Depending on who is counting, Social Security runs out of money by 2034. The most recent 2026 Trustees Report, released in June 2026, confirmed that the combined OASDI trust funds are still projected to be depleted in the third quarter of 2034, the same quarter projected in the prior year’s report. The retirement-only fund (OASI), however, now faces a harder deadline: the 2026 report moved its depletion date to the fourth quarter of 2032, one quarter earlier than the previous projection. Congress offered a little-known solution for this looming shortfall when it originally listed two reasons why Social Security payments are taxed. One was to treat payments like those of any other income, but the second was to provide revenue to strengthen the financial solvency of the trust funds. The second point is more critical than ever.
One way to extend the lifespan of Social Security is to waive the taxes on the payments, an idea gaining renewed attention through the “You Earned It, You Keep It Act,” introduced by Rep. Angie Craig of Minnesota. The bill would eliminate all federal income taxes on Social Security benefits and, to offset the revenue loss, would also apply payroll taxes to earnings above $250,000. On paper, waiving benefit taxes means some federal income drops and the deficit widens. In practice, though, it would provide immediate relief to retirees who received only a 2.8% cost-of-living adjustment for 2026, a raise that many say does not keep pace with their real-world expenses.
The math is substantial. Social Security paid $1.60 trillion in benefits in calendar year 2025, according to the SSA’s 2026 Annual Report to Congress. Payments to the disabled and dependents represent roughly 10% of that total. The program now covers more than 70 million beneficiaries, and the 2026 report confirms that the combined trust fund reserves declined by $160 billion in 2025 alone, falling to $2.56 trillion. That drain has accelerated every year since program costs first exceeded total income in 2021.
What does the federal government receive from taxes on those benefits? Across most sources, the figure is approximately $90 billion a year, with the taxable wage base rising to $184,500 in 2026. The Old-Age and Survivors Insurance and Disability Insurance (OASDI) portion accounts for at least $51 billion of that, while Medicare Hospital Insurance (HI) represents at least $35 billion. That revenue flows directly back into the trust funds, which is precisely why proposals to eliminate the tax carry a complicated trade-off: the short-term relief for retirees comes at a cost to the funds’ long-term stability.
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, offered a partial answer. It created a new $6,000 deduction for seniors aged 65 and older, effective for tax years 2025 through 2028, which stacks on top of the existing standard deduction and phases out for individuals earning above $75,000 (or $150,000 for joint filers). Critically, the OBBBA did not eliminate the underlying federal tax on Social Security benefits. The Committee for a Responsible Federal Budget estimates the new senior deduction reduces revenue from benefit taxation by roughly $30 billion per year, a reduction already factored into the worsened 2026 Trustees Report projections. The 75-year actuarial deficit for the combined trust funds has deepened to 4.42% of taxable payroll, up from 3.82% in the prior year’s report.
The effects of any broader tax change would ripple outward. At the state level, West Virginia completed its Social Security benefit tax phase-out this year, and more states are moving in a similar direction. Congress, meanwhile, has documented that the share of Social Security recipients paying federal taxes will continue rising sharply through 2050 unless the income thresholds, which have not been adjusted since 1983, are modernized.
The Social Security Fairness Act, enacted in January 2025, has already complicated the picture further. By repealing the Windfall Elimination Provision and Government Pension Offset, it restored fuller benefits to millions of public-sector workers, but the Committee for a Responsible Federal Budget projects the law added nearly $200 billion to the program’s 10-year shortfall.
How much runway could eliminating benefit taxes actually buy? According to Social Security’s chief actuary, the You Earned It, You Keep It Act, which combines tax relief with a new levy on high earners above $250,000, would push the projected combined trust fund depletion date from 2034 all the way to 2054. The political math, however, remains difficult. Raising payroll taxes on upper-income earners is contested, and eliminating benefit taxation without offsetting revenue would accelerate insolvency rather than delay it. With the 2032 OASI cliff now closer than ever, the urgency for some combination of revenue increases and threshold adjustments has rarely been sharper.
Critical Moves Lawmakers Must Make for Social Security’s Survival
Editor’s note: This article was updated to reflect the 2026 SSA Trustees Report findings, including the OASI fund depletion date moving to late 2032, total 2025 Social Security benefit payments of $1.60 trillion, the worsened 75-year actuarial deficit of 4.42% of taxable payroll, and context on the One Big Beautiful Bill Act’s $6,000 senior deduction and its estimated $30 billion annual reduction in trust fund revenue.
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