The U.S. theoretically has a progressive tax system, which means that that the higher your income, the more income tax you pay. However, the U.S tax system is rendered significantly less progressive through the existence of hundreds of loopholes to protect income from taxation. Individuals and families with very low incomes pay no income tax, and in some cases they are eligible for various public benefits such as food stamps, subsidized housing and Supplemental Security Income (SSI).
SSI
SSI is a public benefits program run by the Social Security Administration (SSA). It is a separate program from Social Security retirement. SSI makes payments to individuals and families with low income and few resources who are age 65 or older, are blind or have a disability.
Eligibility
In order to be eligible for SSI, an individual must have resources, defined as net worth excluding the home you live in, a car and a burial plot for you and your immediate family and $1,500 in burial expenses, of less than $2,000. For couples the total resources must be less than $3,000. SSI income limits vary by state, but are generally around $1,000 a month. Note that a significant percentage of SSI recipients' income, such as all money spent enabling work and the first $65 a month in wages you earn and half the wages over $65, do not count toward the SSI income limit. You can receive Social Security retirement benefits and still be eligible for SSI.
Many SSI Recipients Do Not Owe Income Tax
According to Social Security Online, Social Security benefits recipients who earn over $25,000 or couples that earn over $32,000 at the time of publication will have to pay federal income taxes on their benefits. However, many SSI recipients do not have taxable earnings above these amounts, so in most cases are not required to file income taxes. However, in some cases SSI recipients will be due refunds of any taxes deducted from wages, so it is often a good idea to file a tax return even if you are not required to.
State Income Taxes
Although many states exempt Social Security benefits from state income tax, not all do, so it is a good idea to file a federal tax return, as the IRS forwards all relevant information from tax returns to state tax authorities. That way you can pay any state income taxes owed, or if you are not sure if you owe, then you will at least be notified if you owe state income tax.
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