Social Security Tax Elimination: Who Wins an Extra $1,500 and Who Loses
Written by
David Nadelle
Edited by
Zuri Anderson
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Contrary to Donald Trump’s 2024 campaign promises and misleading information issued by the White House, federal income tax on Social Security benefits was not eliminated by the 2025 Act (formerly known as the One, Big Beautiful Bill Act).
As Thomson Reuters pointed out, “In fact, the taxation of Social Security benefits hasn’t changed at all post-2025 Act.” Mistakenly thinking Social Security is tax-free and making financial decisions that raise their taxable income, like converting Roth IRAs, could prove very costly to seniors.
With that said, who would benefit the most from Social Security taxes getting axed — and who would lose out on savings?
The 2025 Act’s $6,000 Deduction for Seniors
There is, however, a new temporary deduction (through 2028) of $6,000 for people 65 and older that was introduced by the act. According to the IRS fact sheet issued in July 2025, the deduction is “in addition to the current additional standard deduction for seniors under existing law.”
A report by the Council of Economic Advisors (an agency within the Executive Office of the President) states a single adult declaring $40,000 in Social Security income and $40,000 from a 401(k) plan or IRA “would be expected to owe $7,190 in taxes, whereas under the OBBB [the 2025 Act], this senior would owe only $5,685 — a reduction of over $1,500. Approximately $900 of this reduction is due to the new senior deduction alone.”
A $6,000 deduction isn’t small potatoes to most seniors and could very well help a lot of people chip away at their tax burden. However, the deduction has nothing to do with Social Security, is only in effect through the 2028 tax year, is only available for retirees 65 and older and has income restrictions.
High-income seniors would get phased out and low-income retirees wouldn’t be eligible.
What If Social Security Tax Was Eliminated?
There would be definite winners and losers if Social Security benefits were exempt from taxation. Although existing retirees might profit from immediate tax savings, the proposal would reduce federal revenues, increase federal debt and quicken the program’s insolvency, which would ultimately hurt younger workers and future retirees.
The Urban Institute & Brookings Institution’s Tax Policy Center (TPC) claims that the average savings from cutting Social Security taxes would be $550. People making between $32,000 and $60,000 would get an average tax cut of about $90.
Not surprisingly, the top 0.1% of earners, who make $5 million or more, would benefit the most by cutting taxes on Social Security and would get an average tax cut of nearly $2,500 in 2025, per Forbes. About 28% of middle-income households would get a tax cut, per TPC’s findings.
By removing taxes on Social Security benefits, the government will be crushing the financing source of the program and enriching wealthy retirees at the risk of future benefits of everyone else. Unless Social Security tax elimination incentives get replaced with potentially viable plans like the “You Earned It, You Keep It Act,” perhaps it’s best to keep things as they stand.
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