7 Things That Could Happen if Social Security Benefits Stop Being Taxed

President Donald Trump has pledged to eliminate federal taxes on Social Security benefits during his 2024 campaign, but the current "One Big Beautiful Bill" does not repeal federal taxes on Social Security benefits.

Instead, due to Senate procedural rules and concerns about revenue and funding, it includes a temporary expansion of the standard deduction for taxpayers aged 65 and older. This change won't eliminate Social Security taxes outright, although it may give meaningful tax relief. If taxes are permanently eliminated, the potential impact on the financial health of both Social Security and Medicare raises serious concerns.

Here's a closer look at the pros and cons of Trump's promise being fulfilled.

Eliminating federal taxes on Social Security benefits would mean extra cash in retirees' pockets, especially for middle- and upper-income households. Currently, retirees with incomes above certain thresholds pay taxes on up to 85% of their benefits.

Removing this tax could help middle-income households get ahead financially. Those making between $63,000 and $200,000 annually would save between $1,190 and $1,430 per year, according to a Kiplinger report.

The highest-income households — the 0.1%, or those making about $5 million or more annually — could see a tax savings of $2,500 per year.

Whether your Social Security benefits are taxed depends on your combined income — the sum of adjusted gross income, nontaxable interest and one-half of Social Security benefits.

Retirees earning $25,000 or less a year — or $32,000 for married couples filing jointly — in combined income already receive Social Security benefits that are generally tax-free.

That means Trump's proposal wouldn't help the lowest-income seniors — the ones who might need financial relief the most. Instead, the biggest benefits would go to those with higher retirement incomes who already pay taxes on their Social Security.

Retirees in the middle-income bracket — those making between $63,000 and $200,000 annually — find that Social Security taxes take a noticeable bite out of their checks.

Eliminating these taxes would save these folks more than $1,000 a year, making it easier to pay for the rising costs of health care, housing, and everyday expenses.

While not a game-changer for everyone, eliminating taxes would ease financial pressure on millions of middle-class retirees.

Social Security already faces financial challenges, with its trust fund projected to run dry by 2036.

In 2024, federal taxes on benefits generated about $94 billion per year in revenue, according to the Committee for a Responsible Federal Budget. That money is used to help fund future payments.

If the revenue disappears, policymakers might have to reduce benefits or find alternative funding sources, which could put retirees at risk in the long run.

The current thresholds for taxing Social Security benefits were established in 1984, and its income thresholds have never been adjusted for inflation since that time.

This means more retirees are paying taxes on their benefits now than when the system was first introduced. Eliminating these taxes would correct what some see as an outdated and unfair burden on seniors who worked their whole lives to earn these benefits.

Eliminating Social Security taxes might also make things worse for Medicare. Currently, a sizable portion of the money earned from taxing Social Security benefits ends up in Medicare's Hospital Insurance Trust Fund.

If the proposed tax cuts to Social Security take effect, lawmakers would have to find other ways to cover the Medicare funding gap — potentially including higher premiums or reduced benefits for retirees.

Some senior advocacy organizations support eliminating Social Security taxes.

For example, The Senior Citizens League estimates that this change could save the average senior household about $3,000 annually, providing meaningful relief for retirees.

Eliminating federal taxes on Social Security benefits sounds like a win for retirees, but it wouldn't help everyone equally and could have long-term negative consequences for Social Security and Medicare.

The financial impact would depend on how lawmakers address the funding gap left behind. Keeping an eye on how this proposal moves forward is important as you prepare for retirement.