President Trump's spending and tax plan, which is officially titled "one, big, beautiful bill," was recently released. This gave Americans key details about how Trump plans to not only extend the tax cuts passed during his first term but to give middle-class Americans and seniors additional tax relief.
The bill is nearly 400 pages long, so I can't discuss everything here. But one of the key tax breaks the president campaigned on was the elimination of taxes on tips, overtime, and Social Security. And while the first two are in the bill, making Social Security income exempt from taxes doesn't appear to be part of the plan.
However, there's another major tax break included for seniors that wasn't expected, and it could potentially be even more lucrative for some Americans. Here's what we know (and what we don't know) about the proposal.
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Social Security benefits can still be taxable
As mentioned, Social Security benefits can still be considered taxable income under the proposed bill.
Under current law, as much as 85% of Social Security income can be taxable, depending on income. Specifically, Social Security taxation depends on your combined income, which consists of your adjusted gross income (AGI), any non-taxable interest income, and half of Social Security benefits.
The combined income rules for taxation of Social Security benefits are as follows:
- If your combined income is below $25,000 ($32,000 for married couples filing jointly), none of your Social Security benefits are taxable.
- If combined income is between $25,000 and $34,000 ($32,000 to $44,000 for couples), up to 50% of your Social Security can be taxable.
- If combined income is above $34,000 ($44,000 for couples), up to 85% of your Social Security is taxable.
It's also worth noting that these figures are not adjusted for inflation each year and have been in place for many years, so more beneficiaries have found their Social Security subject to taxation over time.
Keep in mind that just because some of your Social Security benefits are included in taxable income doesn't mean that you'll actually end up paying taxes on them. It depends on the deductions and tax credits that apply to you and your family. According to the Social Security Administration (SSA), about 40% of Social Security recipients pay some federal income tax on their benefits.
There's another tax break for seniors
Under Trump's proposal, there's a $4,000 additional standard deduction available for senior citizens (which is defined as 65 or older). This is per person, so married couples filing jointly would get an $8,000 boost to their standard deduction.
This tax break is intended for low-to-moderate income retirees and would start to phase out at modified adjusted gross-income levels above $75,000, or $150,000 for married couples. And this is in addition to a temporary increase to the standard deduction for all Americans that is included in the bill.
Why isn't Trump eliminating taxes on Social Security benefits?
There are three important things for taxpayers to know about this plan.
First, as the bill is currently written, the additional standard deduction could be far more lucrative for many seniors than the elimination of taxes on Social Security benefits. This is especially true for lower-income retirees who rely on Social Security for most of their income. To be perfectly clear, a higher standard deduction favors lower-income retirees, while eliminating taxes on Social Security benefits would disproportionately help those with higher incomes.
Second, this is certainly a more fiscally responsible avenue to give seniors a tax break when it comes to the health of the Social Security program. Taxes on the benefits of certain retirees is a major funding source for Social Security (it brought in about $50 billion last year). Social Security is currently running a deficit and is expected to run out of money in 2034 if nothing is done, so removing one of its funding sources would likely make this happen even sooner.
Third, and perhaps most importantly, Trump's spending bill is a long way from the finish line and will likely look much different by the time it is signed into law. So, there's no guarantee that the higher standard deduction will make it into the final version or what tax breaks for seniors will ultimately go into effect.
