Donald Trump’s plan to end taxes on Social Security will benefit this 1 group of Americans the most, report finds — are you part of it?

Social Security serves as a key income source for millions of retired Americans, but some might be surprised to learn that their benefits may not be theirs to keep in full.

Social Security benefits are taxed at the federal level. But the problem is that the thresholds at which taxes on benefits apply are very low.

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For seniors whose combined income (the total of adjusted gross income, non-taxable interest income and 50% of annual Social Security benefits) exceeds $25,000 at the individual level, or $32,000 at the joint tax-filing level, taxes on benefits come into play. And the reason these thresholds are so low is that they were established decades ago and have not been updated since.

But President Trump isn’t a fan of taxing Social Security benefits and, during his campaign, he said, “Seniors should not pay taxes on Social Security — and they won’t.” And while his plan to end taxes on Social Security may be well-intentioned, it has the potential to offer limited good — and could cause a world of harm.

Who pays taxes on Social Security benefits?

Social Security gets the bulk of its funding from payroll tax revenue, but the program also gets money by taxing some seniors on their monthly benefits. And the number of seniors who are continuing to pay into the program is rising due to a combination of factors — one of which being the fact that while Social Security benefits get an annual cost-of-living adjustment, the thresholds for combined income have not been adjusted since 1993.

A 2024 Congressional Research Service report found that the overall share of Social Security benefits paid as federal income taxes rose from 2.2% in 1994 to 6.6% in 2022.

It’s estimated that about 50% of all Social Security recipients pay federal taxes on their benefits, but projections point to more than 56% of Social Security recipients paying taxes on benefits in 2050. And that number is likely to keep rising if the combined income thresholds don’t adjust — assuming, of course, that Trump doesn’t manage to do away with taxes on Social Security like he wants to.

But to be clear, there’s a reason lawmakers never voted to raise the combined income thresholds. The goal was to eventually make it so that all seniors would pay taxes on their Social Security benefits and have that be an ongoing revenue stream.

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The problem with getting rid of taxes on Social Security

While eliminating taxes on Social Security might do some good for lower and moderate-income seniors, ultimately, it’s the high-income earners who stand to benefit the most.

According to new analysis by the Penn Wharton Budget Model, high-income seniors stand to gain up to $100,000 in remaining lifetime welfare as a result of this change. But workers under 30 would be the biggest losers in this game, with newborn households forgoing about $10,000 in lifetime welfare.

Furthermore, eliminating taxes on Social Security could reduce government revenue by $1.5 trillion over 10 years, the Penn study found. And ending taxes on benefits would also deplete Social Security’s trust funds by late 2032. A 2024 report by the Social Security Trustees previously put the combined trust fund depletion date at 2035.

That’s important because once Social Security’s trust funds run out of money, sweeping benefit cuts may become inevitable. Social Security is expected to lose a large chunk of its payroll tax revenue as baby boomers retire in droves in the coming years and an inadequate number of workers enter the labor force to replace them.

The aforementioned Congressional Research Service report found that in 2023, the Social Security trust funds were credited with $50.7 billion from the taxation of Social Security benefits, or 3.8% of the trust funds’ total income. And while that’s a relatively small percentage, given the program’s impending funding shortfall, cutting any sort of revenue reads like a dangerous idea.

Now, it’s worth noting that as of late 2024, six bills had been introduced to Congress to eliminate or change the taxation of Social Security benefits. But the Committee for a Responsible Federal Budget says that ending taxes on benefits could do more than just push up the date at which benefit cuts happen. It could also result in larger cuts.

Current projects call for a 23% reduction in Social Security benefits once the program’s trust funds run out of money. Trump’s proposal to end taxes on benefits would increase those cuts to 33% of benefits. The Committee for a Responsible Federal Budget also notes that eliminating taxes on benefits could result in benefit cuts happening as early as 2031.

Because Social Security is already facing an alarming financial shortfall, lawmakers may be hesitant to approve a bill that results in the elimination of taxes on benefits. William McBride, chief economist at the Tax Foundation, told CNBC that there will be some “pretty strict limits on the tax cuts that would be allowed.”

Any changes to Social Security require bipartisan lawmaker support. But given the financial crisis among seniors that could ensue if Social Security taxes were to get cut, lawmakers on both sides of the political spectrum may be hesitant to support Trump’s plan.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.