prohibits reconciliation measures from including changes to program expenditures.
Furthermore, any proposal to amend the Social Security Act would require bipartisan support and a supermajority of 60 votes in the Senate. Republicans have very narrow margins and cannot afford many defections, even if they control both houses of Congress and the White House, allowing them to move the reconciliation process forward.
With trillions of dollars in handouts that will necessitate either new sources of funding or cuts in other areas, lawmakers may be unable to support them.
A new IRS rule could impact your Venmo, PayPal, and CashApp Payments
If your 2024 earnings exceed $5,000, third-party payment systems must issue you a 1099-K tax form. Because of this reporting change, the IRS will have a better understanding of your untaxed income for the year, allowing them to ensure you pay your taxes correctly.
By 2025, the threshold will be reduced to $2,500. The IRS initially announced in 2023 that anyone who made more than $600 using payment apps would be subject to new reporting requirements.
Following two years of delays, the tax administration has decided to roll out the reporting threshold gradually, raising it to $5,000 for the 2024 tax year.
Freelance or self-employment income earners are familiar with 1099 tax forms, which require reporting net earnings of more than $400 to the IRS. The 1099-K tax amendment mandates reporting on payment apps to help the IRS track income earnings that may go unreported despite receiving a 1099.
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