Seniors who have an online account with the Social Security Administration (SSA) probably received an email “celebrating the passage of the One Big, Beautiful Bill.” The unusual email — the first time in history that the SSA has sent mass emails to Social Security recipients boasting about the passage of a partisan bill — makes statements that seniors should view with caution.
The House of Representatives passed the budget reconciliation bill (then titled the One Big Beautiful Bill Act) by one vote. The Senate made substantial changes to the House bill, including stripping “One Big Beautiful Bill” from the title. The Act passed the Senate after the Vice President cast a tiebreaking vote. The House then passed the Senate version by a four-vote margin. President Trump signed the Act into law.
Taxation of Benefits
The email claims that the new law “ensures that nearly 90% of Social Security beneficiaries will no longer pay federal income taxes on their benefits, providing meaningful and immediate relief to seniors who have spent a lifetime contributing to our nation’s economy.” The Act, however, does not change the taxation of Social Security benefits.
As the IRS explains, percentage of Social Security benefits count as taxable income if the taxpayer’s combined income exceeds a threshold. “Combined income” is defined as adjusted gross income plus tax-exempt interest income plus one-half of Social Security benefits.
The threshold is $25,000 for a single taxpayer and $32,000 for taxpayers filing a joint return. The portion of Social Security benefits that are taxed ranges from 50% to 85% depending on the taxpayer’s individual or joint income.
The Act does not change the threshold for taxation of Social Security benefits. Nor does the Act repeal taxation of Social Security benefits, either in whole or in part.
While the thresholds are not particularly generous, more than half of seniors did not pay income tax on their Social Security benefits before the new law was enacted. Taxpayers who are living on their monthly Social Security payment and no other income rarely pay tax on those benefits.
Recipients with incomes above the threshold pay taxes on Social Security benefits on a sliding scale so taxpayers with higher incomes pay more. On average, Social Security recipients pay about 7% of their benefits in income
taxes. The average is skewed by high income taxpayers, as individuals with a combined income of less than $63,300 pay 1% or less of their benefits in federal income tax.
While taxation is always unpopular among taxpayers, about 60% of taxes paid on Social Security benefits are paid into trust funds that pay for Social Security and Medicare Part A benefits. Ending taxation of those benefits would likely cause the trust fund for Social Security to be exhausted a year earlier, and for Medicare Part A to be exhausted six years earlier, than would be true if the taxes were eliminated.
Unkept Promise
The president campaigned on a pledge to eliminate taxes on Social Security. Seniors likely interpreted that promise to mean that they would no longer be required to report Social Security benefits as taxable income. That promise was not implemented in the new law.
Exempting benefits above the current threshold from taxation would have worked against the interest of many seniors. Removing Social Security taxes would have cost the Social Security and Medicare programs about $45 billion annually, potentially resulting in a reduction of future benefit payments.
Given the risk that the trust funds for those programs will no longer be able to pay full benefits unless the cap on income for payroll taxes is raised, adding to the shortfall might be extraordinarily harmful to people who depend on Social Security income and Medicare benefits. That reality no doubt contributed to the congressional decision not to eliminate taxes on Social Security benefits.
Temporary Tax Relief
The SSA’s claim that “nearly 90% of Social Security beneficiaries” will pay no federal income taxes on their benefits is based on a new but temporary tax deduction for seniors. Beginning with the 2025 tax year, people who are 65 and older will be entitled to take a $6,000 deduction, or $12,000 for a married couple filing jointly if both are at least 65. The deduction applies to all income, not just to Social Security benefits. The new deduction expires after the 2028 tax year.
The temporary tax relief provided by the deduction does not apply to Social Security recipients who are younger than 65. The deduction begins to phase out for single taxpayers whose income exceeds $75,000 ($150,000 for married taxpayers filing jointly) and is eliminated entirely for single taxpayers whose income exceeds $175,000 ($250,000 for joint filers). The White House estimates the deduction will offset taxes on Social Security for 88% of Social Security recipients, but it will only do so for four years.
Unpacking the Email
The SSA email states:
The new law includes a provision that eliminates federal income taxes on Social Security benefits for most beneficiaries, providing relief to individuals and couples. Additionally, it provides an enhanced deduction for taxpayers aged 65 and older, ensuring that retirees can keep more of what they have earned.
In fact, there is no provision in the new law that directly “eliminates federal income taxes on Social Security benefits” for any beneficiary. The language of the Tax Code that pertains to taxation of Social Security benefits is entirely unchanged.
The email’s suggestion that the temporary deduction for seniors is an “additional” feature of the new law is also incorrect. The deduction is, in fact, the only route by which the law provides income tax relief — albeit temporary — to Social Security recipients.
The SSA email closes with this reassuring paragraph:
Social Security remains committed to providing timely, accurate information to the public and will continue working closely with federal partners to ensure beneficiaries understand how this legislation may affect them.
In fact, the SSA’s self-congratulatory email to Social Security recipients is far from accurate. While many seniors will benefit from the temporary tax deduction, no senior should be fooled into believing that income taxes on Social Security benefits have been eliminated.