Social Security and Income Taxes: Looking Beyond the $6,000 Bonus Deduction - The Senior Citizens League; AMAC
At this point, it’s pretty well understood that the 2025 “One Big Beautiful Bill Act” provides a “bonus” income tax deduction intended to offset (for most seniors) the impact of federal income tax levied on Social Security benefits. It’s also generally understood that this workaround is temporary, applicable to tax years 2025 through 2028, and available to only those taxpayers age 65 and over. As the Trump Administration notes, that’s good news for an estimated 88 per cent of qualifying tax filers, providing welcome relief from the additional tax burden on Social Security benefits.
But what comes after tax year 2028? It’s also becoming more widely understood that Social Security faces a financial disaster in 2032 when its accumulated trust fund reserves are fully depleted. That would leave a mere four years for Congress to act to address the problem and avert a projected 20% to 25% across-the-board benefit cut, something that would be catastrophic for millions of vulnerable seniors. That’s the larger problem, but what about the more immediate issue of taxation of Social Security benefits?
Enter the newly reintroduced You Earned It, You Keep It Act.
Representative Angie Craig of Minnesota and Senator Ruben Gallego of Arizona are currently on record with bills (H.R. 2909 and S. 2716, respectively) that would “repeal the inclusion in gross income of social security benefits” and provide changes to offset the loss of revenue for the program. Daisy Brown, Legislative Liaison for The Senior Citizens League, offers commentary on the Bills’ scope in a recent post on their website, noting that offsetting payroll tax revenue would extend Social Security’s solvency an estimated 24 years.
But what about the longer term?
The impending financial disaster referred to earlier will require a more robust set of adjustments to Social Security’s overall structure to meet the challenges of the 21st-century economy. Many organizations have been actively developing proposals that will hopefully find their way to Congress sooner rather than later to help solve this dilemma. As an example of leading thinking on reforming Social Security, the Association of Mature American Citizens (AMAC, Inc.) believes Social Security must be preserved and modernized to serve future generations. AMAC’s position is that this can be achieved without payroll tax increases through relatively minor program modifications, including changes to the cost-of-living adjustment (COLA) process and modifications to the formulas for calculating initial benefits for higher-income beneficiaries. Changes to the age for maximizing benefits are included in AMAC’s position, along with (1) an increase in the thresholds where benefits are subject to income tax; (2) indexing of these thresholds annually to account for inflation; (3) changing the taxable maximum formula to address the unintended loss of revenue; (4) improving survivor benefits, (5) eliminating the reduction in benefits for those choosing to work before full retirement age; and (6) improving savings tools for future retirees, including a savings account that builds estate value. AMAC is resolute in its mission that Social Security be preserved for current and successive generations and has gotten the attention of lawmakers in D.C., meeting with many congressional offices and staff over the past decade. See AMAC’s proposal for Social Security reform here.