You May See Big Tax Savings This Year—But It’s Coming Out of Your Social Security

When taxpayers file with the IRS this year, most will see either a lower tax bill or a higher refund. While the increased tax savings will feel good for now, the consequences will affect future Social Security benefits.

Lower tax brackets originally established under the 2017 Tax Cuts and Jobs Act would have expired in 2025. However, the ‘One Big Beautiful Bill’ made these lower tax brackets permanent and created new tax breaks or boosted already existing ones. It also increased the standard deduction and added an additional deduction for seniors.

These changes are expected to lower most taxpayers’ bills and increase 2025 tax refunds by about 15% to 20% on average, according to Morgan Stanley economic analysts. In the short term, this will provide tax savings and additional income through refundable tax credits. But in the long term, it could divert funds from the Social Security program.

The Social Security Administration said the changes from the ‘One Big Beautiful Bill’ will accelerate the depletion of two main trust funds that pay for benefits from the third quarter of 2034 to the first quarter of 2034. After this date, benefits will be cut by about 20%.

Social Security benefits are funded through two main trust funds: Old-Age and Survivors Insurance and Disability Insurance, often referred to together as OASDI. The funds are made up of a combination of payroll tax contributions, reserves, and taxes on Social Security benefits, which, as of the fourth quarter of 2025, totaled $2.561 trillion.

However, since 2021, the OASDI trust funds have consistently been in deficit, meaning there are not enough payroll taxes coming in to cover the amount Social Security spends on benefits. And with lower tax collections from the ‘One Big Beautiful Bill,’ the trust funds will shrink even quicker.

Tax changes in the legislative bill mean that seniors who are taxed on their Social Security benefits will pay less into the program. 

“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,” the administration wrote in a report delivered to the Senate in August.

The Social Security Administration’s analysis does not account for the effects of the ‘One Big Beautiful Bill’ on all taxpayers’ contributions to Social Security, which could further worsen the deficit.

The tax changes degraded the 75-year OASDI actuarial balance, which measures how much payroll taxes need to increase over the next 75 years for the program to both pay out full scheduled benefits and maintain trust fund reserves. As of 2025, the estimated required payroll tax increase was 3.82%. But after changes from the ‘One Big Beautiful Bill,’ payroll taxes will need to increase by 3.98%.

Lawmakers and analysts have suggested several solutions to remedy Social Security’s funding gap, such as raising the full retirement age, reducing the number of Americans eligible for programs like Supplemental Security Income or Social Security Disability Insurance, and capping annual cost-of-living adjustments.

None of these solutions have been adopted yet, leaving future generations wondering if Social Security benefits will still be there when they retire.