Passage May Clear Path For WEP Reform
DECEMBER 21, 2017: Now that Congress has passed and President Trump has signed federal tax reform legislation into law, analysis is underway on what it means for retirees.
Passage May Clear Path For WEP Reform
DECEMBER 21, 2017: Now that Congress has passed and President Trump has signed federal tax reform legislation into law, analysis is underway on what it means for retirees.
Nationally, the AARP and other groups are on record opposing the new law due to the “negative effect the Tax Cuts and Jobs Act will have on the nation’s ability to fund critical priorities. The tax legislation will increase the deficit by approximately $1.5 trillion over the next ten years, and an unknown amount beyond 2027. The large increase in the deficit will inevitably lead to calls for greater spending cuts, which are likely to include dramatic cuts to Medicare, Medicaid, and other important programs serving older Americans.” Read the AARP’s open letter to Congress here.
Mass Retirees officials are looking at how the new law will impact public retirees beginning with the 2018 tax year. Members can look to the March edition of the Voice for a full breakdown.
“How the new tax law will affect you as an individual will vary greatly depending on your own circumstance. If you do not itemize your taxes, then the higher standard deduction might lower your taxes,” says Association General Counsel Bill Rehrey. “But if you do itemize or own property in a state with high taxes then you might not fair as well. Another factor is whether or not you pay state income taxes. We’re running all of these scenarios and will provide a full report to our members so you can plan accordingly.”
While most states, Massachusetts included, do not tax contributory pension income, members may still pay state income taxes on other income sources. This is especially true for those retirees who remain actively employed. The new law places a combined limit of $10,000 on the amount of state income and property taxes that can be deducted.
Moreover, like AARP and others the main concern for Association officials is what impact the reduction in federal tax revenue might have on retirement benefits – namely Medicare and Social Security.
“Even if you are able to save money on your taxes, it will do you no good if you end up paying more for Medicare Part B, have higher out-of-pocket costs or see a reduction in Social Security COLA benefits. Congress has already begun to talk about the need to make cuts to these programs,” explains Association Legislative Director Shawn Duhamel. “We also cannot overlook what they impact might be on nursing home or long-term-care if Medicaid budgets are cut.
“That said, we believe that the passage of Tax Reform will allow Congress to shift its focus onto other issues. As we understand it, Social Security WEP reform is one of the issues on House agenda for 2018. We’ll be doing all we can to keep the pressure on and finally get this issue resolved.”
In late January, Duhamel will accompany Association President Frank Valeri to Washington, D.C. for a series of meetings on Social Security and overall public pension policy. A full update will be provided to members once further information is known.