Is a $4K Senior Bonus Better Than No Taxes on Social Security?
Written by
Heather Altamirano
Edited by
Angela Corry
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President Donald Trump touted a lot of ideas while he was campaigning for a second term and one of the proposals he consistently talked about was eliminating taxes on Social Security. It was a vow he made to the retirees, but now he could be reneging on his promise.
In the “One, Big, Beautiful” tax bill there is no proposal for ending taxes on Social Security. Instead, there’s a temporary $4,000 deduction.
The bill offers a “historic tax break” to Social Security recipients, “fulfilling President Trump’s campaign promise to deliver much-needed tax relief to our seniors,” White House assistant press secretary Elizabeth Huston said via email, CNBC reported.
According to the outlet, the following stipulations would apply:
- Must be 65 or older
- The $4,000 deduction would be applicable for tax years 2025-2028
- Single filers with more than $75,000 in modified adjusted gross income and married couples who file their taxes together who earn more than $150,000 would not qualify.
While that is much different than completely getting rid of taxes on Social Security as promised, finance expert Andrew Lokenauth says it might be a better deal for many retirees. Here’s why.
Lower and Middle-Class Retirees Will Benefit
For retirees who earn above the income guidelines, the $4,000 deduction won’t be helpful, but it will provide financial relief for many older folks, according to Lokenauth.
“From my experience working with retirement planning, the $4,000 deduction is much better targeted to help lower and middle-income seniors.” He explained, “I’ve seen how eliminating Social Security taxes primarily benefits wealthier retirees who have substantial other income, while doing nothing for the roughly 50% of seniors who already don’t pay taxes on their benefits.”
For example, if a retiree makes around $50,000 the $4,000 deduction would save them $500 annually in taxes.
“Not life changing but meaningful for many seniors managing fixed incomes,” Lokenauth said.
The Benefits of the Deduction Vary by Income Level
Retirees in higher tax brackets will not notice a difference with their finances as a result of the $4,000 deduction. The impact will be felt according to income level.
“For seniors making under $75,000 individually or $150,000 jointly, that $4,000 deduction provides consistent, predictable tax relief of roughly $440-$880 depending on their tax bracket,” Lokenauth explained.
Retired higher earners would save significantly from the elimination of Social Security taxes.
“I’ve worked with wealthy retirees who would save $5,000 annually from nixing Social Security taxes,” Lokenauth said. “But here’s the thing — they’re not the ones who need the help most.”
A $4,000 is Not a Game-Changer, but it Helps
The $4,000 deduction is a far cry from getting rid of taxes on Social Security, but it will help offset some expenses for retirees.
“I saw a middle-income client recently who’d save about $600 a year — enough to cover a few months of utilities or several weeks of groceries,” Lokenauth said. “And because it’s structured as a deduction rather than a credit, the benefit grows along with someone’s tax bracket up to the phase-out thresholds.”
The Bonus is Much Less to Implement
For now, it looks like eliminating taxes on Social Security isn’t an immediate priority, but the $4,000 bonus is in the bill and is far less expensive to implement. There’s no comparison.
“I’ve looked at the budget implications, and this $4,000 deduction would cost about $200 billion over 10 years, while roughly 20% of eliminating Social Security benefit taxation would cost around $1 trillion,” Lokenauth said.
He added, “Plus the deduction comes from general revenue rather than draining Social Security’s already strained trust funds.”
There are some positive aspects to the bonus proposal such as it works with either standard or itemized deductions, meaning more seniors can actually access the benefit. However, the time frame concerns Lokenauth.
“I’ve seen how temporary tax provisions create uncertainty. Congress really should make this permanent.”
With that in mind, there is room for improvement, but Lokenauth said this is a more “fiscally responsible approach that still delivers meaningful relief.”
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