What Do Your Taxes Pay For?

Taxes are one of the biggest budget items for most taxpayers, yet many have no idea what they’re getting for their money.

The average household spends more on taxes than on groceries, clothing, or healthcare. In fact, 11% of our income, on average, goes to personal income taxes, which doesn’t include sales tax, property tax, Social Security payments, or Medicare payments. So what do we get in return?¹

The accompanying chart breaks down the $6.8 trillion in federal spending for 2024 into major categories. One of the biggest categories is Social Security, which consumes 22% of the budget. Defense takes 13% of the budget, and 13% goes to Medicare.²

Are taxes one of your biggest budget items? Take steps to make sure you’re managing your overall tax bill. Please consult a tax professional for specific information regarding your individual situation.

Pieces of the Federal Pie

Over half of 2024 federal spending was used for Social Security, Medicare, defense, and Medicaid.

Source: CBO.gov, March 20, 2025. Figures represent total outlays for the 2024 fiscal year, as reported by the Congressional Budget Office.

1. ValuePenguin.com, January 10, 2024
   2. CBO.gov, March 20, 2025

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Social Security Fairness Act’s New Chapter

The Social Security Fairness Act, signed into law in December 2024, adjusts two longstanding provisions that previously reduced Social Security benefits for certain recipients: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). These rules affected Social Security benefits for retirees who receive pension income from non-covered employment.¹

Who Qualifies for Increased Benefits?

This legislation is projected to result in an average monthly increase of $360 for eligible public sector workers, their spouses, and survivors.² Additionally, it may include lump-sum payments for over 2.5 million individuals to compensate for benefits missed in prior years, which could amount to several thousand dollars per recipient.

Here’s a list of some workers who may qualify:

• Police officers
• Firefighters
• Postal workers
• Public school teachers
• Federal employees covered by the Civil Service Retirement System
• Other government employees
• People whose work had been covered by a foreign social security system¹

According to the Social Security Administration (SSA), about 72 percent of state and local public employees work in Social Security-covered employment where they pay Social Security taxes and are unaffected by WEP or GPO. These individuals will not receive a benefit increase under the new law.¹

Implementation and Timeline

The Social Security Administration is currently finalizing its plan to implement these changes. December 2023 was the last month that WEP and GPO applied to benefits, meaning the rules no longer apply to benefits payable for January 2024 and later.¹

Those who have previously filed for Social Security benefits that are partially or completely offset may need to verify that the SSA has their current mailing address and direct deposit information.²

For those who have never applied for retirement, spouse’s, or surviving spouse’s benefits because of WEP or GPO, an application may be required. The application date might affect when benefits begin and the benefit amount.¹

Financial Impact

The Congressional Budget Office estimates implementation will cost $196 billion over the next 10 years.² For individual beneficiaries, the projected monthly increases may be:

• Public sector retirees: Potentially $360 by December 2025, possibly increasing to $460 by December 2033
• Spouses: Potentially $700 by December 2025, possibly increasing to $860 by December 2033
• Surviving spouses: Potentially $1,190 by December 2025, possibly increasing to $1,520 by December 2033³

1. Social Security Administration, “Social Security Fairness Act: WEP and GPO Update,” February 3, 2025
   2. USA Today, January 6, 2025
   3. Kiplinger, “Social Security Fairness Act Checklist: Six Things to Know,” February 2025

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Money that Buys Good Health is Never Ill Spent

A retired couple age 65 can expect to need about $330,000 saved to cover healthcare expenses in retirement. With healthcare expenses in the spotlight, it’s incumbent upon us to make sure our retirement strategy anticipates these costs.¹

But that’s not enough.

Remember, healthcare coverage (including Medicare) typically does not cover extended medical care. And it’s a prospect we shouldn’t overlook. About 70% of people will need extended care at some point in their lives.²

These annual costs can range widely based on geographic location and the type of care required. An assisted living facility will cost over $120,000 per year in Alaska. In Oklahoma, it would cost around $58,000 a year. When retirees were surveyed, one in five reported that extended care costs were higher than expected.^2,3

Finally, you may want to consider a Medigap policy, which may help cover some of the healthcare costs not covered by Medicare.

Making sure that you are properly insured for your medical costs may help strengthen the foundation of your retirement.

