TREASURY ADDRESSES TAXATION OF THE ELDERLY.
TREASURY ADDRESSES TAXATION OF THE ELDERLY.
- AuthorsSophos, Mary C.
- Institutional AuthorsTreasury Department
- Code Sections
- Index TermsIRAselderly credit
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 92-10786
- Tax Analysts Electronic Citation92 TNT 241-29
=============== SUMMARY ===============
Mary C. Sophos, Treasury assistant secretary (legislative affairs), has responded to a letter from Sen. Sam Nunn, D-Ga., on behalf of a constituent who expressed concern about the taxation of the elderly. Sophos states that exclusions from income based on age are unfair to those who do not qualify because of age and provide no benefit for the low-income elderly. Sophos also explains that IRA withdrawals should not be excluded from income because such treatment would permanently exclude the funds from taxation. Such an exclusion would be unfair to other taxpayers with similar amounts of income from other sources, Sophos states.
=============== FULL TEXT ===============
November 16, 1992
The Honorable Sam Nunn
United States Senator
75 Spring Street, S.W.
Suite 1700
Atlanta, Georgia 30303
Dear Senator Nunn:
Thank you for your letter of October 1 enclosing correspondence from your constituent, R. B. Heberling, who expresses concern about the taxation of the elderly.
We are sympathetic to the situation of elderly taxpayers with restricted incomes. However, exclusions from income based on age provide the greatest benefit for those of the elderly with the highest incomes and provide no benefit for the low-income elderly who have little income in addition to their Social Security benefits. Such exclusions are also unfair for individuals with similar incomes and financial responsibilities who do not qualify for the exclusion because of age. More equitable tax relief can be provided by lowering rates for all taxpayers and excluding low-income individuals from tax through the standard deduction and personal exemption, such as enacted in the Tax Reform Act of 1986.
With respect to IRAs, generally a taxpayer is allowed a deduction for contributions to an IRA and withdrawals are included in income for tax purposes. This defers the taxation on the compensation contributed to the IRA until the funds are withdrawn. If the taxpayer has a lower amount of taxable income as a retiree, the taxpayer may pay a lower rate of tax on the "deferred" compensation than if the taxpayer had not contributed it to the IRA. To exclude the withdrawals from income, however, would permanently exclude the income from tax, and would provide inequitable tax treatment to tax retirees with income from IRA withdrawals versus other elderly individuals with similar amounts of non-IRA income (for instance, wages). Similarly with respect to income from savings bonds, the interest from savings bonds represents new income that has not been taxed. To exclude the income from tax would be unfair to other taxpayers with similar amounts of income from other sources. Legislation and action by Congress would be required to change the tax treatment of IRA withdrawals and interest from savings bonds.
We hope this information is helpful in responding to your constituent. Please let us know if we can be of further assistance.
Sincerely,
Mary C. Sophos
Assistant Secretary
(Legislative Affairs)
- AuthorsSophos, Mary C.
- Institutional AuthorsTreasury Department
- Code Sections
- Index TermsIRAselderly credit
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 92-10786
- Tax Analysts Electronic Citation92 TNT 241-29