While the state has not had an income tax on a person’s earned income, it has taxed certain interest and dividends received. There are a number of exceptions, e.g., bank and credit union interest. The Hall Tax on unearned income is being phased out and will be eliminated by 2022. The schedule for the phase out is as follows for the tax rate.
- 4% of taxable income for tax years beginning January 1, 2017
- 3% of taxable income for tax years beginning January 1, 2018
- 2% of taxable income for tax years beginning January 1, 2019
- 1% of taxable income for tax years beginning January 1, 2020
- Repeal beginning January 1, 2021
Any person 65 years of age or older having a total annual income (including social security) of less than $37,000 single and $68,000 joint filing are exempt from the Hall Tax. The tax does not apply to the first $1,250 of income reported on each individual return or the first $2,500 on a joint return. A legally blind person is exempt from the Hall Tax upon furnishing a written statement from their physician certifying their blindness. When only one spouse on a joint filing is sighted, then only the income of that person is reportable on Schedule A.
Important information for those considering taking Social Security before normal retirement age
The following is the current normal retirement age (NRA) as specified by the Social Security Administration (SSA):
|Year of birth||NRA|
|1938||65 and 2 months|
|1939||65 and 4 months|
|1940||65 and 6 months|
|1941||65 and 8 months|
|1942||65 and 10 months|
|1943 – 1954||66|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
|1960 and later||67|
If you elect to take social security benefits before your NRA, then your benefits are reduced $1 for every $2 you earn in excess of the earning limit. For 2017, the earnings limit remains $16,920 and $17,040 in 2018.
In the year you reach NRA, the earning limit applies to the months prior to the month in which you reach NRA. Then your benefits are reduced $1 for every $3 you earn in excess of the earning limit. This limit is also more generous. For 2017, the annual earnings limit increases to $44,880 and $45,360 in 2018.
Once a person reaches NRA, there is no reduction in benefits for earnings.
The reduction identified above relates to a direct reduction in amounts of social security a person receives. Social security benefits may still be taxed up to 85% when income received by the taxpayer(s) exceeds $25,000 (single) and $32,000 (married filing jointly).
Social Security benefits may be partially taxable (up to 85%) before reaching full retirement age depending on the amount of earned wages. The Social Security wage base for 2020 is $137,700. Above this amount, only 1.45% Medicare tax will be withheld.
Should you take reduced benefits before your normal retirement age? That depends on several factors. To make an easy determination, please go to the following page.
The system will display what you would reap based on your current earnings, depending on when you choose to retire. Further, you can find out how your social security payments might change if your earnings increase or decrease in the future. While the SSA has long had an estimator on its website, it recently became automatically linked to data about each individual. Previously, you had to input earnings information on your own. It now takes the information that you receive on the paper statement each year and makes it interactive.