1. National Council on Aging, July 22, 2025
   2. Genworth.com, 2025
   3. EBRI.org, 2025

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Do You Owe The AMT?

American educational reformer Horace Mann called education “the great equalizer.” In football, it’s been said that turnovers are the great equalizer. In taxes, there’s also an equalizer of sorts; it’s called the alternative minimum tax, or AMT. Instituted in 1969, it was intended to ensure that the very rich didn’t pay a lower effective tax rate than everyone else.¹

In recent years, however, the “very rich” weren’t the only ones who needed to be concerned about the AMT. Because the AMT was not indexed for inflation until 2013, millions of middle-class Americans were being forced to pay it. Thanks to the Tax Cuts and Jobs Act of 2017, that number is falling, once again. Per the most recent data available, only 0.1% of taxpayers pay the AMT.^1,2

What Is The AMT, Exactly?

It may be easiest to think of the AMT as a separate tax system with a unique set of rules for deductions, which are more restrictive than those in the traditional tax system.

The only way to know for sure if you qualify for the AMT is to fill out Form 6251 from the Internal Revenue Service. It may be worth doing just to be sure, especially if you are a high-income earner who can claim sizable tax breaks.

If you should have paid the AMT and the IRS discovers that you didn’t, you may owe back taxes and could also have to pay interest and/or penalties.

The AMT Language

Because the AMT system has complicated rules and provisions, it’s a good idea to consider consulting legal or tax professionals for specific information regarding your individual situation. And remember, the information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties.

If you want to avoid any potential surprises at tax time, it may make sense to know where you stand when it comes to the AMT. The time and energy you spend today may be worth the investment.

Where Does All That Money Go?

Here’s a breakdown of how the federal government spends its revenues.

Source: CBO.gov, March 20, 2025. Figures represent total outlays for the 2024 fiscal year, as reported by the Congressional Budget Office.

1. Investopedia.com, February 26, 2025
   2. TaxPolicyCenter.org, August 12, 2025

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

TIPS for Inflation

In February 2018, Jerome Powell was appointed as Chair of the Board of Governors of the Federal Reserve System. He became the 16th chair to take over the helm of the world’s most influential central bank. Among other duties, he and the Fed governors are tasked with adjusting short-term interest rates to help control inflation in an effort to promote overall economic growth.¹

Until 2021, inflation had remained relatively low, which had allowed the Fed to maintain an accommodative monetary policy. After the COVID-19 pandemic, the Fed increased short-term interest rates to combat high levels of inflation. More recently, the Fed has indicated that it will be keeping its eye on inflation to inform its monetary policy.

A Few TIPS

Unlike conventional U.S. Treasury bonds, the principal amount of Treasury Inflation-Protected Securities, or “TIPS,” is adjusted when there are changes in the Consumer Price Index (CPI), which measures changes in inflation. When the CPI increases, a TIPS’s principal increases. If the CPI falls, the principal is reduced.

The relationship between TIPS and the CPI can affect the amount of interest you are paid every six months, as well as the amount you are paid when your TIPS matures.²

Remember, TIPS pay a fixed rate of interest. Since the fixed rate is applied to the adjusted principal, interest payments can vary from one period to the next. TIPS help manage inflation risk to your portfolio as the principal is adjusted semiannually for inflation based on the Consumer Price Index— while providing a real rate of return guaranteed by the U.S. Government.

When TIPS mature, the bondholder will receive either the adjusted principal or the original principal, whichever is greater.^2,3

If you are concerned about inflation – and expect short-term interest rates may increase – TIPS are an investment that may be worth considering. A close review of your overall strategy might also reveal other investment choices that may be appropriate in an environment of changing interest rates.

Inflation in Perspective

For the 20-year period ended 2024, the Consumer Price Index averaged a 2.6% inflation rate. While inflation peaked at 8% in 2022, it cooled to a 2.9% average in 2024.

Source: USInflationCalculator.com, 2025

1. Investopedia.com, May 2, 2025
   2. The interest income from a Treasury Inflation-Protected Security (TIPS) is exempt from state and local taxes. However, according to current tax law, it is subjected to federal income tax. Adjustments in principal are taxed as interest in the year the adjustment occurs even though the principal adjustment is not received by the bondholder until maturity. Individuals should consider their ability to pay the current taxes before investing.
   3. Investopedia.com, June 7, 2024

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.