How the budget bill affects Social Security

If you are a retiree on Social Security, you likely received a letter from the Social Security Administration applauding the budget bill passed by Congress in early July. This type of letter from the SSA is highly unusual, both because of its political nature and its misleading claims.

Financial experts are critical of the claims in the letter. Here is a breakdown of what the letter claims and how the bill affects Social Security beneficiaries 65 and older (financial information obtained from Kiplinger):

Claim: Nearly 90% of Social Security beneficiaries will no longer pay federal income taxes on their benefits.

What the bill actually does: The bill does not repeal taxation of benefits. It adds a temporary deduction that may reduce or eliminate taxes for some seniors.

How it affects seniors: Seniors with only Social Security income won’t be affected if they already pay no income tax.

Claim: Provides meaningful and immediate relief to seniors.

What the bill actually does: The deduction may help some seniors but it phases out for individuals earning over $75,000 or couples earning over $150,000.

How it affects seniors: Seniors with the average benefit of $2,000 per month plus pension or investment income may benefit if their total income stays under the threshold.

Claim: Eliminates federal income taxes on Social Security benefits for most beneficiaries.

What the bill actually does: The bill does not change IRS rules.

How it affects seniors: Seniors with income over $25,000 (single) or $32,000 (joint) may still owe taxes on up to 85% of benefits.

Claim: Reaffirms President Trump’s promise to protect Social Security.

What the bill actually does: The bill does not include any protections, expansions or funding guarantees for Social Security.

How it affects seniors: Benefits, eligibility and COLAs remain unchanged. No trust fund protections were added.

Claim: Enhanced deductions for taxpayers aged 65 and older.

What the bill actually does: The bill adds a $6,000 deduction (single) and $12,000 (joint), but only below the threshold of $75,000 (single) and $150,000 (joint)

How it affects seniors: A helpful boost for middle income seniors if their income qualifies.

Claim: Historic tax relief for seniors.

What the bill actually does: The bill provides a temporary deduction, not structural reform.

How it affects seniors: Any benefit is short term; the changes expire in 2028.

What the letter doesn’t disclose is that the Social Security Trust Fund is running out of money.

The trust fund was established when payroll taxes coming in exceeded benefits paid out. These reserve funds are now being drawn down because money coming in from wage earners is less than money going out to beneficiaries.

There is enough money in the trust fund to fill that gap until about 2032. If Congress does nothing to address this gap, benefits could be reduced by 20-25%. For a retiree receiving $2,000 per month, that reduction would result in a loss of $400-$500 in monthly benefits.

Congress has known about this problem for decades but has shown little desire to fix it …

There is a way to reduce the funding gap significantly: Eliminate the cap on earnings. Social Security is an earned benefit and a financial safety net for millions of beneficiaries.

This will do the most to benefit the working class.

Becky Birch,

Marengo