How Will the New “No Tax on Social Security” Provisions Impact Social Security?

From SOAR President Bill Pienta

By the time you read this article, I hope there will be a clear understanding of the total benefits and implications of the “No Tax on Social Security” provisions in the recently passed tax bill.

While the increase in the standard deduction for seniors over the next three years is straightforward and appreciated, the amount of tax savings on Social Security is less clear to me.  Additionally, I am trying to understand the impact of the revenue loss to the Social Security Fund resulting from the legislation.

AARP estimates that for 15% of women and 12% of men receiving Social Security payments, these earned benefits account for nearly all the cash needed to maintain a roof over their heads. Furthermore, almost 23 million recipients depend on Social Security for at least half of their total income. Additionally, according to the IRS, for the 2024 tax year, married couples filing jointly who are both over 65 and have a combined income of less than $32,300 were exempt from filing a tax return. Therefore, I do not see any real benefit from this legislation for this group.

While people in various income groups will benefit differently, there is one common denominator that impacts all receiving Social Security and Medicare. According to www.congress.gov, in 2023, the Social Security trust funds received $50.7 billion from the taxation of Social Security benefits, which represented 3.8% of the trust funds’ total income. Additionally, the Medicare Hospital Insurance trust fund collected $35.0 billion in revenue from the taxation of Social Security benefits, making up 8.4% of that trust fund’s total income.

While some will benefit from this three-year gift, the impact on the balance of the funds will affect us all. If there were an adjustment to the cap on taxable earnings to maintain or increase the fund balance, I would feel much more comfortable.

I hope these temporary tax breaks are not part of a long-range plan to privatize Social Security and Medicare. But you know the old saying, “If it looks like a duck and it sounds like a duck, it must be a duck.”