In July, the Senate approved the “One Big Beautiful Bill Act” (OBBBA), a major tax reform package aimed at reducing the tax burden on many Americans. One of the most anticipated aspects of the bill was the promise to eliminate federal taxes on Social Security benefits. However, the reality is more complicated. While the law introduces a temporary bonus deduction for older taxpayers, it doesn’t fully eliminate taxes on Social Security benefits, leaving certain groups, like younger Social Security Disability Insurance (SSDI) beneficiaries, without any relief.
What Does the OBBBA Actually Do?
Under the current tax rules, up to 85% of Social Security benefits can be taxed for individuals whose combined income (half of their Social Security benefits plus other income) exceeds certain thresholds. For individuals, this threshold is $25,000, and for couples, it is $32,000. These limits have remained the same since the 1980s, meaning that many retirees have found themselves increasingly taxed on their benefits as the cost of living has risen.
The OBBBA attempts to address this issue, but not as radically as initially promised. The law introduces an additional standard deduction of $6,000 for taxpayers aged 65 and older. This bonus deduction is set to take effect from 2025 to 2028 and can be used regardless of whether a taxpayer itemizes their deductions. This means that seniors will receive additional relief on their taxes, which, according to estimates from the White House and the Council of Economic Advisers, will help 88% of seniors receiving Social Security pay zero federal taxes on their benefits.
For example, a single filer with average Social Security benefits of $24,000 annually will likely see their total deductions exceed taxable income, effectively eliminating their tax burden on Social Security benefits. However, while this tax relief is a significant win for older retirees, it does not extend to everyone.
Impact on SSDI Recipients
The situation for Social Security Disability Insurance (SSDI) recipients is less favorable. SSDI benefits are meant for individuals who can no longer work due to a severe disability. While SSDI recipients aged 65 and older will benefit from the new $6,000 deduction, those under 65 will not. SSDI recipients under 65 continue to face the same tax rules as before, meaning that if their combined income exceeds the tax threshold of $25,000 for individuals or $32,000 for couples, a portion of their SSDI will still be taxed.
This exclusion of younger SSDI recipients from the new tax relief is a point of contention. Many SSDI recipients rely on these benefits as their primary source of income before they reach retirement age, and the lack of a tax break adds an additional financial burden on them. While the OBBBA provides important relief for seniors, it leaves out millions of disabled individuals under 65 who are still facing the financial strain of taxes on their benefits.
Long-Term Concerns
Beyond the immediate concerns of who benefits from the new tax deductions, there are longer-term worries about the financial sustainability of Social Security and Medicare. Organizations like the Committee for a Responsible Federal Budget (CRFB) have raised alarms that reducing revenue from Social Security benefit taxes—estimated at $100 billion in 2025 alone—could worsen the financial outlook of these vital programs.
The CRFB warns that the tax changes could accelerate the insolvency of the Social Security and Medicare trust funds. According to their projections, this could lead to insolvency as early as 2032, causing automatic cuts of 24% to retirement benefits if Congress does not act to address the situation. Additionally, the fact that the new $6,000 bonus deduction is set to expire in 2028 only adds to the uncertainty, as retirees may face fluctuating tax burdens in the future.
SSDI Benefits in 2025
In 2025, the maximum monthly SSDI benefit for high-earning recipients is projected to be $4,018, though most SSDI recipients will receive much less. The average SSDI payment is around $1,580 per month, with most recipients receiving payments closer to that average. While the OBBBA may provide much-needed relief for older retirees, the ongoing challenges for SSDI recipients under 65 illustrate the need for more comprehensive solutions that address the needs of all Social Security beneficiaries, regardless of age.
The One Big Beautiful Bill Act provides a significant tax relief for seniors over 65, offering them a temporary bonus deduction that could potentially eliminate taxes on their Social Security benefits. However, this relief is not extended to younger SSDI recipients, who continue to face the same tax challenges. While the law provides immediate help to some, it leaves many others behind, and raises important questions about the long-term sustainability of Social Security and Medicare. As Congress moves forward, balancing short-term relief with long-term solvency will remain a crucial issue for Social Security programs and their beneficiaries.
