Social Security Recipients Just Got a Tax Break - But it Comes With an Expiration Date

When you think about the most important benefits for seniors today, Social Security probably comes to mind. And even though the average monthly check today is only $2,086, for many older Americans, those benefits can spell the difference between being able to cover expenses versus struggling to pay for basic necessities.

But if you're on Social Security, you may not actually get to keep your benefits in full. That's because Social Security benefits are subject to taxes at the federal level for some earners.

A temporary tax break is currently helping many Social Security recipients avoid having their benefits taxed, but that could change in just a few years.

Why Social Security benefits get taxed

Social Security benefits are earned by paying taxes on wages. So to a lot of people, it's unfair to tax those benefits.

The reason those taxes exist is to treat Social Security benefits like other types of retirement income, which may be subject to taxes. Plus, the revenue from taxes on benefits goes right back into Social Security, helping to strengthen the program.

There are some Social Security recipients who have to pay federal taxes on their benefits and some who do not. Whether those taxes apply depends on provisional income.

Provisional income is the sum of modified adjusted gross income plus 50% of annual Social Security benefits. For single tax-filers with a provisional income between $25,000 and $34,000, up to 50% of Social Security benefits can be taxed. The same rule applies to joint tax-filers with a provisional income between $32,000 and $44,000.

Single tax-filers with a provisional income above $34,000, on the other hand, can be taxed on up to 85% of their Social Security benefits, as can joint tax-filers with a provisional income of more than $44,000. The initial 50% tax threshold was established in 1984, and the 85% tax threshold was established in 1993.

Why "no tax on Social Security" is only temporary

When he was running for president, Donald Trump said a big goal of his was to eliminate taxes on Social Security benefits. But while his One Big Beautiful Bill Act (OBBBA) created a big tax break for seniors, it only made that break temporary.

The OBBBA created a $6,000 deduction for eligible seniors ages 65 and over. As a result of that deduction, many seniors on Social Security do not have to pay taxes on their monthly benefits. By being able to exempt $6,000 of income per person (for couples, the total deduction could be $12,000), many Social Security recipients today can lower their provisional income to the point where taxes do not apply.

However, the $6,000 senior deduction is set to expire in 2028. Once that happens, more seniors could owe taxes on the Social Security benefits they receive.

Lawmakers might hesitate to implement an extension

Of course, just because the OBBBA's $6,000 senior tax deduction is set to expire in 2028 doesn't mean it won't be extended. Lawmakers could choose to keep that deduction in place for longer.

But Social Security is facing the possibility of broad benefit cuts in a few years if Congress doesn't find ways to strengthen the program's finances. Since taxes on benefits are a key source of revenue for Social Security, extending the $6,000 senior deduction only plunges the program deeper into a hole. Lawmakers are aware of this, which is why an extension of the tax break many seniors are enjoying today isn't as likely as some might hope.

More seniors could owe taxes on benefits in the future

Even if the $6,000 senior tax deduction becomes a permanent fixture of the tax code, it doesn't mean that seniors who are exempt from paying taxes on Social Security benefits today won't have to pay them in the future. That's because Social Security benefits themselves are likely to rise over time. And since those benefits are part of the provisional income formula, that puts more seniors at risk.

As mentioned earlier, the provisional income thresholds were established decades ago and have not changed since they were implemented. But Social Security benefits are eligible for a cost-of-living adjustment (COLA) every year. Because the provisional income formula doesn't have an inflation adjustment, more seniors are likely to be taxed on their Social Security in the future as their benefits themselves increase.

Bottom line

There are many seniors today who are living on just Social Security. Typically, those who don't have outside income don't face taxes on their monthly benefits.

But if you do have income outside of Social Security and you're exempt from paying taxes now thanks to the $6,000 tax deduction, you may not want to get too used to that tax break. If the senior deduction goes away in 2028, you could soon find yourself paying taxes on your monthly benefits.

As such, now's the time to start planning financially rather than assume lawmakers will extend the $6,000 deduction. Given that Social Security desperately needs revenue, a better bet is to figure that your tax break will go away and work with an advisor or accountant to come up with strategies to keep your taxes as low as possible.

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