Donald Trump is preparing to take office again in about a month after defeating Vice President Kamala Harris in the recent election. Among various commitments made during his campaign, one stand-out promise was his intention to abolish taxes on Social Security benefits for retirees.

It’s important to differentiate this from Social Security payroll taxes, which workers contribute to and are the main funding source for the program. The tax Trump aims to eliminate is an additional tax that retirees pay if their income surpasses certain levels.

At first glance, Trump’s proposal may appear to be entirely beneficial for retirees, especially for those facing financial struggles due to insufficient savings and the decreasing purchasing power of Social Security. However, there is an underlying concern that this approach might ultimately cause more harm to seniors in the long run.

Understanding Social Security benefit taxes

Social Security benefit taxes were introduced in 1984, with a second tier added ten years later. Since their implementation, the guidelines for these benefit taxes have remained unchanged.

Retirees may be taxed on a portion of their benefits depending on their provisional income—this includes their adjusted gross income (AGI) along with any nontaxable interest earned in the year, plus half of their annual Social Security benefits. The table below summarizes how much of their benefits might be taxed based on provisional income and marital status:

Source: Social Security Administration.

It’s critical to understand that this doesn’t necessarily mean you could lose up to 85% of your benefits. It suggests that the government might tax as much as 85% of your benefits at your regular income tax rate.

This is still a significant issue for retirees, especially considering that the income thresholds for these benefit taxes haven’t been updated in over 30 years. As benefits rise, increasingly more retirees find themselves subject to these taxes annually.

Many understandably desire the removal of this tax, which would provide seniors with additional funds to alleviate the impact of Social Security’s 20% decline in purchasing power since 2010. Yet, the consequences of such a change could backfire significantly in the future.

Why eliminate the income tax on Social Security benefits could be problematic?

Abolishing the Social Security benefit tax would remove one of only three funding sources for the program; the others being the payroll taxes from workers and the interest generated by the program’s trust funds.

Social Security might temporarily offset this loss by pulling more funds from the trust funds to bridge the gap from reduced payroll taxes. However, this is only a short-term fix. Currently, even with the benefit taxes in place, the program is projected to fully sustain benefit payouts until around 2035, at which point trust fund reserves are expected to run dry. Without government intervention to increase funding, retirees could face a 23% reduction in benefits.

Removing the Social Security benefit tax would likely hasten this depletion. A 23% cut could negatively affect seniors more than the current taxation on a portion of their benefits.

A glimmer of hope

While Trump has promised to abolish these taxes, it’s not entirely within his authority to make it happen. Congress would need to enact a law to eliminate this tax, and even with a Republican majority in both the House and Senate, achieving this could still be a challenge.

At the very least, it’s unlikely that any changes will take effect immediately in 2025. Whether this will occur in the future remains to be seen. If it does, it would likely accompany broader reforms to ensure the program’s viability for future generations.

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