Social Security has long been a vital tool for promoting the well-being of those who can no longer work. It serves as a major source of income for half of the U.S. population aged 65 and older, enabling them to
live independently. Of the 948,229 Social Security beneficiaries in Minnesota, approximately 24% rely on Social Security for 90% or more of their income. With so many retirees relying on Social Security benefits for financial security and independence, this benefit should keep up with inflation and last for as long as an individual lives.
Unfortunately in Minnesota Social Security income is taxed at the highest level allowable under federal law and the exemption levels haven’t t been adjusted for more than 30 years. This means that more and more low and middle income seniors are subject to taxation on their benefits. . With more Minnesotans finding it difficult to save for a secure retirement, Minnesota lawmakers should adopt tax policies that reduce the tax burden on Social Security benefits.
Most states exclude Social Security benefits from state income taxes. In fact, Minnesota’s neighbors, including Nebraska, Iowa and Wisconsin, all provide more favorable tax treatment of Social Security benefits, recognizing the importance of financial security in retirement and the economic and social value seniors contribute to their communities.
The federal government established rules to govern how states tax Social Security income in 1984. Under those rules no state is allowed to tax more than 85% of an individual’s Social Security income and seniors with incomes below $25,000 (or $32,000 for couples) are completely exempt from the tax. However, if these income levels had been adjusted to reflect inflation, the new level would be $57,000 for singles and $73,000 for couples. Without the adjustment in 1984 around 160,000 Minnesotans paid taxes on their Social Security income, and now today more than 350,000 do.
This news shouldn’t be that surprising. Incomes grow over time and programs that have a cost of living adjustment (Social Security) will inevitably outpace exemptions that don’t. At the same time, other burdens such as higher health care and utility costs keep going up.
AARP supports reducing the tax burden on Social Security benefits for Minnesota’s low and middle income earners. While we recognize that a total phase-out of Social Security taxes would be costly, policy makers should adjust the threshold to reflect the true cost-of-living for low and moderate income retirees.
Please contact your Minnesota Senator and Representative and urge them to reduce the tax burden for older Minnesotans by adjusting the income threshold for those seniors exempt from paying taxes on their Social Security benefits.
MN Senate: (651) 296-0504 or (651) 296-2887
MN House: (651) 296-2146 or 1 (800) 657-3550