Trump Promised No Tax on Social Security - Here's What the Law Actually Changed

Social Security is one of the most important benefits for seniors today. And without it, a large number of older Americans would no doubt struggle to make ends meet.

But seniors do not automatically get to keep their entire Social Security paychecks in full. Those benefits can be subject to federal taxes based on recipients' income.

During his presidential campaign, Donald Trump pledged to get rid of taxes on Social Security benefits. But while his One Big Beautiful Bill Act (OBBBA) has let many seniors off the hook with regard to those taxes for now, it's only a temporary reprieve.

How taxes on Social Security benefits work

Many seniors assume that because Social Security benefits are earned by paying taxes on wages, they won't be subject to taxes on those benefits in retirement. But that's not true.

Some Social Security recipients do have to pay taxes on their benefits. Whether those taxes apply hinges on provisional income.

Provisional income is calculated by taking modified adjusted gross income (MAGI) and adding it to 50% of recipients' annual Social Security benefits. If someone has a MAGI of $20,000 and they get $2,000 a month in Social Security for a total of $24,000 in benefits per year, their provisional income amounts to $32,000.

Retirees who file a tax return as single with a provisional income between $25,000 and $34,000 can be subject to taxes on up to 50% of their Social Security benefits. The same applies to retirees who file a joint tax return with a provisional income between $32,000 and $44,000.

Single tax-filers with a provisional income above $34,000, meanwhile, can face taxes on up to 85% of their Social Security benefits. The same holds true for joint tax-filers with a provisional income of more than $44,000.

What the OBBBA changed temporarily

Trump's OBBBA did not get rid of taxes on Social Security benefits. Instead, what it did was create a $6,000 deduction for eligible seniors ages 65 and over.

What a tax deduction does is exempt a portion of income from taxes. Many seniors who are able to deduct an additional $6,000 from their taxable income end up with a provisional income that's below the thresholds where taxes on Social Security benefits might apply.

For example, a single tax-filer whose provisional income was $30,000 prior to the OBBBA would have potentially owed taxes on up to 50% of their Social Security benefits. But if that same person can now exempt $6,000 from that formula, their provisional income would fall to $24,000, which is below the threshold where taxes on Social Security benefits apply.

Many Social Security recipients could be in for a tax shock in 2029

While the OBBBA's $6,000 tax deduction may be helping many seniors avoid paying taxes on their Social Security benefits today, that deduction is not a permanent one. Rather, it's supposed to expire in 2028.

Lawmakers could vote to extend the $6,000 tax deduction. But if that doesn't happen, more seniors could owe taxes on their Social Security benefits in 2029 once it goes away.

An outdated formula hurts retirees

Taxes on Social Security benefits are a big blow for seniors because many people feel that after paying into the system for decades, they should be able to collect their benefits in full during retirement. But the other reason those taxes sting is that the provisional income formula is sorely outdated.

The original thresholds for provisional income were established in 1984. Then, in 1993, lawmakers introduced a second provisional income tier.

But Social Security benefits have gone up substantially since those thresholds were established due to the program's annual cost-of-living increases. Without raising the provisional income formula to account for inflation, the number of retirees who end up owing taxes on their Social Security benefits is likely to increase over time, especially if the $6,000 tax deduction is not extended.

Bottom line

There are some seniors today who are living on just Social Security. People in that situation typically do not end up facing taxes on their monthly benefits because their provisional income stays low enough.

But if you're a moderate earner or higher in retirement, your Social Security benefits could end up being taxed at the federal level. And it's important to know those taxes exist so you can prepare for them accordingly.

There may also be strategies you can use to reduce your chances of having to pay taxes on your Social Security benefits. Keeping your retirement savings in a Roth retirement account, for example, might help, because the withdrawals you take won't count toward your provisional income since they aren't taxable.

If you're worried about owing those taxes, speaking to a professional for advice is a smart move. They may be able to suggest different strategies that allow you to keep more of your benefits.

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