A new tax deduction on Social Security benefits, which is part of President Trump’s “One Big Beautiful Bill” is being celebrated as a major win for seniors. However, it isn’t what it seems, and now, experts are saying that the benefit is neither broad nor permanent. Surprisingly, millions of seniors will not benefit from the bill.
What the $6,000 Deduction Promises
The White House claims that the bill will exempt nearly 90% of Social Security recipients from paying federal taxes on their benefits, thanks to the $6,000 tax break for seniors aged 65 and older. The tax break applies to individuals earning a modified adjusted gross income (MAGI) of up to $75,000 and married couples with MAGI up to $75,000.
The tax break phases out completely at $175,000 for individuals and $250,000 for couples. This means that while it reduces or eliminates taxes for millions, many others will not benefit from the new tax deduction because they earn above the thresholds.
Who’s Actually Left Out?
Despite the 88% figure, the reality is that already, 64% of Social Security recipients pay no federal tax on their benefits. This means that the bill doesn’t introduce a new tax break but instead expands from 64% to 88%.
Seniors earning above the mentioned thresholds or even modestly above them will see a small deduction or none at all. Those under 65 receiving benefits, especially those who retired early and disabled workers, are not eligible for the tax break.
Lastly, and most importantly, the new tax deduction is temporary, and it expires in 2028, potentially dropping the tax break back to 64%.
Seniors with complex or variable income, such as required minimum distributions from retirement accounts, may get little to no relief from the tax break.
Why Experts Are Concerned
Social Security experts say that the timing of this bill is a bit off because it comes at a time when the Social Security Trust fund is facing long-term financial pressure. The Trust fund is projected to become insolvent by 2034, and at that point, Social Security benefits could be cut by up to 19% unless Congress solves the funding gap.
Therefore, reducing taxes collected on tax benefits, even temporarily, like in the case of the new bill, weakens the financial foundation of the Trust Fund, pushing it closer to crisis.
Conclusion
Seniors who qualify for the new tax cut might see a modest reduction in their tax bill at least through 2028. The bad side of this new bill is that it doesn’t benefit many seniors, such as those who are not yet 65, and those earning above the income thresholds stipulated by the bill. The tax cut is also short-lived, and worst of all, it worsens the financial challenges that Social Security is currently facing.
The details of the One Big Beautiful Bill suggest that the new deduction may not be as generous or widespread as it seems. Therefore, it is not a win like it seemed earlier.