96-006
Response
January 12, 1996
Request
December
29, 1995
XXXXX
Dear
XXXXX:
Everyone
in politics seems to think that the Senior Citizens on Social Security are fair
game for additional taxes. On XXXXX, I
wrote you a letter concerning the State of Utah declining to include tax exempt
interest or dividends as part of your total income starting with 1993 to figure
out how much of your retirement income is taxable. Schedule B, Line 4 of the 1992 Form TC-40 states, , “Enter
federal adjusted gross income from line 4 of state return.” This same line on the 1993 & 1994 Forms
TC-40 states, “Enter federal adjusted gross income from line 4 plus any
interest on line 8b of federal forms 1040A or 1040.” Line 8b of the federal 1040 form is for tax- exempt interest and
dividends. This seemingly insignificant
change cost me $$$$$ in 1993 & $$$$$ in 1994. There is no point in buying tax-exempt municipal bonds if they
are not tax- exempt. Please consider
having this change in the state tax law repealed. I have written Senator XXXXX, Senator XXXXX, and representative
XXXXX requesting that they help change the Federal Tax Code to eliminate the
requirement for including tax-exempt income to figure the taxable Social Security
benefits. I have also written
representative XXXXX, Senator XXXXX, Senator XXXXX, and Governor Michael
Leavitt about the Utah State tax situation.
I
did receive the attached letter from you.
However, I may not have succeeded in communicating to you that in
addition to action by Congress, we also need action by the State
Legislature. The State of Utah has had
significant surpluses the last two years; therefore, I think that this is one
way to eliminate an unfair tax situation.
Many
retirees, such as myself, exist on a pension from working in industry, which
has no cost of living adjustments, plus their Social Security benefits. I retired nine years ago, so my pension
income is worth approximately 72% of the 1986 dollars when I retired. Therefore, it is necessary to try to achieve
some other income. For a while, it was
possible to invest in tax-exempt funds to try to save a little income.
Thanks
for letting me give you my thoughts. I
hope to hear from you soon.
Sincerely,
XXXXX
XXXXX
RE:
Advisory Opinion Retirement Income Exemption
Dear
XXXXX,
We
have received your request for information regarding calculation of the
retirement income exemption. We offer
the following information to help you prepare your response to XXXXX.
Utah
income tax law allows a retirement income exemption as a “tax break” for
low-income retirees. The amount of the
exemption available to an individual taxpayer depends upon the taxpayer's
income. The larger the taxpayer's
income, the smaller the amount of the retirement exemption. Of course, this calculation contemplates an
income cap over which no deduction is allowed.
For instance, married retirees over 65 years of age who earn less than
$62,000 per year and file jointly are entitled to a deduction of some
sort. If the couple earns $62,000 per
year or more, their retirement income exemption equals $0.00.
To
determine the amount of the retirement income exemption that a retiree may
claim, the retiree must disclose his or her income. The retiree's total income includes federal adjusted gross income
plus any income from interest or dividends which were not included in that
figure. That interest and dividend
figure appears on line 8b of the federal income tax form.
As
you can see, Utah law does not tax-exempt municipal bonds. It merely uses the information about the
retiree's income sources to determine the amount of retirement income exemption
that a retiree is entitled to deduct.
I
have enclosed a copy of sections 59-10-114(2) and (3) pertaining to the
calculation of the retirement income deduction. If the legislature wishes to make changes to this exemption, it
must amend these sections.
Please
let us know if we can be of further assistance.
For
the Commission,
Alice
Shearer
Commissioner