In our continuing effort to objectively and accurately cover the latest actions of the Federal government to overhaul and change rules and laws related to the Social Security Administration, it’s time for a new update. As you’ll likely remember from previous posts, there has been much chaos and uncertainty over the Social Security Administration, given budget cuts and staff layoffs, and rule changes that have made it more difficult for some recipients to understand benefit decisions or adjust the way they receive benefits. For example, as of May of this year, Social Security recipients who wish to make changes to their direct deposit arrangements can no longer do so by phone- they must either use the online system which requires multiple steps or they can go to a Social Security field office, something that has become harder and more burdensome, as some offices have closed, many are short-staffed, and appointments are often given for many weeks out. While you can still apply for direct deposit by phone, you can no longer make changes to your direct deposit by phone. It is estimated this will cause nearly 2 million extra trips this year to Social Security field offices, many of which are more than half an hour by car from where recipients live. Furthermore, many Social Security field officers are now being pulled away from their normal responsibilities to answer phones, as the Administration struggles to keep up with the huge number of incoming calls, while innumerable customer service staff have been let go. We don’t know how bad the problem is with incoming calls and questions going unanswered because last month, the Social Security Administration stopped reporting performance measures, including response times for calls to their toll-free number.

Even if everything were running smoothly at the Social Security Administration, there are new reports about the looming insolvency of the agency within the next several years. According to a new report from the Trustees of Social Security, there are sufficient funds to fully pay benefits until the beginning of 2034, at which point it is estimated that Social Security will only be able to pay 81% of scheduled benefits. That figure is projected to drop to 69% of scheduled benefits by the end of this century unless something is done by Congress to shore up the finances of the agency, by either raising taxes, raising the age of eligibility, or some combination of those. While Social Security will always have some funds to pay out, given our increasingly aging population and declining birth rates, the shortfall in funding is inevitable if nothing is done. What you may not be aware of is that the recent “Big, Beautiful Bill,” which was passed by Congress and signed into law by the President, may make matters even worse for the Social Security Trust Fund. 

The Bill recently signed into law has a number of components, some of which will directly affect older Americans, in good ways and in not-so-good ways. Under the Bill, in addition to extending the tax cuts put into place during the first Trump administration, and drastically increasing the budget to increase spending for defense and immigration purposes, new requirements and cuts will go into effect for the Medicaid and SNAP programs. It is quite possible that the Medicaid cuts will lead to the closure of some nursing homes, which heavily rely on Medicaid funding, along with rural hospitals, and it may place additional burdens on older Medicaid recipients who will need to complete paperwork to demonstrate they are exempt from Medicaid work requirements. For a look at when the different provisions of this Bill will go into effect, read here.

For purposes of this post, it’s important to understand what this new bill means regarding your Social Security benefits. To be clear, the Bill in no way directly reduces or eliminates taxes on your Social Security, despite what the initial letter sent out by the Social Security Administration stated. While the Bill does provide a time-limited new tax deduction for adults 65 and older of up to $6000 for a single filer and up to $12,000 for joint filers, assuming both are over 65, this deduction is for all income, not just Social Security income, and there is no direct tax cut specifically aimed at lowering or eliminating taxes on Social Security. Depending upon your income, you may or may not benefit from this deduction (available whether or not you itemize your returns but phased out for higher income earners), which is set to expire in 2028. The tax deduction will be available for your next tax filing. To find out more, plug in your calculator and read here and here.

To the extent that the deductions now in place mean you will pay less Federal taxes, including on your Social Security income, that is, unfortunately, bad news for the Social Security Trust Fund, as taxes paid on Social Security go directly back to that Fund. In fact, what that means is that the Social Security administration is likely to run out of money to fully pay out benefits earlier than the newly released report suggests, as it will now have less incoming revenue from taxes. New estimates are that, because of this Bill, the Fund will only be able to fully pay out benefits to recipients until the end of 2032 if nothing is done by Congress. So, in addition to adding $3.4 trillion to the national debt, this Bill will also further erode the integrity of the Social Security system by reducing the amount of tax money contributed to the system. Stay tuned for further updates as they become available.