President Trump's "One, Big, Beautiful Bill" passed through Congress last week and was signed into law on Friday, imposing sweeping new changes that will affect millions of Americans.
The bill includes changes to Social Security, such as tax breaks that could save seniors money. But there's a hidden downside that could hurt retirees down the road. Here's what you need to know about how the new laws could affect your retirement.
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The good news: Tax savings for seniors
During his campaign, Trump promised to eliminate federal taxes on Social Security benefits. While that measure was cut from the final bill, the majority of seniors are still set to receive a tax break.
Beginning this year, those 65 and older can receive an additional $6,000 tax deduction (or $12,000 for married couples filing jointly) on top of the standard deduction.
A report from the White House's Council of Economic Advisers claims that under the bill, "51.4 million seniors -- 88% of all seniors receiving Social Security income -- will pay no tax on their Social Security." While that wording is somewhat misleading (again, federal taxes have not been eliminated), the new deduction can reduce taxable income enough that the majority of seniors will not owe federal taxes.
However, there are a couple of caveats. For one, this deduction is only temporary and is set to expire in tax year 2028. Second, there are income limits. The deduction phases out at $75,000 per year for individual filers and $150,000 per year for joint filers. It drops to zero at incomes of $175,000 per year and $250,000 per year.
The bad news: This measure could hurt seniors in the coming years
This deduction is not intended to help seniors long-term. Once it expires in 2028, retirees can expect their tax bill to increase again. But even more worrying is the impact this tax cut might have on Social Security's trust funds.
Social Security is funded primarily through income taxes. That includes payroll taxes paid by current workers and taxes on Social Security benefits themselves. However, the program has been struggling with a cash shortage for years, as it's paid out more in benefits than it's received from taxes. As a result, the Social Security Administration (SSA) has needed to pull money from its trust funds to cover the deficit.
According to the SSA's latest estimates from June 2025, the combined trust funds covering retirement and disability benefits are expected to be depleted by 2034. The report also revealed that if nothing changes between now and 2034, Social Security's income sources will only be enough to cover around 81% of scheduled benefits -- potentially resulting in benefit cuts of nearly 20%.
Keep in mind that those estimates were done before the bill passed. While these tax deductions can provide temporary relief for retirees, they will also put more strain on Social Security's already struggling budget. With less income from taxes, the SSA will probably need to pull even more from the trust funds, causing them to run out faster than expected.
Tax deductions are good news in the short term, but they could sting retirees in the coming decade. By staying aware of how this new tax measure will affect you, it will be easier to prepare your budget accordingly.
