As Congress was approving President Trump’s “big, beautiful bill” on Thursday, the Social Security Administration touted the legislation by stating that it “eliminates federal income taxes on Social Security benefits for most beneficiaries.”
That claim, which echoes previous promises by Mr. Trump to remove taxes on Social Security, may have come as welcome news for the millions of older and disabled people who depend on the program for income. So does the bill deliver? Not entirely.
In a press release, the SSA said that the tax and spending package, which the president is set to sign into law on Friday, “ensures that nearly 90% of Social Security beneficiaries will no longer pay federal income taxes on their benefits.”
That figure draws on a June analysis by the White House’s Council of Economic Advisers that said 88% of seniors — or 51.4 million people — on Social Security will pay no tax on their payments under the measure because their deductions would exceed their taxable benefits. More than 70 million Americans collect Social Security benefits, according to the SSA.
The bill “includes the largest tax break in American history for our nation’s seniors,” CEA said, adding that “the deductions ensure that seniors who earned their Social Security through years of hard work get more money back in their pockets.”
Yet while it’s true that the bill offers fresh tax relief for some people on Social Security, it is misleading to suggest that the measure does away with taxes on Social Security benefits, policy experts told CBS MoneyWatch. Rather, the bill offers relief by creating a new “bonus” tax deduction for beneficiaries.
“While the deduction does provide some relief for seniors, it’s far from completely repealing the tax on their benefits,” Garrett Watson, director of policy analysis at the Tax Foundation, a Washington, D.C., think tank, told The Associated Press this week ahead of Congress approving the bill.
The Social Security Administration did not respond to a request for comment. The White House declined to comment.
How does the “big, beautiful bill” impact Social Security?
The bill doesn’t eliminate taxes on Social Security, but rather introduces a temporary deduction that beneficiaries can claim to lower their federal income tax. Notably, that deduction applies to all of a senior’s income — not just to Social Security benefits.
Bobby Kogan, senior director of federal budget policy at the Center for American Progress, a nonpartisan think tank in Washington, D.C., told CBS MoneyWatch the bill doesn’t change the taxation of Social Security benefits. Eliminating taxes on Social Security under the bill was impossible because of a congressional restriction (dubbed the Byrd Rule after late West Virginia Sen. Robert Byrd) that limits what the Senate can include in a reconciliation bill like the Republican budget measure.
What the bill does do is provide a temporary tax deduction of up to $6,000 for seniors aged 65 and older. The tax break is available to people with an adjusted gross incomes of $75,000 or less and $150,000 or less for couples filing jointly. The deduction is set to expire at the end of 2028.
“Each spouse can take the deduction, for a total of $12,000, if both are 65-plus,” AARP explains in its analysis of the budget bill. The deduction phases out for people who earn above those amounts.
“While the Byrd Rule prevented a permanent repeal of taxes on Social Security benefits from being included, this deduction provides immediate relief to many seniors,” said Christian Bridges, CEO of Thirteen Twenty-Two Advisors, a financial planning firm in Texas.
Bridges added that the deduction isn’t just for people on Social Security, “It benefits a broader group of older Americans trying to stretch every dollar,” he said.
Social Security recipients under 65 and people above the specified income thresholds are ineligible to claim the new tax deduction. It also won’t benefit the many low-income seniors who already pay no federal income tax because they earn too little.
“Boosting the amount that you get to write off when you already get to write off everything does not help you at all,” Kogan said.
The Tax Foundation, a nonpartisan policy research group, said in a June report that exempting Social Security benefits from taxation would not change the after-tax income for the bottom 20% of taxpayers, noting that “those taxpayers are already exempt from taxation on their Social Security benefits.”
The biggest beneficiaries of the bill will be higher-income seniors, said Martha Shedden, president and co-founder of the National Association of Registered Social Security Analysts, which focuses on Social Security education.
“The people who benefit by definition have to be richer, and the people who benefit the most are the richest people, before the tax cut phases out,” Kogan added.
The tax cut is fully phased out for individuals making $175,000 and for couples making $250,000.
More pressure on Social Security?
Providing a temporary tax deduction is likely to help some Social Security recipients, but it could also worsen the retirement program’s fragile financial state, Kogan said. Social Security is on track to deplete its trust fund by 2034 if Congress does not take action.
“We already have a problem of not enough money going into the trust fund. This bill makes even less money go into the trust fund,” he said.
The Penn Wharton Budget Model, a University of Pennsylvania think tank that studies fiscal issues, estimates that eliminating income taxes on Social Security benefits would lower federal revenue by $1.5 trillion over 10 years and increase the federal debt by 7% by 2054.
As the debate continues over how to shore up Social Security while offering tax relief to older Americans, one thing is clear, and perhaps politically unpalatable: cutting benefits. According to a AARP-funded survey from the National Academy of Social Insurance released in January, 85% of Americans think benefits should not be reduced, or that they should be increased, even if it means raising taxes on some or all Americans.
“Virtually all Americans want their Social Security benefits to be preserved and are willing to do what it takes to ensure the program continues to provide meaningful support for future generations,” said AARP Chief Public Policy Officer Deb Whitman in a statement after the survey was released.
contributed to this report.
