About four in 10 beneficiaries will pay federal income taxes on Social Security benefits. In the short term, many recipients would save money if taxes on Social Security benefits were reduced, but experts warned that this would reduce the amount of money that goes into the trust funds that fund the program. Social Security is already experiencing funding issues.
According to the Committee for a Responsible Federal Budget, a nonprofit organization focused on public policy, the trust funds are likely to be drained within a decade, and Trump’s plan to cut taxes on Social Security benefits might accelerate insolvency by three years.
According to the CRFB, beneficiaries might face a 33% reduction in their benefits, which is higher than the Congressional Budget Office’s current estimate of 23%.
A beneficiary’s eligibility for and amount of Social Security income taxes are determined by two levels. Individuals without a spouse who make between $25,000 and $34,000 in 2024 would be required to pay taxes on as much as 50% of their Social Security benefits. They may have to pay taxes on up to 85% of their benefits if their income exceeds that threshold.
According to the SSA, taxpayers who file joint returns may be required to pay taxes on up to 50% of their benefits if their income is between $32,000 and $44,000 or up to 85% if their income is over that threshold. “Combined income,” which is the total of an individual’s adjusted gross income, nontaxable interest, and half of their Social Security payments, is the basis for these numbers.
Based on Andrew Biggs’s claim, a senior scholar at the American Enterprise Institute, Social Security is funded through payroll taxes (workers and employers contribute a combined 12.4% on up to $168,600 in income) and Social Security benefits taxes. In the 2024 trustees’ report, it is anticipated that the revenue derived from benefit taxes will continue to increase.
More money will be taken in through this revenue stream as the years pass because the income thresholds have not altered, but people’s incomes and benefit amounts rise with time.
