Nearly 70 million Americans receive Social Security benefits, with about 40% owing federal income taxes.
Tax liability is determined by combined income, which includes adjusted gross income, tax-exempt interest, and half of Social Security benefits.
Single filers with incomes between $25,000 and $34,000 are taxed on up to 50% of their benefits, while those earning over $34,000 may be taxed up to 85%.
Rep. Thomas Massie (R-KY) introduced H.R. 1040, the Senior Citizens Tax Elimination Act, which seeks to exempt all Social Security benefits from federal income tax. The financial impact of this proposal has been debated.
The Senior Citizens League estimates that the average senior household could save around $3,000 annually, while the Urban-Brookings Tax Policy Center predicts a smaller average savings of about $550, mostly benefiting higher-income retirees.
According to the Tax Policy Center, those in the top 0.1% of earners, making nearly $5 million or more, could see an average tax cut of nearly $2,500 in 2025.
Since about 60% of Social Security recipients already pay no taxes on their benefits, they would see no financial relief under this proposal.
Experts warn that removing these taxes could result in a significant loss of federal revenue.
Devin Carroll, lead advisor at Carroll Advisory Group, stated that lower-income retirees, who are already exempt, wouldn’t be affected.
While eliminating these taxes would offer some financial relief, its overall impact would be relatively modest.
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