Why most seniors will pay less or nothing in Social Security taxes under new tax law

A bold claim from the Social Security Administration sparked headlines this week: nearly 90 per cent of beneficiaries won’t pay federal taxes on their benefits under President Donald Trump’s new tax law. But despite the headline-grabbing promise, the reality is more nuanced.

The Social Security Administration (SSA) announced on July 3 that the law “eliminates federal income taxes on Social Security benefits for most beneficiaries.” The statement highlighted an enhanced deduction for people 65 and older.

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The legislation, part of the sweeping One Big Beautiful Bill, doesn’t eliminate taxes on Social Security outright. Instead, it offers a generous, temporary boost to the standard deduction for Americans aged 65 and older, effectively shielding many from tax liability.

What’s Actually in the Law

The law adds a temporary enhanced deduction for Americans aged 65 and older:

• $6,000 for individuals earning $75,000 or less
  
  
  
• $12,000 for married couples earning up to $150,000
  
  

The deduction phases out for individuals with incomes above $175,000 and couples earning over $250,000. It will remain in effect until 2028.

This change means benefits are still included in income calculations, but many seniors will see their taxable income reduced enough that they no longer owe taxes on those benefits.

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How It Impacts Seniors

Before the bill passed, about 64 per cent of Social Security recipients didn’t pay taxes on their benefits. The new law is expected to raise that figure to 88 per cent, according to a report from Trump’s Council of Economic Advisers.

“It’s not eliminating taxes on benefits — it’s reducing the number of people who owe them,” said Romina Boccia, a budget expert at the Cato Institute.

Andrew Biggs, a senior fellow at the American Enterprise Institute, said the policy achieves the president’s promise in practice, if not in technical terms. “You’re either paying taxes on benefits or you’re not,” he noted.

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Long-Term Impact on Social Security

While many seniors welcome the change, it could pressure Social Security’s already strained finances. A June report from the SSA predicted the program’s trust fund could run out by 2033. Due to lower tax revenues, the nonpartisan Committee for a Responsible Federal Budget said this tax change could move that insolvency date up by a year.

Under the new law, nearly 90 per cent of Social Security recipients are expected to avoid paying taxes on their benefits, but not because the tax was scrapped.

Instead, higher standard deductions for seniors are doing the heavy lifting. The benefit is real but may come with long-term tradeoffs for the program’s future.