“I will govern by a simple motto: Promises made, promises kept.”

President-elect Donald Trump said those words during his victory speech on Nov. 6, 2024. He made multiple promises during the presidential campaign. One pledge was especially important for America’s senior citizens.

Federal taxes on Social Security benefits could be eliminated if Trump has his way. But there’s a dark cloud with this silver lining for retirees.

Image source: Official White House photo by Shealah Craighead.

More money in retirees’ pockets

Many retirees don’t pay state income taxes on their Social Security benefits. Nine states don’t have income taxes at all. Another tax income but not retirement income from Social Security, 401(k) plans, IRAs, and pensions. Twenty-seven other states exempt Social Security benefits from income taxes. However, it’s a different story with federal income taxes on Social Security benefits for around 40% of retirees.

Currently, anyone who files an individual federal tax return with a combined income (the sum of adjusted gross income, nontaxable interest, and half of Social Security benefits) of between $25,000 and $34,000 may have to pay federal income taxes on up to 50% of their benefits. If they make more than $34,000, federal income taxes may apply to up to 85% of their Social Security benefits.

Couples filing joint returns with a combined income between $32,000 and $44,000 could have up to 50% of their Social Security benefits subject to federal taxes. Those who make more than $44,000 could have to pay federal taxes on up to 85% of their benefits. Married couples who file separate tax returns will probably have to pay federal income taxes on their benefits.

However, the incoming Trump administration could push to do away with these federal taxes. The net effect would be more money in many retirees’ pockets.

Paying the price

While eliminating federal taxes on Social Security benefits sounds great, there’s a major downside with this change. The taxes on benefits are used to help fund Social Security.

Throughout much of Social Security’s history, benefits weren’t taxed at the federal level. However, the taxation of benefits began in 1984 as part of a bipartisan plan to bolster Social Security financially.

Eliminating the federal taxes on benefits isn’t the only Trump proposal that could impact Social Security. The president-elect also wants to implement other changes that could reduce the amount of funding for the program, including eliminating taxes on tips and overtime.

The nonpartisan Committee for a Responsible Federal Budget estimates that the key proposals put forward by Trump would increase Social Security’s 10-year cash deficit by roughly $2.3 trillion through fiscal year 2035. It also projects that Trump’s proposals would cause Social Security’s trust funds to run out of money three years earlier than expected.

Trump stated during his presidential campaign that he would address Social Security’s financial challenges by increasing domestic oil and gas production. However, the Committee for a Responsible Federal Budget’s analysis found that increased drilling would likely have no meaningful positive impact on Social Security’s finances.

Don’t count on this Trump pledge just yet

Any revisions to Social Security would need at least 60 Senate votes to override an almost certain filibuster by Democrats. It could be hard for the GOP to pick up the needed Democratic votes to pass a bill that eliminates federal taxes on Social Security benefits.

Maybe, though, the proposal to eliminate taxes on Social Security could spur a broader discussion about how to keep the program solvent over the long term. This is a conversation that’s much needed on Capitol Hill. Even if Trump can’t fulfill his pledge to end federal taxation of benefits, Social Security’s trust funds are on course to be depleted by 2035 with steep benefit cuts to follow unless major reforms are made.

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