There are expected changes to theSocial Security program.Every year it goes through minor adjustments to help keep the program relevant and accessible to beneficiaries, but this 2025 because of the presidential election, there may be a change not many are expecting.

President-Elect Trumpmentioned when campaigning that, if he won, he would eliminate thefederal income taxonSocial Security retirement benefits.As a campaign promise this sounded really good to his new constituents, especially since retirees make up a large portion of his base, but this might not be a good ide if implemented, and the same people clamoring for the abolition of the taxes will the ones impacted the most.

The Cost of Eliminating the Federal Income Tax from Social Security

To know if this is a good idea we need to start by doing some math. At the end of 2021, nearly 47.3 million people were gettingSocial Security retirement benefits,with an average payout of $21,228 per year according to data from theSocial Security Administration (SSA).It adds up to a little over $1 trillion in total payments.

If we make some assumptions about taxes, like that 75% of those benefits were taxed (about $753 billion) and that the amount is split evenly between two groups: one where 50% of their benefits are taxable and another where 85% are. Let s also assume the 50% group falls into a 12% tax bracket and the 85% group is taxed at 24%.

Crunching the numbers, the 50% group would save around $45.18 billion in taxes, while the 85% group would save about $90.35 billion. Together, that s roughly $135.53 billion in tax savings. To put it in perspective, that s about 2.7% oftotal federal revenue.So, ifSocial Security benefitsweren t taxed, the government s revenue would shrink by that percentage.

While these are a lot of assumptions, the numbers seem to agree with the tax exemption in this scenario. The extra money that this would put in the hands of retires could be lifechanging if this were the reality. It would boost the economy and allow for more spending on non necessity items.

But the sad reality is that most retirees do not have enough savings for retirement, and many have no private savings whatsoever, meaning they almost fully rely onSocial Security benefits. This might surprise people, butSocial Security benefitsare not taxed on their own, what is taxed is calledcombined income.According to theSSAonly about 40% of people who getSocial Securitymust payfederal income taxeson their benefits, which is a lot less than the previous math suggested.

Yourcombined incomeis calculated by adding your adjustedgross incomeyou re yournontaxable interest(like interest form bonds) plus of yourSocial Security benefits. Once that is all added, you can see if your income will be taxed.

If you file afederal tax returnas an individual and yourcombined incomeis between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. If it is more than $34,000, up to 85% of your benefits may be taxable.

If you file a joint return, and you and your spouse have acombined incomethat is between $32,000 and $44,000, you may have to payincome taxon up to 50% of your benefits. If it is more than $44,000, up to 85% of your benefits may be taxable.

Since about 60% of Americans do not have to payfederal income taxeson theirSocial Security income, this means most of them are living just solely off theirSocial Security benefitsor under $25,000 dollars a year ($32,000 for couples filing jointly) and considering that these are the majority, only the wealthier taxpayers, who already do not need more income, would benefit from this particulartax cut.

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