Social Security is going to be changed in some ways. Small changes are made to the program every year to keep it useful and easy for users to access. But because of the 2025 election, there may be a change that not many people are expecting.
During his campaign, Trump said that if he became president, he would get rid of the government income tax on Social Security retirement benefits.
As a campaign promise, this sounded great to his new followers, especially since a lot of his supporters are retirees. But if it comes true, this might not be a good idea, and the people who are screaming for taxes to be axed will be the ones who are most affected.
The Cost of Eliminating the Federal Income Tax from Social Security
We need to do some math first to see if this is a good plan. According to the Social Security Administration (SSA), about 47.3 million people were getting Social Security retirement payments at the end of 2021.
The average amount they got each year was $21,228. All of these amounts add up to a little more than $1 trillion.
Let us say that 75% of those benefits were taxed, which would be about $753 billion. This amount would be split equally between two groups, with 50% of one group’s benefits being taxed and 85% of another group’s benefits being taxed. It is also possible that the 50% group pays 12% in taxes and the 85% group pays 24%.
A rough calculation shows that the 50% group would save about $45.18 billion in taxes, while the 85% group would save about $90.35 billion. All together, those changes will save about $135.53 billion in taxes.
That is about 2.7% of all government income, to give you an idea. That means that the government would get less money if Social Security funds were not taxed.
There are a lot of assumptions here, but the numbers seem to support the tax relief in this case. If this were to happen, the extra money that retirees would get from it could change their lives. It would make the business better and let people spend more on things they do not need.
But the sad truth is that most retirees do not have enough saved for retirement, and a lot of them do not have any savings at all, so they depend on Social Security payments almost entirely.
People may be surprised to learn that Social Security payments are not taxed on their own. What is taxed is what is called ” combined income.”
About 40% of people who get Social Security must pay federal income taxes on their payments, according to the SSA. This is a lot less than what the previous math showed.
To find your “combined income,” add up your adjusted gross income, any interest that is not taxed (like bond interest), and ½ of your Social Security payments. You can find out if your pay will be taxed after adding everything up.
There is a chance that you will have to pay income tax on up to half of your benefits if your total income is between $25,000 and $34,000 during the tax year. Up to 85% of your payments may be taxed if they are more than $34,000.
When you and your partner file a joint tax return and make between $32,000 and $44,000 a year, you may have to pay income tax on up to half of your money. Up to 85% of your payments may be taxed if they are more than $44,000.
Because about 60% of Americans do not have to pay federal income taxes on their Social Security income, this means that most of them live off of their benefits or less than $25,000 a year ($32,000 for couples filing jointly). Since this is the case, this tax cut would only help wealthy taxpayers who do not need any extra money.