Social Security is confronting a set of immediate fiscal crises. In response, the new “big beautiful” Senate bill would do tax relief and security for all seniors who rely on these benefits. This legislation would create a senior bonus. It is aimed at taxpayers with modified adjusted gross incomes under $75,000 for single filers and $150,000 for married couples. Experts say that if implemented, the proposed changes would positively reshape the financial landscape for many older Americans.
Howard Gleckman of the Nonpartisan Urban-Brookings Tax Policy Center outlined for us why this legislation is so critical. He stated, “It’s better because it helps the people who need the help more.” With the older population expected to double by 2060, the demand for quality mitigation processes around this issue is more important than ever.
Today, Social Security benefits become taxable at certain income levels using a formula called combined income. This formula takes into account the individual’s adjusted gross income, all nontaxable interest income, and half of Social Security benefits. Outdated, Reagan-era regulations tax Americans with an income as low as $25,000-$34,000 joint filers. These Americans are subject to up to 50% of their benefits being taxed. The same threshold applies to joint filers with combined incomes between $32,000 and $44,000.
To those who earn more than these thresholds, up to 85% of their Social Security benefits are subject to taxation. People with a total income under $25,000 aren’t charged taxes on their benefit income. Married couples with a combined income of $32,000 or less benefit from this tax exemption. The senior bonus as proposed aims at boosting deductions for people making under certain thresholds. Removing the late-enrollment penalty would offer considerable financial relief to millions of seniors.
Like the House proposal, the Senate bill introduces an expanded senior deduction. It’s scheduled to be implemented in 2025 and remain through 2028. It will eventually phase out altogether for single filers as incomes approach $175,000, and joint filers at $250,000. If your income is above these caps, you will experience a phase-out of this deduction. In fact, it will decrease, as laid out in the law by 6% annually.
Today these same experts are shouting from the rooftops that future Social Security benefits are in peril. That is, unless Congress acts soon, only 77% of those benefits will be payable down the line they warn. We need to act quickly on these funding issues. More than 9 in 10 Americans age 65 and older rely on Social Security for at least half of their income.
Policymakers are still figuring out the specifics of this short-term Senate bill. Instead they should be working towards a solution that guarantees the long-term viability of Social Security while delivering adequate support to our nation’s seniors. The proposed bonus and expanded deduction represent a potential lifeline for many individuals facing financial uncertainty in their retirement years.