Thousands of seniors soon will pay higher property taxes according to a new report by the Wisconsin Budget Project. The Homestead Credit, which puts money back into the pockets of low-income seniors and helps them stay in their homes, will shrink this year, because state legislators voted to stop adjusting the credit for inflation.
As a result, a senior relying on Social Security can expect his or her tax credit to drop by $209, or 28 percent over the next five years, as shown in Chart 1. Other seniors will lose the tax credit altogether because their Social Security income will increase, but the income level that determines eligibility for the tax credit will be frozen.
The Homestead Credit lowers property taxes for owners and renters of limited means who are generally ineligible for the state’s Property Tax Rent Credit. Nearly a third of people receiving the Homestead Credit are 66 years old or older, and more than half of all recipients have income of less than $15,000 per year, according to the Wisconsin Department of Revenue.
Last year the Governor and state legislature reversed a 2009 decision to increase the tax credit annually and raise the eligibility ceiling to reflect changes in the cost of living. Prior to a small increase in the Homestead Credit in tax year 2010, the tax credit formula had been frozen for a decade.
Seniors will be particularly hard hit by the change. Even though the rest of the tax code is adjusted for inflation each year, the Homestead Credit formula has been frozen, which means that annual increases in Social Security income are gradually pushing many seniors over the income eligibility ceiling for the credits. For those who remain eligible, the size of their credits is steadily shrinking.
The analysis examined how the credit will shrink over time for seniors as their Social Security income gradually increases. The portion of property taxes that the Homestead Credit covers will drop to 18 percent in 2016, from 25 percent in 2011, for a person who is living only on Social Security.
The new cut in the Homestead Credit comes after two decades of decline in its value. Twenty years ago, this property tax credit was more than two and a half times larger than today and covered nearly 60 percent of that person’s property tax bill. By 2011, the credit covered only 25 percent.
The analysis can be found here.