President-elect Donald Trump has made a bold promise to eliminate federal taxes on Social Security benefits. For millions of retirees, it's an enticing idea, conjuring visions of bigger monthly checks and greater financial freedom.
But while Trump's proposal might spark excitement among retirees, experts warn it's far from a done deal. Even with a Republican majority in Congress, the plan faces significant hurdles and could have unintended consequences for the future of Social Security.
Here's what Trump's promise could mean for retirees and why you shouldn't be factoring this potential change into your financial plans.
In 2024, Social Security benefits are subject to federal taxes for individuals with a combined income of over $25,000 ($32,000 for married couples filing jointly). Combined income is half of the Social Security money collected during the year and other income like pensions, wages, interest, dividends and capital gains. Depending on combined income, up to 85% of benefits can be taxable.
Trump's plan aims to eliminate these taxes entirely, allowing retirees to keep more of their monthly benefits. During the 2024 campaign, he framed this promise as part of his commitment to protect and support seniors.
"Seniors should not pay taxes on Social Security and they won't," Trump said at a campaign rally in Harrisburg, Pennsylvania back in August, according to CBS.
The message resonates with retirees burdened by rising costs of living and fears of outliving their savings.
Even with a Republican-controlled Congress, Trump's proposal would face obstacles. According to CNBC, changes to Social Security would require at least 60 Senate votes, which means some Democratic support would be needed. It could also more generally face resistance from lawmakers wary of deepening the national debt or exacerbating Social Security's funding challenges.
A 2024 report from the bipartisan Committee for a Responsible Federal Budget (CRFB) warns that eliminating taxes on Social Security benefits would "dramatically worsen" the program's financial health by accelerating the insolvency of the Social Security trust fund. The trust funds are currently projected to run dry in 2035, at which point individuals would see a 17% reduction of promised benefits, according to the latest projection from the Social Security Board of Trustees. This would leave lawmakers with difficult choices: cutting benefits, raising payroll taxes or both. The CRFB estimates that ending Social Security taxes could cost $950 billion over the next decade, further straining a program that supports more than 70 million Americans.