Unpacking Trump's Social Security Promise: A Closer Look at the "Tax Break"

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00:00Do Social Security taxes disappear with Trump's reform?

00:04Despite claims from the White House and the Social Security Administration that the reform

00:09introduced by President Donald, Trump's Big Beautiful bill will lead to the elimination

00:15of federal income taxes on Social Security benefits for most beneficiaries experts widely

00:20agree that these taxes do not disappear.

00:24The White House stated that under the one big beautiful bill, 88% of all seniors receiving

00:30Social Security would pay nitrogen monoxide tax on their benefits, calling it the largest

00:37tax break in history for America's seniors.

00:40The SSA similarly claimed the legislation eliminates federal income taxes on Social Security benefits

00:48for most beneficiaries and that nearly 90% of beneficiaries would no longer pay these

00:53taxes.

00:55These figures were based on an analysis from the Council of Economic Advisers.

00:59However, policy experts describe these claims as misleading and not accurate.

01:05The legislation does not eliminate taxes on Social Security benefits.

01:10One key reason it was impossible to eliminate these taxes under the bill was a congressional

01:14restriction known as the Byrd Rule, which limits what can be included in a budget reconciliation

01:20bill.

01:21What the reform actually does?

01:23A temporary tax deduction.

01:26Instead of eliminating taxes, the reform introduces a new temporary additional tax deduction

01:32for beneficiaries.

01:34While the legislative tax referred to it as a bonus, it's technically a deduction that

01:38reduces the amount of income subject to taxes, not a direct payment or bonus check like

01:44those issued during COVID.

01:46Here are the key details of this temporary deduction.

01:49Amount eligible individuals aged 65 and older can claim a deduction of up to $6,000.

01:57And married couples where both are 65 or older can claim up to $12,000.

02:04Eligibility and income thresholds.

02:06It's only available for taxpayers 65 years or older.

02:11Beneficiaries under 65 are not eligible.

02:14The full deduction is available for single filers with a modified adjusted gross income of up to

02:20$75,000 for married couples filing jointly.

02:24The full deduction is available for a MAGI up to $150,000 phase out.

02:31The deduction gradually phases out for incomes above these thresholds.

02:35It is fully phased out for individuals making $175,000 and for couples making $250,000.

02:43Application.

02:44This deduction applies to a senior's total income.

02:48Not just social security benefits, it's an above-line deduction, meaning it's subtracted

02:54from gross income to calculate adjusted gross income, which can indirectly reduce tax

03:00liability on social security benefits.

03:03Crucially, this deduction is only set for tax years 2025 through 2028.

03:11This means that it will expire at the end of 2028.

03:15And beginning January 1, 2029, this specific tax relief will no longer be available.

03:21Who benefits and who doesn't?

03:23While some seniors may receive tax relief, the impact of this deduction is not universal.

03:29Middle-income seniors are projected to benefit the most.

03:33Specifically, those with incomes between $50,000 and $200,000 are estimated to see the most benefit.

03:41Low-income seniors who already pay no federal income tax on their benefits because their

03:47income is too low will not benefit from this deduction.

03:50As one expert noted, boosting the amount that you get to write off when you already get to

03:56write off everything does not help you at all.

03:59Those under 65 years old are ineligible.

04:02Individuals with incomes too high to qualify for the deduction or who are beyond the phase-out range will also not benefit.

04:10The Urban Brookings Tax Policy Center estimates that fewer than half of older adults will benefit from this senior deduction.

04:18Even for those who do benefit, the deduction aims to reduce rather than eliminate their taxes on benefits.

04:25They will simply see fewer taxes.

04:29Impact on Social Security funding experts.

04:32Also caution that despite the administration's claims of protecting Social Security, these provisions

04:38could actually weaken the program's financial state by reducing the tax revenue it receives.

04:43The additional senior deduction is estimated to reduce the taxation of Social Security.

04:49Benefits by approximately $30 billion per year.

04:54This could accelerate the projected insolvency date for the Social Security trust fund dedicated

04:59to retirement benefits to late 2032.

05:03Moving it up from the previously projected date of early 2033, the Penn Wharton budget model estimates

05:09that eliminating income taxes on Social Security benefits would lower federal revenue.

05:15By $1.5 trillion over 10 years and increase federal debt by 7% by 2054.

05:22Money Explainers

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