The Social Security program is anticipated to undergo adjustments. Although little changes are made annually to maintain the program accessible and relevant for beneficiaries, the 2025 presidential election may bring about a change that few anticipate.

During his campaign, President-Elect Trump declared that he would remove the federal income tax on Social Security retirement payments if elected.

Given that a sizable section of his base consists of pensioners, this sounded like a great campaign pledge to his new constituents. However, if it is put into effect, the same individuals who are demanding tax abolition would be the ones who suffer the most.

The Cost of Eliminating the Federal Income Tax from Social Security

We must first do some mathematical calculations to see if this is a reasonable idea. As of the end of 2021, Social Security retirement payments were paid to around 47.3 million people, with an average distribution of $21,228 per year, according to figures from the Social Security Administration (SSA). Slightly over $1 trillion has been paid in total.

Assuming certain tax assumptions, such as that 75 percent of the benefits (about $753 billion) were subject to taxes and that the money was split equally between two groups—one with 85% taxable benefits and the other with 50%. Assume further that the 85% group pays 24% in taxes and the 50% group pays 12%.

When the statistics are calculated, the 85% group would save around $90.35 billion in taxes, while the 50% group would save about $45.18 billion. This results in tax savings of almost $135.53 billion.

That is around 2.7% of all federal revenue, to put it in perspective. Therefore, the government’s revenue would be lowered by that percentage if Social Security benefits were not taxed.

The figures seem to support the tax exemption in this case, despite the fact that there are several assumptions. The additional funds that retirees would receive if this were to happen may transform their lives. It would boost the economy and make more money available for non-essential purchases.

The unfortunate truth is that the majority of seniors are nearly entirely dependent on Social Security benefits because they lack sufficient retirement savings, and many have no private assets at all. The fact that Social Security benefits are taxed as part of total income rather than separately may surprise some people.

Only over 40% of Social Security claimants must pay federal income taxes on their payments, according to the SSA, which is much less than what the earlier calculations indicated.

Your adjusted gross income, nontaxable interest (like bond interest), and Social Security benefits are added to determine your total income. You can calculate whether or not your income will be subject to taxes after adding everything up.

You might have to pay income tax on up to half of your benefits if you are an individual filing a federal tax return and your total income is between $25,000 and $34,000. You may be taxed on up to 85% of your benefits if they exceed $34,000.

You might have to pay income tax on up to 50% of your benefits if you and your spouse file a joint return and your combined income is between $32,000 and $44,000. You may be taxed on up to 85% of your benefits if they exceed $44,000.

Most Americans either live entirely off of their Social Security benefits or make less than $25,000 annually ($32,000 for couples filing jointly) because over 60% of them are exempt from paying federal income taxes on their payments. Only the wealthier taxpayers, who currently do not need additional money, would profit from this tax cut in light of this.

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