Tax Free Interest and Dividends Taxed Due to Calculation of Taxable Amount of SS Benefits

As to tax-exempt interest, see Code Section 86(b)(2)(B). As to dividends, what dividends have you received that are tax-exempt? As far as this effectively taxing otherwise tax-exempt income - yes, obviously, but so what? The exemption from tax was a gift from Congress in the first place, and what Congress giveth, Congress can take awayeth.

Sec. 86(b)(2)(B). I'm almost sure it was enacted in PL 98-21 (HR 1900) signed by President Ronald Reagan.

To get more revenue.

That's certainly one way to look at it.

Internal Revenue Code section 86.

-- Phil Marti Clarksburg, MD

its how congress taxes your tax exempt income (don't ask me-I don't write the tax laws)

___________________________________

-----> real address on hobokeni or hobokenx

Because that's how Congress wrote the law. If you want to know why, ask them.

In a sense, yes. But since you have no right to tax-free income, it doesn't really matter.

-- Rich Carreiro snipped-for-privacy@animato.arlington.ma.us

Because Congress said so. They may have said so because their intent was to increase taxes for wealthy people who are collecting SSI when they don't really need it. Only the financially well off get enough of a tax benefit to make it worthwhile to make significant investments in tax exempt bonds. Therefore, tax exempt interest is included in the computation of taxable SSI. Or something else.

In effect, yes.

Sorry but I'm not looking it up. Trust me, though, it is in the Code.

Tax free interest is reported, but not taxed per se. However, it is a sneaky way to tax social security. It is added to other income in determining if you made enough to cause your social security to be taxed. Tax exempt interest from private activity bonds also must be added to income for Alternate Minimum tax purposes. See my blog on taxes at

Tax Exempt Municipal Bond Funds?