Correcting The Social Security Administration About The Senior Deduction

The Social Security Administration (SSA) issued a press release and an email to tens of millions of Americans claiming the big budget bill approved by Congress on July 3 “eliminates taxes” on Social Security benefits for 90 percent of recipients and “protects Social Security.”

Neither assertion is true. And both may add to the confusion many older adults already feel about the complex retirement insurance program.

President Trump proposed eliminating taxes on Social Security benefits as part of his 2024 campaign. And one provision of the budget bill does reduce income taxes for older adults on all their income, including their Social Security benefits. But the measure includes no direct tax cut on Social Security.

Who benefits

The budget measure includes a temporary $6,000 deduction for taxpayers over age 65, starting this year. But that tax reduction would benefit fewer than half of older adults, the Tax Policy Center estimates.

The biggest beneficiaries are seniors making between about $80,000 and $130,000 (the 60th to 80th percentile of income). Their average tax cut would be about $1,100 or roughly one percent of their after-tax income.

Despite the SSA claims, most would see their income taxes on Social Security benefits reduced, not eliminated.

What it will cost

In addition, to the degree the bill does cut taxes on Social Security benefits, it would accelerate the insolvency of Social Security as well as Medicare Part A hospital insurance. The Social Security benefit tax helps fund both trust funds.

The Committee for a Responsible Federal Budget estimates the budget bill would push both programs into insolvency in 2032, rather than 2033.

Absent changes to the law, once Social Security becomes insolvent, benefits would shrink for all recipients by 24 percent while Medicare hospital benefits would be reduced by about 11 percent, according to the CRFB.

How the changes work

What would the budget bill actually do? It is complicated.

Take a married couple filing jointly. For tax year 2025, their standard deduction will be $31,500. If they are age 65 or older, each spouse gets an extra standard deduction of $1,600, or $3,200 for the couple (singles get an extra $2,000).

Then, the budget bill gives each spouse an additional deduction of $6,000, or $12,000 for both, which would be available even for those who itemize their other deductions.

Thus, for tax year 2025, a senior couple would owe no tax on their first $46,700 of income.

But keep in mind, this has nothing directly to do with Social Security benefits. It lowers taxable income for all income tax purposes.

And the additional $6,000 deduction comes with a long list of caveats and exemptions.

• Social Security recipients younger than 65 don’t qualify, including people on disability or those who claimed their benefits early.
• People making less than the pre-July 4 standard deduction—$33,200 for a couple —get no benefit from the bonus deduction because they already pay no federal income tax.
• Higher-income seniors also are excluded because the extra deduction phases out starting at $75,000 for singles and $150,000 for joint filers, and it is gone entirely at $175,000 for singles and $250,000 for couples.
• Finally, the new deduction is scheduled to expire in 2028.

Misleading claims

SSA claimed that “nearly 90 percent of Social Security beneficiaries will no longer pay federal income taxes on their benefits.” But by the Administration’s own estimates, two-thirds of beneficiaries already are exempt, primarily because they make too little money. Singles making less than $25,000 and joint filers making less than $32,000 are exempt from taxes on Social Security benefits.

The Administration came up with its 90 percent estimate by assuming all tax deductions, including the new senior deduction, are used only to reduce Social Security benefit taxes. But, of course, older adults pay taxes on all their taxable income, including from sources other than Social Security.

By contrast, TPC looked at overall tax liability with and without taxation of Social Security benefits. Through that more realistic lens, about half of all recipients will pay at least some income taxes on their benefits—that is, they face higher tax liability than they would if benefits were not taxable.

The Social Security system is complicated, and, in many ways, its complexity is terrifying for older adults, many of whom rely on its benefits to pay living expenses in old age. The latest SSA communication does not help and indeed may make matters worse.