Social Security Email Says Policy Bill Eliminates Tax on Benefits. Does It?

In a celebratory email sent to Americans across the country, the Social Security Administration praised the Trump administration’s sprawling budget and tax bill and said it eliminated federal income taxes on most retirees’ benefits.

But that’s not exactly what it does.

The agency’s embrace of the legislation, which was signed into law by President Donald Trump on Friday, was also at odds with the effect it is expected to have on the program’s financial health. The law is projected to further weaken Social Security’s revenues at a time it is already facing a financing shortfall.

The email, which went out Thursday, said the new law “includes a provision that eliminates federal income taxes on Social Security benefits for most beneficiaries,” and, “additionally, it provides an enhanced deduction for taxpayers aged 65 and older.”

But the enhanced deduction will help reduce households’ tax bills on their overall income, including Social Security income. “The SSA statement implies there is a direct tax cut on Social Security benefits,” said Howard Gleckman, a senior fellow at the Tax Policy Center, a nonpartisan think tank, “which there is not.”

Instead, older single filers will get the extra $6,000 deduction ($12,000 for couples), as long as their income falls under a certain ceiling (below $75,000 for single filers or $150,000 for married joint filers). Above those income levels, the deduction begins to decrease, and it goes away once single taxpayers’ income reaches $175,000 ($250,000 for couples).

Nor will the extra deduction benefit all Social Security recipients. Retirees who are 62 through 64 are ineligible.

And since the income of more than half of Social Security recipients is too low to be taxed anyway, lower income people won’t be helped much. The new break is expected to benefit middle- and upper-middle-class households, tax policy experts said. (Recipients who earn less than $63,300 owe an average of 1% of their Social Security benefits in taxes, according to an analysis from the Center on Budget and Policy Priorities.)

The Tax Policy Center estimates that less than half of older adults, most of whom earn about $50,000 to $200,000, will get some benefit from the new deduction, though most of them will still owe some tax, Gleckman added.

Under current law, an estimated 64% of beneficiaries did not owe taxes on their Social Security benefit, and the new deduction would boost that number to 88%, according to an analysis in June from the White House Council of Economic Advisers.

This article originally appeared in The New York Times.