The “Big Beautiful Bill” and it’s Impact on Social Security
The “One Big Beautiful Bill Act” (OBBBA) is a major tax reform package aimed at reducing the tax liability for the millions of older and disabled Americans who depend on Social Security. On July 4, 2025, President Trump signed the bill that U.S. federal statute passed by the 119th United States Congress containing tax and spending policies.
One of the most anticipated components of the bill was the promise to eliminate federal taxes on Social Security benefits, however, the reality seems a bit more complicated. The SSA explains the tax and spending package “ensures that nearly 90% of Social Security beneficiaries will no longer pay federal income taxes on their benefits,” according to a press release.
What Does the New Law Mean?
Since the 1980s, Social Security benefits have been limited. Many retirees have found themselves progressively taxed on their benefits as the cost of living, or COLA, continually increases. Social Security benefits are taxed like other income, and this law doesn’t change that. Essentially this new budget package will have widespread effects across Medicaid, the Affordable Care Act (ACA), food nutrition programs, and more. Some impacts could include increased Medicaid and ACA coverage loss for noncompliance with work requirements, eligibility changes, and limits on coverage, limited funding for the state share of Medicaid and overall decreased federal funding for state Medicaid programs, and added administrative burdens for staff, along with rising costs of technology systems to implement work requirements.
Trump had promised “no tax on Social Security benefits,” but the new law doesn’t create a special exemption for taxes on Social Security benefits. Rather, it adds a new tax deduction up to $6,000 for those 65 and older, on all their Social Security benefits. The tax break is offered to people with an adjusted gross incomes of $75,000 or less and $150,000 or less for couples filing jointly. The deduction is set to expire at the end of 2028.
“The legislation that passed does make it so some people won’t pay taxes on their benefits,” says Marc Goldwein, senior vice president at the nonpartisan Committee for a Responsible Federal Budget. “The reason is that it’ll make it so that some seniors won’t pay any taxes, because it increases their standard deduction.”
Impact on Social Security Disability Insurance Recipients
While the law introduces a temporary bonus deduction for older taxpayers, taxes on Social Security benefits are not necessarily eliminated, leaving younger Social Security Disability Insurance (SSDI) beneficiaries, without any relief.
SSDI benefits are accessible for individuals who can no longer work due to a severe disability. While SSDI recipients aged 65 and older will benefit from the new deduction, unfortunately those under 65 will not. This means that if their combined income exceeds the tax threshold of $25,000 for individuals or $32,000 for couples, a portion of their SSDI will still be taxed as it had before the bill was signed.
A major point of contention is this exclusion of younger SSDI recipients from the new tax relief bill as many SSDI recipients rely on these benefits as their primary source of income before they reach retirement age. Lacking this tax break adds further financial problems on them. So, while the OBBBA provides important reprieve for seniors, it disregards millions of disabled individuals under 65 who are still facing the financial burden of taxes on their benefits.
Effects on Social Security Benefits Tax
Beyond immediate concerns as to who has the advantage from the new tax deductions, the financial sustainability of Social Security and Medicare is of concern. Taxes paid on Social Security benefits are based on combined income, or the sum of adjusted gross income, nontaxable interest, and half of Social Security benefits. These taxes reinforce the trust funds for Social Security and Medicare Part A.
Organizations like the Committee for a Responsible Federal Budget (CRFB) are worried that reducing revenue from Social Security benefit taxes—estimated at $100 billion in 2025 alone—could deteriorate the financial outlook of these vital programs. Cutting these taxes accelerates the timeline in which those trust funds will become insolvent, which according to an estimate from the Committee for a Responsible Federal Budget, that will now happen in late 2032.
The estimate points out that Social Security benefits would be cut by an estimated 24% unless Congress acts before then. “We already have a problem of not enough money going into the trust fund. This bill makes even less money go into the trust fund,” says Bobby Kogan, senior director of federal budget policy at the Center for American Progress, a nonpartisan think tank in Washington, D.C.
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