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Retirees will enjoy a generous new tax break in 2026, courtesy of the One Big Beautiful Bill Act. Eligible taxpayers who are 65 and over and whose income doesn’t exceed allowable limits will be able to take advantage of a new $6,000 increase to the standard deduction. This means a married senior couple could deduct as much as an extra $12,000 from their income tax bill.
The Trump Administration also raised the standard deduction, on top of the added savings provided to seniors, so single filers who are 65 and over can now deduct $23,750 from their taxes, and married joint filers can deduct $46,700 — provided they don’t exceed income limits. These tax breaks will remain in effect through 2028, saving seniors a fortune.
While that may seem like a good thing, the Center for Retirement Research has a strong warning about what it will mean for the future of Social Security benefits — and retirees need to pay attention.
Trump’s new tax break could create big problems for Social Security recipients
According to the Center for Retirement Research, the big problem with the new tax break in the One Big Beautiful Bill Act is the impact that it will have on Social Security.
As the CRR’s report states, “First of all, it should be noted that this tax break worsens the tenuous fiscal condition of Social Security. Social Security actuaries estimate that the new tax provisions will move up the trust fund depletion date by roughly six months – from the 3rd quarter to the 1st quarter of 2034.”
This may seem surprising because, despite a promise to eliminate tax on Social Security, the rules for taxation of retirement benefits actually remain unchanged. The thresholds at which benefits start to become taxable are $25,000 in provisional income for single tax filers and $32,000 for married joint filers (with provisional income equal to half of all Social Security benefits plus all taxable and some non-taxable income).
The reason is simple, though.
While the OBBBA left the Social Security tax rules untouched, it reduced taxable income by enough that it mostly eliminated Social Security tax for many people and entirely eliminated it for others. “Although the new tax provision does not explicitly eliminate taxes on Social Security, it will reduce taxes for many filers age 65+,” CRR summed up.
Why is this such a problem for Social Security?
The fact that fewer people are going to be taxed on Social Security, and that those who do pay taxes on Social Security may pay less because their income goes down, is not good news for the retirement benefits program because the program gets its funding from:
- Social Security taxes paid by current workers
- Interest on the trust fund (which is soon to be depleted)
- Revenue collected from taxes paid on Social Security by retirees
Reducing the income coming in from one of the revenue sources isn’t ideal when there’s already too little money.
Ultimately, the issue comes down to the fact that Social Security is on a dangerous trajectory, and if lawmakers don’t take action in the coming years, automatic benefit cuts are going to get harder and harder to prevent. The OBBBA is just bringing that day a little closer.