Would You Qualify for a Tax Cut Under Trump's "Big Beautiful Bill"?

Key Points

• The latest draft of the "One, Big, Beautiful Bill" includes an additional tax cut for seniors.

• It doesn't apply to high earners or those under age 65.

• This falls far short of President Trump's promise to end Social Security benefit taxes.

If you're a senior on Social Security, you were probably a little intrigued by President Donald Trump's promise to end Social Security benefit taxes. This tax has become a major pain point for retirees, often costing thousands of dollars and eating into their already limited budgets.

The Senate recently announced its version of the "One, Big, Beautiful Bill" (OBBB), which it claims would deliver on the president's promise and exempt 88% of seniors on Social Security from benefit taxes. However, all isn't quite what it seems. While it does promise savings for some seniors, it falls short of what many were expecting.

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The "One, Big, Beautiful Bill" doesn't end Social Security benefit taxes

President Trump repeatedly stated that he wanted to end Social Security benefit taxes, but that's not what the OBBB does. Instead, it adds a new $6,000 tax deduction for seniors ($12,000 for married couples) that they can claim on top of the standard deduction and existing senior deduction. Here's a closer look at how this adds up:

Date source: WhiteHouse.gov.

This would reduce qualifying seniors' taxable income and result in tax savings. According to a report by the Council of Economic Advisors, a single adult earning $40,000 in Social Security income and $40,000 from a 401(k) or IRA would pay about $7,190 in taxes in 2026 under current law. If you add in the OBBB senior deduction, their tax bill would drop to about $5,685. This is about a $1,500 deduction, $900 of which is attributable to the new senior deduction.

For married couples, it's a similar story. With $40,000 in Social Security income and $40,000 from a 401(k), they'd owe $3,150 in taxes under current law, but just $1,110 under the OBBB -- a savings of over $2,000.

But there are two important caveats here. First, the new senior deduction only applies to those 65 or older. Seniors aged 62 to 64 wouldn't notice any change and could still owe taxes on a substantial portion of their Social Security benefits.

Second, there are income phaseouts on the new deduction. For every $1,000 you earn over $75,000 for single adults or $150,000 for married couples filing jointly, the deduction drops by $60. That means single adults with incomes of $175,000 or more and married couples with incomes of $250,000 or more wouldn't qualify for the additional deduction and would continue to owe Social Security benefit taxes, as usual.

If you fall into either of these groups, you won't notice any tax savings from this law change. However, if you're 65 or older and below the income thresholds, you would likely notice some savings.

How this compares to eliminating Social Security benefit taxes

While any tax savings is helpful for seniors who are living on a fixed income, it's worth noting that this tax deduction doesn't accomplish President Trump's intended goal of ending Social Security benefit taxes. Truly eliminating benefit taxes would've had an even more pronounced tax reduction for seniors.

Consider a single 65-year-old senior who earns $24,000 annually from Social Security and withdraws $40,000 from their 401(k) in 2025. The following table breaks down how much they'd owe in taxes under current law, the OBB, and a scenario where the government eliminates benefit taxes altogether.

Source: Author's calculations.

It's clear that the OBBB proposal falls far short of the savings seniors would get if President Trump had actually made good on his promise to end benefit taxes. The difference between the two approaches is $1,728.

That said, eliminating benefit taxes would have its downsides, too. Those taxes are one of just three funding sources for Social Security -- a program that's only about eight years from insolvency, with no concrete plans for reform in sight. Ending benefit taxes would accelerate the time to insolvency, potentially short-changing seniors even further in the future.

It's worth noting that the OBBB tax deduction hasn't been finalized yet. The bill passed the Senate but now must return to the House for a vote. It's possible this tax deduction will undergo further changes. That's something definitely worth keeping an eye on if you're on Social Security.

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