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USA Today
14-05-2025
- Business
- USA Today
Trump's plan to eliminate Social Security taxes: What it means for retirees
Trump's plan to eliminate Social Security taxes: What it means for retirees Show Caption Hide Caption Biden-signed law triggers Social Security increases for retirees Many are seeing an increase in their Social Security payments, thanks to a law aimed at correcting long-standing benefit reductions for public sector workers. unbranded - Newsworthy President Trump during his campaign proposed exempting Social Security from federal income tax. Several lawmakers in Congress have recently introduced legislation that aims to accomplish the same goal. Rep. Angie Craig (D-Minn.) in January announced the You Earned It, You Keep It Act. Rep. Jeff Van Drew (R-N.J.) in January announced the No Tax on Social Security Act. Rep. Thomas Massie (R-Ky) in February announced the Senior Citizens Tax Elimination Act. Additionally, President Trump last month pushed Congress to approve a "big, beautiful" tax and spending bill that fulfills several other campaign promises. "In the coming weeks and months, we will pass the largest tax cuts in American history — and that will include no tax on tips, no tax on Social Security, and no tax on overtime," he said. However, those major changes to tax law would likely hurt retired workers on Social Security. Here's why. Social Security benefits could be cut 23% in 2035 under current tax law Social Security is primarily financed by taxes, but there are three revenue sources: 91% comes from payroll taxes, 4% from taxes collected on benefits, and 5% from interest earned on trust fund assets. The program is regularly running deficits, meaning it's spending more money than it brings in, because the retired population that draws benefits is growing more quickly than the taxpaying population that supports the program. The Congressional Budget Office (CBO) estimates the Social Security Trust Fund — the financial account that pays benefits to retirees, spouses, survivors and disabled workers — will be exhausted by 2034. At that point, one funding source would disappear because the trust fund would no longer earn interest. The remaining tax revenues would cover only 77% of scheduled payments in 2035. That means benefits could be cut 23% in 10 years unless lawmakers find a solution. Ending taxes on Social Security means benefit cuts would happen sooner The CBO estimates Social Security will run a $3.3 trillion deficit over the next decade. Taxes on benefits will contribute $1.1 trillion to revenue during that period. So, eliminating that income would make an already-substantial deficit much larger. In turn, the trust fund would be exhausted sooner than CBO anticipates under current law, meaning Congress would have less time to avoid substantial benefit cuts. More for retirees: 2026 Social Security COLA estimated at 2.4% after latest inflation report Importantly, while the precise time to trust fund depletion depends on the discrepancy between cash inflows and outflows, the Committee for a Responsible Federal Budget (CFRB) says ending taxes on Social Security would move trust fund depletion forward by one year. Alternatively, a budget model from Ivy League business school Penn Wharton estimates it would hasten trust fund depletion by two years. More broadly, CRFB estimates ending taxes on tips, overtime and Social Security — changes President Trump wants included in the "big, beautiful bill" currently being debated in Congress — would collectively bring trust fund depletion forward by three years. In that scenario, benefits would be cut in 2032 unless lawmakers fix the financing problem. Additionally, because those tax law modifications could reduce Social Security's revenue by as much as $2 trillion over the next decade, the resultant benefit cuts would be even larger than expected. CRFB estimates payments would be slashed 33% by 2035, up from the 23% cut projected by CBO under current tax law. Here's the bottom line: Representatives from both political parties have proposed eliminating taxes on Social Security benefits. President Trump has gone even further in suggesting tips and overtime should be exempt from federal income tax. Those changes may ultimately be a bad thing for retired workers, despite increasing benefits for individuals that currently owe tax on their Social Security checks. Nancy Altman, President of nonprofit group Social Security Works, recently told Kiplinger, "[Trump's] talking about getting rid of taxation, which increases benefits, but the very benefits that are subject to taxation will be much reduced. So basically, it's not an honest proposal." The Motley Fool has a disclosure policy. The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY. The $ 22,924 Social Security bonus most retirees completely overlook Offer from the Motley Fool: If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets"could help ensure a boost in your retirement income. One easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. JoinStock Advisorto learn more about these strategies. View the "Social Security secrets" »
