Paying taxes on Social Security benefits: Here are the changes coming in 2026
Social Security provides income to nearly 74 million people, with many relying on it for more than half of their total earnings but as 2026 approaches, millions are preparing for changes to Social Security taxation.
Since 1984, Social Security benefits have been taxed federally for individuals exceeding specific income thresholds but now the One Big Beautiful Bill Act now introduces a $6,000 bonus deduction for seniors.
The additional $6,000 deduction for taxpayers 65 and older is available through 2028 and is per individual, doubling to $12,000 for married couples filing jointly as the bonus deduction is projected to increase the proportion of seniors not paying taxes on Social Security from 64% to 88%.
That’s according to the White House Council of Economic Advisors, and this measure is expected to significantly reduce or eliminate federal tax obligations for millions of retirees, benefitting seniors.
That aims to reducing the number of retirees subject to federal tax at least through 2028 whilst lawmakers have proposed bills to further reduce or eliminate federal taxes on Social Security.
Most recently, Rep. Angie Craig reintroduced the You Earned It, You Keep It Act in April 2025, suggesting lost revenue would be offset by raising the Social Security payroll tax cap.
If enacted, federal taxation on Social Security benefits would end beginning with 2026 returns, which will be filed in 2027.
Need-based Supplemental Security Income remains untaxed, while standard benefits for retirees, survivors, and disabled individuals continue to be assessed based on combined income.
Combined income is calculated as adjusted gross income (AGI) plus tax-exempt interest income and half of Social Security benefits. For example, a person with $30,000 AGI, $1,000 nontaxable interest, and $15,000 in benefits would have $38,500 in combined income, making up to 85% of benefits taxable.
But the share of recipients paying taxes is debated as The White House estimates 36% are taxed, while the Social Security Administration suggests closer to 50% – a difference that should be ironed out before subjecting Americans to tax.
Seniors can opt to have taxes withheld from monthly benefits at 7%, 10%, 12%, or 22% via their SSA account or by calling 800-772-1213 and nine states levy taxes on Social Security benefits, though rules and exemptions vary.
These states are Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Vermont, Utah, and West Virginia.
Trump to axe IRS Direct File for nearly 300,000 users
In other news, the Trump Administration confirmed IRS Direct File will not be offered for the 2026 filing season, affecting nearly 300,000 Americans who used the program under Joe Biden‘s government.
A FOIA request from the Center for Taxpayer Rights revealed 296,531 returns were submitted through Direct File in 2025 after the system debuted as a pilot in 2024 after the IRS was tasked under the Inflation Reduction Act to explore direct-filing solutions.
The program’s future has been uncertain since the Trump administration began but now IRS staff working on Direct File have been instructed to halt development for the 2026 tax season.
As of November 5, 2025, the Direct File website states: “Direct File is closed. More information will be available at a later date.”
“It wasn’t used very much,” Scott Bessent said. “And we think that the private sector can do a better job.”
The program enabled taxpayers to file directly for free but faced criticism from Republicans and private tax companies.