Social Security benefits are taxed at the federal level for retirees whose combined income exceeds $25,000 individually or $32,000 for couples. Trump’s OBBBA introduced a $6,000 tax deduction for seniors until 2028, with phase-outs for incomes over $75,000. Eliminating taxes on benefits could deplete Social Security’s trust funds by 2032.

The Congressional Research Service found that the share of Social Security benefits paid as federal income taxes rose from 2.2% in 1994 to 6.6% in 2022. About 50% of recipients pay federal taxes on benefits, projected to rise to 56% by 2050. Eliminating taxes could lead to benefit cuts as early as 2031.

High-income seniors could gain up to $100,000 in lifetime welfare if taxes on Social Security were eliminated, while younger workers could lose $10,000. However, this move could reduce government revenue by $1.5 trillion over 10 years and deplete trust funds by 2032, leading to benefit cuts of up to 33%.

Lawmakers are hesitant to eliminate taxes on benefits due to Social Security’s funding shortfall. The OBBBA introduced a temporary $6,000 tax deduction until 2028. Advisers suggest diversifying investments and savings to prepare for potential changes in Social Security benefits.

Projections indicate a 23% reduction in benefits once trust funds run out, potentially increasing to 33% if taxes are eliminated. The Committee for a Responsible Federal Budget warns of benefit cuts by 2031. Working with a financial advisor can help navigate the impact of changing policies on retirement planning.

Read more at Yahoo Finance: Donald Trump promised tax-free Social Security for seniors. So what’s the holdup?