Yahoo
23-02-2025
- Business
- Yahoo
President Trump's Plan to Eliminate Social Security Benefit Taxes Would Save the Wealthy Thousands Per Year. Here's How Much the Average American Would Benefit
You pay Social Security taxes throughout your career, so it can feel a little unfair if you have to pay taxes on your benefits in retirement. But that's the reality an increasing number of retirees face. It's a major pain point, particularly for those who don't have a lot of personal savings to supplement their checks. President Trump's campaign promise to eliminate Social Security benefit taxes struck a chord with a lot of retirees, and it may soon become a reality. Rep. Thomas Massie (R-Ky.) recently introduced the Senior Citizens Tax Elimination Act to the House, which would exempt Social Security benefits from federal taxation. We don't yet know if it will pass, but there's already some data about the potential tax savings floating around -- and it might surprise you. The IRS began taxing Social Security benefits in 1984 and added a second tax tier a decade later. Since then, the Social Security benefit tax formula has remained the same. The government may tax a certain portion of your Social Security benefits based on your marital status and provisional income, defined as your adjusted gross income (AGI), plus any nontaxable interest you may have if you own municipal bonds, and half your annual Social Security benefits. The table below gives the current Social Security benefit taxation tiers: Marital Status 0% of Benefits Taxable If Provisional Income Is Below: Up to 50% of Benefits Taxable If Provisional Income Is Between: Up to 85% of Benefits Taxable If Provisional Income Exceeds: Single $25,000 $25,000 and $34,000 $34,000 Married $32,000 $32,000 and $44,000 $44,000 Source: Social Security Administration. The tier you fall into determines the percentage of your Social Security benefits that are subject to ordinary income tax. In the worst-case scenario, you could owe 37% in taxes on up to 85% of your benefits. Most people pay far less than this, but these taxes can still be a burden to those living on low fixed incomes. As you may have already realized from the table above, the lowest-income households wouldn't see any immediate benefit from the federal government eliminating Social Security benefit taxes because they're not paying them. However, costs and average Social Security checks continue to rise, pushing more people's benefits into a taxable range every year. So, eliminating benefit taxes could save some of these lower earners from future taxes they'd owe if the current law remains in effect. It should come as no surprise that the wealthy stand to see the greatest gains if the IRS does away with Social Security benefit taxes. They pay the lion's share of Social Security benefit taxes in the first place. Analysis from the University of Pennsylvania's Wharton Budget Model group found that the top 0.1% would save an average of $2,450 in taxes in 2025 if the government stopped taxing Social Security benefits. Their annual savings would rise to $5,080 by 2054. Meanwhile, average Americans -- those who fall in the 40% to 60% income group -- would only save about $340 in annual taxes in 2025 if Social Security benefit taxation ends. By 2054, their estimated savings would be $1,730 per year. For those who fall in the 60% to 80% income group, annual savings would be $1,135 and $3,560 in 2025 and 2054, respectively. Those in the 80% to 90% income group would save $1,625 and $4,075, respectively. However, middle- to upper-middle-class Americans actually stand to gain the most relative to their total available income. Most millionaires and billionaires in the 0.1% aren't going to notice any significant change in their quality of life from saving an extra $2,450 per year. But saving $1,135 to $1,625 could noticeably improve the lives of those living off more modest incomes. The Penn Wharton study found that those in the 60% to 90% income groups will see a roughly 1% change in their after-tax income compared to virtually no change for the wealthiest Americans. Middle-income Americans would see a 0.5% change in after-tax income if the government eliminated benefit taxes. One thing to bear in mind about all these numbers is that they apply to all members of an income group, regardless of their age. Those actually receiving and paying tax on Social Security benefits right now could see much larger and more immediate savings. There are definite short-term benefits to getting rid of Social Security benefit taxes for average and wealthy Americans. However, the long-term consequences are harder to