Government Hasn’t Changed This Social Security Tax Rule In 30+ Years — Why Retirees Are Losing Thousands

For over three decades, the government has not updated the income thresholds that determine when Social Security benefits are taxed, leaving millions of retirees paying more in taxes than intended.

With inflation-adjusted benefits rising annually through Cost-of-Living Adjustments (COLA), retirees are pushed into taxable brackets designed in the early 1990s, a situation often referred to as “bracket creep.” 

In August 2025, debate over reform continues as seniors face financial strain despite temporary tax relief introduced under recent legislation.

How Social Security Benefits Are Taxed

When the Social Security program was created in 1935, benefits were completely tax-free. That changed in 1983, when Congress allowed up to 50% of benefits to be taxed for individuals above a modest income threshold. Ten years later, in 1993, lawmakers increased the taxable portion to 85% for higher earners.

Today, the taxation of benefits is determined by combined income (adjusted gross income + nontaxable interest + half of Social Security benefits). If your combined income crosses fixed thresholds, a significant portion of your benefits becomes taxable.

The Income Thresholds (Unchanged for 30+ Years)

Filing Status	Combined Income Threshold	Taxable Portion of Benefits
Single filers	Over $25,000	Up to 50% taxed
Married filing jointly	Over $32,000	Up to 85% taxed
Married filing separately	Any income if living with spouse	Up to 85% taxed

Despite inflation and rising living costs, these thresholds have never been adjusted since 1993. Meanwhile, annual COLAs increase benefits, often pushing retirees over the limits and reducing their net income.

Why Retirees Are Losing Thousands

This outdated system means retirees are hit with a double penalty:

• Their benefits increase slightly due to COLA adjustments.
• But the increase can push them over the unchanged thresholds, making them liable for taxes on a larger share of their income.

This results in retirees effectively losing part of their buying power, even though the adjustments were meant to protect it.

For example, in 2025, the average monthly Social Security benefit is about $1,907. That equals more than $22,800 per year, already close to the $25,000 single-filer threshold.

With any additional income—like pensions, retirement savings withdrawals, or part-time earnings—millions of seniors easily surpass the limits, forcing them to pay taxes on up to 85% of their benefits.

Temporary Relief Under Trump’s “One Big Beautiful Bill”

In July 2024, President Trump signed the One Big Beautiful Bill Act (OBBBA), which included a temporary $6,000 deduction for seniors aged 65 and older (or $12,000 for couples) through 2028.

This deduction helps offset some of the tax burden but does not fix the root issue—unchanged taxation thresholds.

Experts warn that while this measure eases the pain temporarily, seniors will continue to face long-term bracket creep unless Congress raises or indexes the thresholds to inflation.

What Could Change Next?

Several lawmakers have proposed reforms, including the “No Tax on Social Security Act”, which aims to eliminate taxes on benefits entirely.

However, the proposal has stalled in Congress, largely due to concerns over Social Security funding shortfalls projected for 2033.

Policy experts suggest a middle ground: adjust the thresholds for inflation or restructure the tax formula to protect middle-income retirees while ensuring wealthier beneficiaries continue to contribute.

As of August 2025, retirees are still grappling with the same outdated Social Security tax rules first set in 1993. While temporary deductions introduced in 2024 offer some relief, millions continue to lose thousands of dollars annually due to bracket creep.

The debate over reform highlights a critical need: either adjust the tax thresholds or eliminate taxes on benefits entirely. Without action, seniors will remain burdened by an unfair system designed for a very different economic era.

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