What If Taxes on Social Security Benefits Were Eliminated?

Eliminating taxes on Social Security benefits would provide current beneficiaries with thousands more dollars—but it could cause younger generations to lose benefits.

A bill to exclude Social Security benefits from gross income calculations for taxes was recently reintroduced in the House and could be voted on when lawmakers return to the capitol on Feb. 24.

“For decades, seniors have paid into Social Security with their tax dollars,” co-sponsor of the legislation, U.S. Rep Daniel Webster, R-Florida, said in a statement. “Now, when many seniors are on a fixed income and struggling financially, they are being double-taxed because of income taxes on their Social Security benefits.”

Currently, only Social Security beneficiaries who make more than $25,000 if they file individually and $32,000 if they file jointly have to pay income taxes on their benefits. This is about 40% of Social Security beneficiaries, or almost 27.6 million people. Those who pay taxes are typically retirees who receive other income or taxable retirement pensions.

If the bill reaches the president’s desk, Donald Trump will likely sign it as it was one of his campaign promises.

Eliminating Social Security Benefits Tax Would Benefit Older and Higher-Income Households

Eliminating income taxes on Social Security benefits would reduce federal revenues by $1.5 trillion over a decade and increase federal debt by 7% by 2054, according to a budget model by the University of Pennsylvania.

While workers mainly fund Social Security through payroll taxes, 3.8% of the program was funded by federal income taxes that some beneficiaries paid in 2023.

Social Security funding is already precarious. If no policy changes are made, the program’s funds are expected to be depleted over the next decade, according to the University of Pennsylvania model. If Social Security benefits taxes were eliminated, the program’s main trust’s depletion date would move up to 2032 from 2034.

Consequently, older and higher-income individuals would benefit the most from this policy reform, earning up to $134,400 more than they currently would over their lifetime.

However, younger and lower-income individuals could lose the most if no other Social Security policy is implemented. According to the model, everyone aged 30 or younger would miss out on benefits over their lifetime, and older adults with less income also stand to miss out. Individuals who are not yet born, in particular, could lose up to $22,000 in welfare benefits and savings from this policy.