When the Social Security Act of 1935 was executed and a funding system was born for eligible individuals, there was no tax provision for the income that would be received. Initially, the Treasury’s underlying rationale for not taxing Social Security was around the definition of what type of income it was considered. Benefits under the act were considered “gratuities” and at that time, gifts and gratuities were generally not taxable. Social Security benefits come from three contribution sources: the employee’s payroll tax, the employer’s matching contribution, and the interest earned. Since none of the three components that make up the funding had ever been taxed, it was odd that the Social Security benefit was not eligible for taxation.
Author: Christopher Cortese, CFP, is a financial advisor and director of Next Gen Advisor Development with Wescott Financial Advisory Group. He works closely with clients to identify and achieve their financial goals through extensive financial planning, investment portfolio reviews, and comprehensive wealth management. As the director of Next Gen Advisor Development, he is responsible for the oversight, coaching, and development of Wescott’s Next Generation Advisors. Christopher received his bachelor’s degree in finance with a concentration in financial planning from Virginia Polytechnic Institute and State University. A Certified Financial Planner, he is a member of the Financial Planning Association and the National Association of Personal Financial Advisors.
