New tax law adds to Social Security’s financial worries

August 6, 2025

The One Big Beautiful Bill Act's tax cuts will mean less money for the trust fund that pays federal retirement benefits. And that is likely to mean benefit payments to Social Security recipients will be reduced as soon as the end of 2032.

The tax provisions of the recently enacted One Big Beautiful Bill (OBBB) has sort of good news and some definite bad news for older taxpayers.

As you know by now, the OBBB does not fulfil Donald Trump’s campaign promise of no tax on Social Security benefits. Rather, it provides an added tax deduction of up to $6,000 for filers age 65 and older.

The deduction, dubbed the senior bonus, is in effect for tax years 2025 through 2028, and eligible taxpayers must meet income requirements.

So, that’s the sort of good news. Slightly less taxable income for many older taxpayers when they file their returns for the next four years.

But those lower taxes could, in the long run, be bad news for current and future Social Security beneficiaries. This senior-specific provision, and other tax provisions in the OBBB, could further threaten the retirement trust fund's solvency.

The fund now will run out of money to make full payments to beneficiaries by the end of 2032, a year earlier that forecast, according to actuarial experts at Social Security Administration (SSA).

Funding retirement benefits: The SSA’s chief actuary Karen Glenn estimates that the tax breaks in the OBBB have exacerbated the 75-year actuarial deficit for Social Security, increasing it to 3.98 percent of taxable payroll from 3.82 percent.

Overall, Glenn says the law will create a net increase of $168.6 billion in Social Security program costs over the next decade. By the end of the century, she forecasts the OBBB changes will increase Social Security program costs to just over $1.1 trillion.

The bottom line of all those numbers is that the Social Security reserve fund could run out of money to make full benefit payments sooner than previously forecast.

Glenn’s calculations are detailed in an Aug. 5 letter to U.S. Sen. Ron Wyden (D-Oregon), ranking minority member of the Senate Finance Committee. In late July, Wyden had asked the SSA Office of the Chief Actuary (OACT) for its analysis of the OBBB’s implications on the Social Security Trust Funds.

Filling up the funds, or not: Social Security retirement money, officially known as Old-Age and Survivors Insurance (OASI) funds, comes from payroll taxes, as well as from taxation of benefits paid to recipients who have other retirement earnings.

The decrease in tax revenue from various OBBB provisions will mean less money for the trust fund.

That already has been a problem.

The Social Security Trustees’ 2025 report released earlier this year warned of the shaky combined financial solvency of the OASI and Social Security’s Disability Insurance (DI) trust funds.

That report projected depletion of the combined OASI and DI reserves by the third quarter of 2034. After the OBBB became law, the funds’ trustees moved the baseline depletion date for the two funds to the first quarter of 2034.

Depletion means the program would only be able to pay approximately 81 percent of scheduled benefits using the incoming tax revenue from workers.

And now, with OBBB provisions in effect, Glenn projects that the reserve depletion date for the OASI/Social Security retirement trust fund alone is accelerated from the first quarter of 2033 to the fourth quarter of 2032.

Bonus could backfire: Part of that is directly attributable to the OBBB senior bonus.

“Because the revenue from income taxation of Social Security benefits is directed to the Social Security and Medicare trust funds, implementation of the OBBBA will have material effects on the financial status of the Social Security trust funds,” wrote Glenn.

Glenn also emphasized that the Actuarial Office’s analysis is limited to tax provisions with clear impacts on Social Security revenue. Other parts of the OBBBA, such as health care or spending changes, were not considered.

“Not only did Republicans give massive tax breaks to corporations and the ultra-wealthy, not only did they make the largest cut to American health care in history, but now it is clear Republicans have brought Social Security closer to running out of money,” Wyden said in a statement accompanying the release of the SSA letter.

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New tax law adds to Social Security’s financial worries

Glen Gesler