The Social Security program is going to be changed. Small changes are made every year to the program to keep it useful and easy for recipients to access. But because of the 2025 election, there may be a change that no one sees coming.
During his campaign, Trump said that he would get rid of the federal income tax on Social Security retirement benefits if he became president.
As a campaign promise, this sounded great to his new supporters, especially since a big part of his base is made up of retirees. But if it comes true, the people who are screaming for no taxes will be the ones who are most hurt.
The Cost of Removing the Federal Income Tax from Social Security
Before we can decide if this is a good idea, we need to do some math.
The Social Security Administration (SSA) says that as of the end of 2021, almost 47.3 million people were receiving Social Security retirement benefits, which are worth an average of $21,228 per year. The total amount of money paid is a bit over $1 trillion.
If we make some tax assumptions, like that about 75% of the benefits, or $753 billion, were taxed and the money was split evenly between two groups, one with 50% taxed benefits and the other with 85%.
Also, let us say that the group with 50% pays 12% tax and the group with 85% pays 24%.
Based on the numbers, the 50% group would save around $45.18 billion in taxes, and the 85% group would save around $90.35 billion.
This will save taxpayers about $135.53 billion. To put that in perspective, that is about 2.7% of all federal income. In other words, the government would get less money if Social Security payments were not taxed.
Even though there are a lot of assumptions, the data seem to support the tax exemption in this case.
People who are retired would get extra money if this were to happen. It could change their lives. It would boost the economy and let people spend more on things that are not necessary.
Sad to say, though, most seniors do not have enough saved for retirement, and a lot of them do not have any assets at all, so they have to rely on Social Security income.
Some people might be surprised to learn that Social Security benefits are taxed along with other income in the same way that other income is.
The SSA says that only about 40% of people who get Social Security have to pay federal income taxes on their payments. This is a lot less than what the previous math showed.
Your “combined income” is the sum of your adjusted gross income, interest that is not taxed (like bond interest), and ½ of your Social Security payments. After adding everything up, you can find out if your income will be taxed or not.
As a single person, if you file your federal taxes and make between $25,000 and $34,000, you might have to pay income tax on up to half of your benefits. Up to 85% of your benefits could be taxed if it is more than $34,000.
You may have to pay income tax on up to half of your benefits if you file a joint return with your spouse and make between $32,000 and $44,000 a year. Up to 85% of your benefits could be taxed if it is more than $44,000.
About 60% of Americans do not have to pay federal income taxes on their Social Security income.
This means that most of them either live off of their benefits or make less than $25,000 a year ($32,000 for couples filing jointly). Since this is the case, this tax cut would only help people who are already very wealthy and do not need any extra money.