In his victory speech on November 6, 2024, President-elect Donald Trump said these things. During his campaign for president, Trump made a lot of promises. One promise was especially important for America’s seniors.
If Trump gets his way, Social Security checks might not be taxed by the federal government.
There is a bad side to this good thing for retirees, though. People over 65 who get Social Security often do not pay state income taxes on their checks. In nine states, there are no income taxes.
Extra tax money comes from Social Security, 401(k) plans, IRAs, and pensions, but they do not give you money in retirement.
Twenty-seven other states do not tax Social Security checks like other states do. When it comes to seniors, federal income taxes on Social Security checks are a separate issue. These taxes affect about 40% of seniors.
At the moment, the federal government may tax up to half of Social Security payments as income.
This means that anyone with a combined income of $25,000 to $34,000 must report their adjusted gross income, interest that is not taxed, and half of their Social Security benefits on their one-page federal tax return.
If they make more than $34,000 a year, they may have to pay federal income taxes on up to 85% of their Social Security checks.
Also, couples who file joint returns and make between $32,000 and $44,000 a year may have to pay federal taxes on up to half of their Social Security benefits.
People who make more than $44,000 a year may have to pay federal taxes on up to 85% of their benefits. Most likely, married people who file separate tax returns will have to pay federal income taxes on their benefits.
The Trump administration may, however, try to get rid of these federal taxes. Many retirees would have more money at the end of the day.
Social Security checks increase: Someone will have to pay the price
It would be great if the federal government did not tax Social Security income, but there is a big problem with this plan: Social Security is partly paid for by taxes on beneficiaries’ benefits.
For a lot of its history, federal taxes were not taken out of Social Security checks. But in 1984, benefit taxes were put in place as part of an effort by both parties to make Social Security’s finances stronger.
There are other ideas besides Trump’s that could affect Social Security, like getting rid of federal taxes on payments. Among other things, the president-elect wants to get rid of taxes on overtime and tips, which could hurt the program’s funding.
A nonpartisan group called the Committee for a Responsible Federal Budget says that Trump’s main plans would add about $2.3 trillion to Social Security’s 10-year cash deficit until fiscal year 2035.
It also says that under Trump’s policies, Social Security’s trust funds would run out three years earlier than planned.
During his campaign for president, Trump said that he would increase the production of oil and gas in the United States to fix Social Security’s money problems.
The Committee for a Responsible Federal Budget, on the other hand, found that more drilling probably would not have a big positive effect on Social Security’s budget.
Americans shouldn’t rely on this Trump promise just yet
Any changes to Social Security would need at least 60 votes in the Senate to get past the almost certain Democratic filibuster. It might be hard for the GOP to get the Democratic support they need to pass a bill that gets rid of federal taxes on Social Security checks.
Still, the plan to get rid of Social Security taxes could lead to a more in-depth discussion about how to keep the program going in the long term.
We really need to have this talk on Capitol Hill. By 2035, Social Security’s trust funds are expected to run out, which will mean big cuts to benefits if big changes are not made, even if Trump can not keep his promise to stop taxing payments at the federal level.
