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Each dollar of income shown as tax exempt on 1099s is not tax exempt for people receiving social security income.

For low income people in the so called 5% bracket, each dollar of muni income increases the taxes by 10%,

Likewise 10% brackets go to 15% etc.

Question, Do qualified distributions from ROTH accouts do the same thing?
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The two lowest tax brackets the 10% and the 15%.

For the relevant range(some but not all of SS taxed at 50% of the stated marginal rate)in the 10% bracket each dollar of muni income will increase the tax on SS by $.05. Similarly, an increase by one dollar in SS benefits, or (2008-2010)qualified dividends or long term capital gains increase the tax on SS by $.05. For a marginal bracket of 15% the increase in tax on SS benfits would be $.075. For a dollar increase in regular income you would have a $.10 or $.15 tax on regular income plus the $.05 or $.075 increase in tax on SS.

The answer to the Roth question is simpler. Qualified distributions from Roths never increase taxable amounts or taxes.
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