As the Social Security Administration touts the new tax act’s senior deduction, which it says will reduce federal taxes for many beneficiaries, another group is predicting a 24% benefit cut – possibly eating up any gains.
The tax act provides, under IRC § 151(d)(5), a new deduction of up to $6,000 annually for certain taxpayers age 65 and over. If both spouses qualify, a deduction of up to $12,000 may be claimed. The deduction phases out for higher income taxpayers.
The senior deduction is slated to sunset at the end of 2028 – but allowing it to lapse could be tough. The bulk of Americans who voted in the 2024 election are nearing or over age 65, as detailed in KFF’s analysis.
But even if the deduction lives on past 2028, the Committee for a Responsible Federal Budget says Social Security beneficiaries will see a reduction in overall benefits. That reduction comes not from benefits taxes, but due to looming Social Security and Medicare trust funds insolvency.
CRFB warned that the tax act (P.L. 119-21), formerly known as the One Big Beautiful Bill, would “accelerate” Social Security insolvency. While the bill did not touch Social Security, CRFB said it would have indirect impacts – namely by “reducing the revenue collected from the income taxation of Social Security benefits, which is deposited into the Social Security and Medicare trust funds.”
The group now estimates that the trust funds could become insolvent in just over seven years, necessitating benefits payment cuts. Actual cuts will vary according to age, marital status, and work history, says CRFB, but retirement program beneficiaries could see an estimated 24% cut in late 2032.
CRFB predicts that “a typical single-earner couple would face a $13,600 cut, while a dual-earner low-income couple would face an $11,000 annual cut.” Meanwhile, says CRFB, “[h]igh-income couples could see a cut of closer to $24,000.”
The cuts would occur over three years after the senior deduction’s current sunset, according to CRFB’s calculations. But leaves the question of whether seniors really come out ahead under the new act – even if the senior deduction ultimately is extended.
Senior Deduction Confusion
Beyond the actual long-term impacts of the tax act on seniors, confusion over just what the act provides lingers.
On the campaign trail, President Trump spoke of ending tax on Social Security benefits. But because of Senate rules limiting changes to Social Security via the reconciliation process, the tax act instead created the new senior deduction.
However, in a press release and email earlier this month, the Social Security Administration (SSA) claimed that the act “includes a provision that eliminates federal income taxes on Social Security benefits for most beneficiaries.”
Several Democrats, including Senator Elizabeth Warren (D-MA), called out the press release and email’s wording, contending it is “misleading.” The new tax act, in fact, does not change taxes on Social Security benefits, rather it provides a new senior deduction that could bring down taxes for many beneficiaries over age 65.
The SSA acknowledged as much in a correction to the press release – but has no intentions of sending a correction email, according to Warren. The Massachusetts senator reports that she met with SSA Commissioner Frank Bisignano privately on July 23, where she discussed the SSA’s communications about the senior deduction and her concerns about Social Security generally.
According to Warren, Bisignano said he was responsible for the email and press release and his team had discussed it with the White House. The commissioner, however, told Warren that he “believed the email had ‘aged’ and did not require a follow-up.”
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