On July 3, the Social Security Administration (SSA) sent out a press release and mass email claiming the new budget bill would “eliminate taxes” on Social Security benefits for 90% of recipients and “protect Social Security.” But those claims don’t really hold up. In reality, the bill doesn’t do either of those things and it’s likely to add more confusion for older Americans already struggling to understand how the system works.
What the Budget Bill Actually Does
President Trump has pushed to end taxes on Social Security benefits as part of his 2024 campaign, but this budget bill doesn’t actually do that. What it does include is a general tax break for older adults that might lower the total taxes some seniors pay, including on their Social Security, but it doesn’t directly remove taxes on those benefits
The main part of the bill is a new $6,000 tax deduction for people aged 65 and up, starting in 2025. For couples filing jointly, that’s $12,000 on top of the usual standard deduction and the extra amount seniors already get. It’s not limited to Social Security income, it applies to all taxable income and is meant to give some older taxpayers a bit of a break.
Who Really Benefits
Despite the big promises, not all seniors will benefit from this new deduction. The Tax Policy Centre says fewer than half of older adults will actually see any savings. The biggest winners are those making between $80,000 and $130,000 a year roughly middle- to upper-middle-income senior. For them, the average tax break is around $1,100, which works out to about 1% of their income after taxes.
Seniors with lower incomes, those already earning less than the standard deduction, won’t get anything from this because they don’t pay federal income tax to begin with. On the other end, wealthier retirees won’t benefit either. The extra deduction starts to phase out for individuals making more than $75,000 and couples making over $150,000. It disappears completely at $175,000 for singles and $250,000 for joint filers.
Financial Trade-Offs
There’s also a long-term cost. To the extent this deduction lowers taxable income, including income from Social Security, it also reduces the amount of tax revenue flowing into the Social Security and Medicare trust funds. The current taxation of benefits helps support these programs. By reducing this revenue stream, the bill may accelerate their insolvency.
Without legislative action to strengthen the trust funds, Social Security benefits could be cut by 24% once the program becomes insolvent, while Medicare Part A could see an 11% reduction, according to the Committee for a Responsible Federal Budget (CRFB).
Breaking Down the Deductions
Take a typical example: a senior couple filing jointly in 2025. Their standard deduction will be $31,500. Since both are over 65, they get an extra $3,200. Add in the new $12,000 senior deduction, and their total deductions come to $46,700. That means they won’t pay any federal income tax on their first $46,700 of income.
But here’s the catch, this break isn’t tied specifically to Social Security. It reduces their overall taxable income, whether it comes from retirement savings, pensions, or investments. And it doesn’t help people under 65, including those on disability or those who started taking benefits early.
Unpacking the 90% Claim
The SSA’s claim that 90% of people won’t have to pay federal tax on their Social Security benefits isn’t quite accurate. That number is based on the idea that the new deduction only goes toward reducing taxes on Social Security, which isn’t how taxes work. The deduction applies to all income, not just Social Security, and most people have more than one source of income in retirement.
In reality, about two-thirds of beneficiaries already don’t pay taxes on their benefits because their incomes are too low. And even with the new deduction, the Tax Policy Centre says roughly half of all recipients will still owe at least some tax on their Social Security.
Final Thoughts
The SSA’s latest message has only added to the confusion. Yes, the budget bill gives some tax relief to middle-income seniors, but it doesn’t eliminate taxes on Social Security or fix the program’s long-term problems. With everything already so complex, older Americans need straightforward, honest information, not bold claims that just make things more unclear.