In a celebratory email sent to Americans across the country, the Social Security Administration praised the Trump administration’s sprawling budget and tax bill and said it eliminated federal income taxes on most retirees’ benefits.
But that’s not exactly what it does.
Many retirees quickly took notice, with several writing to me and colleagues to question some of the agency’s statements, while pointing out what felt to them like unusually partisan language.
The agency’s embrace of the legislation, which was signed into law by President Trump on Friday, was also at odds with the effect it is expected to have on the program’s financial health. The law is projected to further weaken Social Security’s revenues at a time it is already facing a financing shortfall.
Eliminating taxes on Social Security, along with taxes on tips and overtime, was one of Mr. Trump’s often-repeated campaign promises.
The email, which went out on Thursday, said the new law “includes a provision that eliminates federal income taxes on Social Security benefits for most beneficiaries,” and, “additionally, it provides an enhanced deduction for taxpayers aged 65 and older.”
But the enhanced deduction will help reduce households’ tax bills on their overall income, including Social Security income. “The S.S.A. statement implies there is a direct tax cut on Social Security benefits,” said Howard Gleckman, a senior fellow at the Tax Policy Center, a nonpartisan think tank, “which there is not.”
Instead, older single filers will get the extra $6,000 deduction ($12,000 for couples), as long as their income falls under a certain ceiling (below $75,000 for single filers or $150,000 for married joint filers). Above those income levels, the deduction begins to decrease, and it goes away once single taxpayers’ income reaches $175,000 ($250,000 for couples).
Nor will the extra deduction benefit all Social Security recipients. Retirees who are 62 through 64 are ineligible.
And since the income of more than half of Social Security recipients is too low to be taxed anyway, lower income people won’t be helped much. The new break is expected to benefit middle- and upper-middle-class households, tax policy experts said. (Recipients who earn less than $63,300 owe an average of 1 percent of their Social Security benefits in taxes, according to an analysis from the Center on Budget and Policy Priorities.)
“It is discouraging to see such misrepresentation by the administration and the Social Security Administration,” said Martha Shedden, president of the National Association of Registered Social Security Analysts, a group that offers guidance to consumers and financial professionals on making Social Security decisions.
The Tax Policy Center estimates that about 46 percent of older adults, most of whom earn about $50,000 to $200,000, will get some benefit from the new deduction, though most of them will still owe some tax, Mr. Gleckman added.
Under current law, an estimated 64 percent of beneficiaries did not owe taxes on their Social Security benefit, and the new deduction would boost that number to 88 percent, according to an analysis in June from the White House Council of Economic Advisers.
Frank Bisignano, the commissioner of the Social Security agency said in the email, “By significantly reducing the tax burden on benefits, this legislation reaffirms President Trump’s promise to protect Social Security and helps ensure that seniors can better enjoy the retirement they’ve earned.”
The email also says that “nearly 90 percent of beneficiaries will no longer pay federal taxes on their benefits.” That, too, is misleading because the deduction is temporary, only in effect for tax years 2025 through 2028. The Social Security Administration did not immediately respond to a request seeking comment.
The change will also weaken the program’s finances. Besides the payroll tax, the program’s lifeblood, the taxation of Social Security benefits adds revenue to the program’s trust funds. The taxation of benefits began in 1983, in an effort to stabilize Social Security’s finances, and is the type of measure that some policymakers say is needed again now.
Social Security’s retirement trust fund already faced a financing shortfall that, if left unaddressed, would cut millions of retirees’ crucial monthly benefits by 23 percent in 2033. The Trump administration’s bill is expected to pull that date into 2032 and deepen benefit cuts by roughly a percentage point, according to a recent analysis by the Committee for a Responsible Budget, a nonpartisan group that calls for lower deficits.
That’s because the new law reduces the amount of revenue deposited in Social Security’s trust fund by decreasing the number of older Americans paying taxes on their benefits and cutting the rates at which some of their benefits are taxed. (The law also reduces revenue deposited to Medicare’s trust fund.)
“The bill won’t end taxation of benefits, but it will cut those taxes and as a result, accelerate the looming insolvency of Social Security and Medicare,” said Marc Goldwein, senior policy director at the Committee for a Responsible Budget. The year “2032 is just around the corner, and we are not ready.”
Tara Siegel Bernard writes about personal finance for The Times, from saving for college to paying for retirement and everything in between.
The post Social Security Email Says Policy Bill Eliminates Tax on Benefits. Does It? appeared first on New York Times.
