'Big beautiful bill' may help some seniors on Social Security. But it doesn't eliminate taxes on benefits

CNBC

a day ago

The Social Security Administration sent what experts say is a misleading email to consumers last week, describing President Donald Trump's "one big beautiful bill" as "long-awaited tax relief to millions of older Americans."
In that email and a July 3 press release, the agency said the legislation will make it so "nearly 90%" of Social Security beneficiaries no longer pay federal income taxes on benefits. It attributed that to an additional $6,000 senior deduction and another unspecified provision.
Tax experts say that is not accurate.
The legislation does not include a provision that eliminates taxes on Social Security benefits for most beneficiaries. Moreover, while the Social Security Administration memo said the law helps protect Social Security, experts say the provisions weaken the program's funding by reducing the tax money it receives.
"It's simply not correct to say that there's a provision in this bill that is going to eliminate the Social Security benefit tax for 90% of the population," said Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center.
"And it's also just wrong to say that this is going to preserve the solvency of Social Security," Gleckman said.
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Trump had said on the campaign trail that he planned to eliminate federal income taxes on Social Security benefits. However, the reconciliation process through which the budget and tax legislation was passed prohibits changes to Social Security.
The Social Security Administration did not return requests for comment. The White House deferred comment to the Social Security Administration.
The Council of Economic Advisers, an agency within the presidential executive office, estimates that changes in the legislation will help push the portion of seniors with exemptions and deductions exceeding Social Security income to 88%, from 64% under current law.
Those tax changes include a higher standard deduction, the existing senior deduction already in effect and the new additional senior deduction or "bonus."
The new tax package includes an additional deduction of up to $6,000 for seniors ages 65 and over.
While the additional senior deduction has been called a "bonus" in the legislative text, it is technically a deduction, which reduces the amount of income that is subject to taxes.
Notably, that does not necessarily mean seniors will see a $6,000 "bonus" check in the mail or in their refunds at tax time.
"This is not like what happened during Covid, when the government was writing checks to people," Gleckman said.
Per the legislation, the deduction will be in place for tax years 2025 through 2028. It will be available to eligible taxpayers regardless of whether they take the standard deduction or itemize their returns.
But eligibility depends on income. Taxpayers with up to $75,000 in modified adjusted gross income — or up to $150,000 if married and filing jointly — may receive the full deduction. For incomes above those thresholds, the deduction gradually phases out.
Middle-income seniors stand to benefit the most from the change, according to tax experts.
Social Security benefits are taxed based on combined income, or the sum of adjusted gross income, nontaxable interest and half of Social Security benefits.
Individuals with between $25,000 and $34,000 in combined income may have up to 50% of their Social Security benefits taxed. If their combined income is more than $34,000, up to 85% of their benefits may be taxed.
For married couples with combined income between $32,000 to $44,000, up to 50% of their benefits may be taxed. If they have over $44,000, up to 85% of their benefits may be taxed.
Those thresholds are not adjusted for inflation, which means that over time more beneficiaries pay taxes on their benefits.
Because the new senior bonus is an above-the-line deduction, meaning it is subtracted from gross income to calculate adjusted gross income, it may indirectly reduce tax liability on Social Security benefits.
The additional senior deduction will not affect taxes on Social Security benefits for individuals and couples below those income thresholds, since they already are not subject to levies on their benefits, Gleckman said.
Nor will it help people who earn too much to qualify for the new deduction. Higher-income individuals and married couples with more than $75,000 or $150,000 in modified adjusted gross income, respectively, may not see their Social Security benefit taxes reduced, unless they are in the phaseout window.
For taxpayers who qualify, the senior deduction may reduce, rather than eliminate, their taxes on benefits, Gleckman said. The Urban-Brookings Tax Policy Center estimates that fewer than half of older adults will benefit from the senior deduction, he said.
Even those who benefit won't necessarily see zero taxes; they'll just see fewer taxes, Gleckman said.
"The people who benefit the most, we estimate, are people who made between $50,000 and $200,000," Gleckman said.
The legislation may be more generous to seniors than to taxpayers in other age cohorts, said Alex Durante, senior economist at the Tax Foundation.
"The enhanced adoptions overall are going to reduce tax liabilities for seniors significantly, and for some people, it will probably wipe out any tax liability they have," Durante said.
"But it depends on where they are in the income distributions," he said.
While certain seniors may see financial benefits now, the enhanced senior deduction will cost the Social Security program, which is already under financial strain.
The new additional senior deduction and other changes in Trump's "big beautiful bill" may reduce taxation of Social Security benefits by approximately $30 billion per year, estimates the Committee for a Responsible Federal Budget.
That would accelerate the projected insolvency date for the Social Security trust fund devoted to retirement benefits to late 2032, up from the currently projected date of early 2033, according to CRFB.
To help shore up the program's funds, Congress faces a choice of raising taxes, cutting benefits or a combination of both.
The sooner any changes are enacted, the more time there is for them to be phased in, according to experts.
"Every year we delay reforming the program means those changes will have to be steeper and affect more people closer to retirement age," CRFP President Maya MacGuineas wrote in a recent op-ed.