Recent comments by Frank Bisignano, the Social Security commissioner, that President Donald Trump’s recently passed tax and spending legislation "eliminated federal income taxes on Social Security for most beneficiaries, ensuring that retirees can keep more of the benefits they earned," is drawing criticism from Social Security groups.
Bisignano made the statement in an Aug. 14 open letter commemorating Social Security's 90th anniversary.
Social Security groups say that Bisignano’s statement, which refers to the enhanced senior deduction, is misleading.
"The OBBB introduces a temporary $6,000 deduction per senior (or $12,000 for couples) to help reduce taxable income — but it doesn’t eliminate taxes on Social Security benefits for everyone," Shannon Benton, spokesperson for the Senior Citizens League, told ThinkAdvisor on Thursday in an email. "Seniors with higher incomes may be subject to taxation on their Social Security benefits."
The language in Bisignano's letter "is misleading in that it [the $6,000 deduction] doesn’t eliminate, as in repeal, the tax," Benton said. "It’s an indirect effect of the OBBB. It’s an offsetting tax provision, not a structural change to Social Security taxation. For many lower-income seniors who already didn’t pay tax on their benefits, the deduction made no practical difference."
The deduction "is effective only through tax years 2025 to 2028 — a four-year window," Benton added.
Social Security groups also chided the characterization by SSA when the megabill was signed into law in early July.
Speed Up Social Security Insolvency
Social Security’s Actuary projects that the $6,000 deduction "will advance the insolvency date of the Social Security Trust Funds by two quarters, from the third quarter to the first quarter of 2034," Dan Adcock, director of government relations and policy at the National Committee to Preserve Social Security and Medicare, said in a separate email Thursday.
"If Congress does not act to solve this looming crisis, the Committee for a Responsible Federal Budget estimates that the additional loss of revenue means every Social Security beneficiary will see their benefits cut by about 24% once the Trust Funds are depleted, almost five percent deeper than if the provision had not been enacted," Adcock said.
"Because part of the revenue from the income tax on Social Security benefits also helps fund Medicare, the Part A Trust Fund is also expected to become insolvent one year earlier than currently predicted, at which point spending on the program would be cut by 11%," Adcock explained.
Taxpayers who are paying this Social Security tax and who are 65 and older may take the $6,000 bonus deduction "if their Modified Adjusted Gross Income (MAGI) is below $75,000 for an individual taxpayer or $150,000 for a couple," Adcock pointed out.
"Above those income levels the bonus deduction begins to phase out, reaching zero for taxpayers with MAGI over $175,00 for individuals and $250,000 for couples," he said. "This bonus tax break does not apply to over 13 million beneficiaries who are under age 65 or for those receiving disability benefits. The amount of the tax break for qualifying taxpayers will depend on their tax bracket."
Many Seniors 'Worse Off'
Nancy Altman, president of Social Security Works, said in email Thursday that "with the reduction in food assistance and Medicaid, many seniors could be worse off as a result of the [Trump tax] bill notwithstanding the $6,000 deduction."
Added Altman: The $6,000 deduction "actually hurts Social Security, because the revenue from the income tax is dedicated to Social Security. Since the revenue wasn't replaced, the depletion date will occur sooner. It is an income tax cut which helps some Social Security beneficiaries. I don't think this is clear to most people, so the way [Bisignano] and SSA have talked about it definitely muddies understanding."
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