Four out of 10 Social Security beneficiaries pay income tax on a portion of their benefits, according to the Social Security Administration. However, that could change if President Donald Trump and Republican Rep. Thomas Massie can deliver on a campaign promise.
While on the campaign trail last year, Trump promised to end taxes on Social Security benefits. This year, Massie introduced the Senior Citizens Tax Elimination Act to do just that.
“(Massie has) introduced this bill every single Congress since 2014,” says Sarah Adkisson, senior manager of tax publishing for Eisner Advisory Group LLC in the District of Columbia. “It’s one of his babies.”
While seniors might welcome the elimination of taxes on their Social Security benefits, analysts warn that the bill could increase the federal deficit. What’s more, some note that eliminating these taxes will accelerate the insolvency date of the Social Security trust funds if the tax money is not replaced.
Taxes on Social Security: Who Pays Them
Like many other aspects of Social Security, benefits are taxed in a complex way. The practice was ushered in as part of a 1983 overhaul of the Social Security system, and it’s based on something known as a person’s combined income.
Combined income is defined as the total of the following:
— Adjusted gross income
— Tax-exempt interest income
— Half of a person’s Social Security benefits
Single taxpayers with a combined income exceeding $25,000 will pay income tax on up to 50% of their benefits. Married couples filing jointly will have half their benefits subject to tax once their income exceeds $32,000. If incomes exceed $34,000 for single taxpayers or $44,000 for married couples, up to 85% of benefits may be taxable.
The law stipulates that any tax collected on Social Security benefits must be deposited into the program’s trust funds, and Congressional Research Service reports that this amount was $50.7 billion in 2023. That amount represented 3.8% of the trust funds’ income for that year.
[READ: How to Maximize Social Security With Spousal Benefits.]
What the Senior Citizens Tax Elimination Act Does
Massie introduced H.R. 1040 on Feb. 6, to create the Senior Citizens Tax Elimination Act.
“It’s a very short and simple bill,” Adkisson says. “It just says that we’re not going to tax Social Security. Full stop.”
The bill also includes language requiring funds be transferred into the Social Security trust funds to cover the loss of the tax income. That money is to come “out of any money in the Treasury not otherwise appropriated.”
Analysts differ on how much retirees could save if the bill becomes law. The Senior Citizens League estimates the typical senior household would save $3,000 annually in 2025. It also says that eliminating taxation on Social Security would make up for 69% of the loss of purchasing power retirees have experienced due to what the league says have been inadequate annual cost of living adjustments. Social Security beneficiaries received a 2.5% COLA increase in January.
“Eliminating taxes on Social Security benefits would be an excellent step to provide financial relief to American seniors, many of whom are struggling with a cost of living that is growing much faster than their incomes,” says Shannon Benton, executive director of the Senior Citizens League, in statement published on the organization’s website. “It would also reduce double taxation, which is inherently unjust.”
Others peg the savings as much lower. The Urban-Brookings Tax Policy Center says average savings would be $550, although actual savings could be much lower for some retirees. Social Security beneficiaries with incomes between $32,000 and $60,000 would save about $90 annually in taxes.
“It feels like we’re helping the little guy, but it’s not,” according to Steve Parrish, professor of practice at the American College of Financial Services and a scholar in residence at the Cary M. Maguire Center for Ethics in Financial Services. “This really tends to help higher income people.”
Retirees with incomes lower than $32,000 won’t see any savings from the bill, according to the Tax Policy Center. That’s likely because these seniors aren’t likely to pay taxes on their benefits under the current law.
[Read: When You Need to Pay Taxes on Social Security]
Analysts Caution About Financial Risks
Eliminating taxes on Social Security benefits offers a clear benefit to retirees and others who rely on the program for income. However, analysts say it could have long-term negative economic impacts.
“More than 60% of currently living households and over 95% of retirees would benefit from implementing this policy bundle,” according to an analysis conducted by the Penn Wharton Budget Model at the Wharton School of the University of Pennsylvania. “However, all future generations would be worse off,” it adds.
Specifically, researchers estimate that eliminating taxes on Social Security benefits would have the following effects:
— Reduce federal revenues by $1.5 trillion over 10 years
— Increase federal debt by 7% by 2054
— Accelerate depletion of the Social Security trust funds by one year, from 2034 to 2033
— Reduce average wages by 0.4% over 10 years and 1.8% by 2054
It won’t be just the federal government that loses revenue. A handful of states tax all federally taxable income, including Social Security benefits. If Social Security is exempted from federal tax completely, “it could be that those states are going to lose revenue,” Parrish says.
Will Social Security Taxes End?
Massie has introduced legislation to eliminate income tax on Social Security for years. But so far, he has not been successful. This year could be different, though.
“It’s a big campaign promise, so I think there will be a political push,” Adkisson says. “The expense is probably the biggest stumbling block.”
If Trump and Republican leaders want to reduce the federal deficit — another stated priority for both — that may be difficult to do while eliminating sources of income. As they consider how to proceed with Massie’s bill, members of Congress may find they need to answer a question raised by Parrish: “Is that a good use of very scarce government revenue?”
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Trump Proposed Eliminating Social Security Taxes. Here’s the Bill That Could Make It Happen originally appeared on usnews.com
Update 03/05/25: This story was published at an earlier date and has been updated with new information.