predict. Social Security benefit taxes are one of only three funding sources for the program. Eliminating it would put greater strain on Social Security, which is already facing a $23 trillion funding shortfall. The program's trust funds are expected to be depleted in 2035 under current estimates. Unless the government finds a way to increase Social Security's funding before then, it would have to slash all Social Security benefits by 17% going forward. Cutting Social Security benefits would accelerate this deadline. This isn't to say it's impossible to eliminate Social Security benefits and ensure its solvency for future generations. However, with less time until the trust fund depletion date, the government also has fewer options for how to reform the program. If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these Motley Fool has a disclosure policy. President Trump's Plan to Eliminate Social Security Benefit Taxes Would Save the Wealthy Thousands Per Year. Here's How Much the Average American Would Benefit was originally published by The Motley Fool Sign in to access your portfolio
Yahoo
20-02-2025
- Business
- Yahoo
Trump's plan to end taxes on Social Security benefits would be costly
(NewsNation) — President Donald Trump wants to eliminate income taxes on Social Security benefits, but a new analysis shows that plan comes at a steep cost and would worsen the program's financial shortfall. Ending taxes on benefits would reduce government revenues by $1.5 trillion over 10 years and increase the federal debt by 7% by 2054, according to estimates from the nonpartisan Penn Wharton Budget Model. Nixing taxes would also move up the date when the Social Security trust fund is expected to run out. Is Elon Musk right about widespread Social Security fraud? As it currently stands, retirees could see their benefits slashed by 21% in roughly a decade if Congress doesn't fix the program, which pays out more than it brings in. Trump's plan to end income taxes on benefits would accelerate the estimated depletion date of the Social Security Trust Fund by two years, from December 2034 to December 2032, according to the Penn Wharton Budget Model. 'I think it is a bad idea not to tax benefits for people receiving them,' said Alex Nowrasteh, the vice president for economic and social policy studies at the libertarian Cato Institute. Nowrasteh pointed out that the Social Security Fairness Act, which Joe Biden recently signed into law, will also accelerate the program's financial woes. 'The government is not taking seriously the fiscal problems that Social Security has,' Nowrasteh warned. Social Security head resigns following DOGE data request: Reports Experts previously told NewsNation that Trump's Social Security tax promise would be hard to keep but that hasn't stopped Republican lawmakers from trying. Representatives Thomas Massie, R-Ky., and Daniel Webster, R-Fla., recently reintroduced the Senior Citizens Tax Elimination Act, which would end federal income taxes on Social Security benefits and boost the retirement income of older Americans. About half of Social Security beneficiaries pay income tax on their benefits, according to the latest estimates from the Congressional Budget Office. The amount of tax owed varies depending on one's income. As of now, individuals who earn more than $25,000 may have to pay taxes on up to 50% of their Social Security retirement benefits. For those who earn more than $34,000, up to 85% of benefits could be taxable. One of the main critiques of the current system is that those thresholds don't go up with inflation, so over time, more retirees have been subject to taxes on their benefits. Social Security calculator: Figure out your monthly benefits The counter-argument is that taxing benefits helps the government fund Social Security. Income from taxation makes up roughly 4% of what the program brings in, about $50 billion that Social Security would have to find elsewhere. The Penn Wharton Budget Model said 95% of retirees would benefit if Trump's campaign promise was implemented, but 'all future generations would be worse off.' And if taxes on Social Security benefits are eliminated, the biggest gains would go toward high-income retirees. Some high-income households, who currently pay the most in taxes on Social Security benefits, would gain more than $100,000 over their lifetimes, the analysis found. However, households in the lowest two income quintiles would see more modest gains, ranging from $1,000 to $2,000. Meanwhile, those younger than 30 would be worse off, with newborn households losing about $10,000 in lifetime welfare, the analysis said. The report concluded: 'The policy primarily benefits high-income households nearing or in retirement while harming households under thirty and all future generations across the entire income distribution.' Copyright 2025 Nexstar Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
