Whilst Social Security benefits are a cornerstone of survival for the households of millions of Americans each month, the unfortunate downside to this welfare program is that its benefits are still a taxable amount. This means that beneficiaries who are dependent on these checks, as a result of being unable to earn any other income, will still have to give back a portion of the check.
Amongst his many promises when campaigning, the now President, Donald Trump made the bold claim that he would put an end to taxes on Social Security benefits. The good news for beneficiaries is that his words may just hold true if the recently proposed legislations comes to pass.
Is a tax break on Social Security in the works?
On Monday, a draft legislation — a centerpiece of the domestic agenda of the Trump Administration — was released by the House Ways and Means Committee. The draft proposes that the country’s debt ceiling be raised to $4 trillion. Additionally, certain cuts from Trump’s first term in office will be extended, as well new breaks on tips, auto loans, and overtime pay.
Whilst a complete elimination of tax on Social Security benefits has not been included in the bill due to the Byrd Rule, millions of seniors will still be able to benefit from a new bonus that lawmakers are currently considering. This bonus is known by Republicans as the “big beautiful” spending bill.
House Speaker Mike Johnson made a post on X that read as follows, “Our ‘One, Big, Beautiful Bill’ will deliver the America First Agenda. This has been a year in the making, and we will not rest until we get it done for the American people.”
Since his inauguration to office earlier this year, Trump has continued to repeat his promise of eliminating taxes on benefits. At present, around 85% of Social Security benefits are still subject to federal income tax in relation to the total income. As such, around 40% of beneficiaries currently pay federal income taxes on “retirement, spousal and disability benefits—not including Supplemental Security Income (SSI),” according to the Social Security Administration (SSA).
What will change if the legislation passes?
With this new tax break, a modified adjusted gross income of $75,000 for individuals and $150,000 for married couples filing jointly will begin to be phased out. Since taxpayers aged 65 and above are already recipients of a slightly higher standard deduction, under the new proposed legislation, these seniors will now be able to claim both the regular deduction and the new additional senior benefit.
This new tax deduction will be in effect for the tax years of 2025 through to 2028. In order to qualify for the filer, a beneficiary, as well as their spouse if jointly filing, must simply provide a valid Social Security number.
Andrew Biggs, a senior fellow at the right-leaning American Enterprise Institute, said, “So, basically, it’s a tax cut for seniors, which is intended to cushion the blow of not repealing income taxes on Social Security benefits. Eliminating benefit taxation was neither affordable nor necessary in the first place. But retirees looking forward to a big tax cut might be disappointed.”
Experts have also noted that if this bill passes and Social Security benefits are not taxed, the consequences on the trust funds that are used to pay beneficiaries could be monumental.
At present, the SSA is on a path leading to severe financial shortfalls that could be seen by the next decade. As a result, if no solution to the issue of funding is found, beneficiaries could be looking at a 17% cut to their monthly checks in 2035, as per a 2024 report from the Social Security Administration’s (SSA) Office of the Inspector General.
Additionally, “ending taxation on Social Security benefits would result in around $950 billion in revenue loss for the SSA,” according to the The Committee for a Responsible Federal Budget (CRFB).