Key Points
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President Trump signed his tax and spending bill into law on July 4, and the White House says it makes good on a campaign promise to end Social Security taxes.
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The “big, beautiful bill” does not eliminate taxes on Social Security, but it does create a new senior deduction that means 88% of seniors will not owe taxes on benefits.
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However, President Trump’s megabill will also reduce Social Security’s funding, which will necessitate larger benefit cuts sooner than previously anticipated.
President Trump signed the “big, beautiful bill” into law on July 4. The legislation, which narrowly passed the Republican-controlled House and Senate, used a process known as budget reconciliation to make permanent certain tax breaks from the 2017 Tax Cuts and Jobs Act and to introduce new temporary tax breaks.
The tax breaks were partially funded by cutting certain green energy initiatives, such as eliminating incentives for wind and solar projects, and eliminating the federal tax credit for electric vehicles. The megabill also cuts about $1 trillion in Medicaid funding over the next decade, something President Trump promised he would not do as recently as March 2025.
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Importantly, reconciliation bills cannot make changes to the Social Security program, but the megabill will indirectly impact the Social Security Trust Fund and retired workers. Here are the important details.
Image source: Official White House Photo by Joyce N. Boghosian.
The good news for retired workers on Social Security
President Trump promised to end taxes on Social Security, and the White House says the “big, beautiful bill” makes that promise a reality. But the truth is more nuanced. As mentioned, reconciliation bills cannot effect direct changes to the Social Security program. The megabill sidesteps that problem by introducing a new senior deduction.
The new senior deduction applies to persons aged 65 and older. Single seniors can deduct $6,000 and married seniors filing jointly can deduct $12,000. The new deduction is additive with the standard deduction and pre-existing senior deduction, as detailed below:
|
Deductions |
Single Seniors |
Married Seniors Filing Jointly |
|---|---|---|
|
New Senior Deduction |
$6,000 |
$12,000 |
|
Standard Deduction |
$15,750 |
$31,500 |
|
Existing Senior Deduction |
$2,000 |
$3,200 |
|
Total |
$23,750 |
$46,700 |
Source: The White House. The new senior deduction is phased out for single filers with income above $75,000 and married filers with income above $150,000.
Importantly, the new senior deductions are phased out for single filers with income above $75,000 and married couples with income above $150,000.
About 64% of retirees aged 65 and older did not pay taxes on Social Security prior to the “big, beautiful bill,” but the White House estimates that figure will hit 88% since the legislation has passed. In other words, President Trump’s megabill is good news for many retirees on Social Security because it creates a new deduction that offsets taxes on benefits for most senior citizens.
However, there are important caveats. The new senior deduction is temporary; it will expire after tax year 2028, meaning it will disappear after Trump’s second term. Additionally, the senior deduction is not actually related to Social Security. Seniors not receiving benefits are eligible for the deduction (provided they meet the income requirements), and seniors on Social Security who earn too much income are not eligible.
The Tax Foundation explains, “Overall, the increased senior deduction with the phaseout delivers a larger tax cut to lower-middle- and middle-income taxpayers compared to the original campaign promise of exempting all Social Security benefits from income taxation.”
The bad news for retired workers on Social Security
Social Security is funded by a combination of payroll taxes, taxes on benefits, and interest earned on trust fund assets. The Social Security Old-Age and Survivors Insurance (OASI) Trust Fund is on pace to be depleted by 2033, at which point the other two revenue sources will cover 77% of scheduled benefits. That means across-the-board benefit cuts totalling 23% are possible within eight years.
However, because President Trump’s megabill will reduce tax revenue collected on Social Security, the OASI Trust Fund will burn through its assets reserves more quickly, meaning benefit cuts could happen sooner than previously anticipated, and those benefit cuts could be larger than previously expected.
Specifically, the Committee for a Responsible Federal Budget (CRFB) estimates the “big, beautiful bill” will accelerate Social Security insolvency by a year. In other words, the OASI Trust Fund is now likely to be depleted by 2032, after which only 76% of scheduled benefits would be payable. That is bad news for retired workers even in the best scenario because Congress now has less time to avoid those benefit cuts.
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