Depending on who is counting, Social Security runs out of money by 2034. While the retirement-only fund (OASI) still eyes a 2033 “cliff,” the combined trust funds are now projected to remain solvent for an additional year. 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 traction through the “You Earned It, You Keep It Act.” On paper, this means the burden triggers an increased U.S. deficit as some of the federal government’s income drops, but it provides immediate relief to retirees facing a 2.8% COLA increase for 2026 that may not keep pace with real-world costs.
The math is not easy to come by, but the annual total of these payments is roughly $1.5 trillion. Payment to the disabled and dependents is about 10% of that, according to the Social Security Administration. Furthermore, the Social Security Fairness Act, enacted in early 2025, has already begun restoring full benefits to millions of public servants by repealing previous windfall penalties.
What does the federal government receive on these taxes? Across most sources, the figure is approximately $90 billion a year, with the taxable wage base rising to $184,500 in 2026. Old-Age and Survivors Insurance and Disability Insurance (OASDI) accounts for at least $51 billion of that, while Medicare Hospital Insurance (HI) represents at least $35 billion.
The effects of the tax change would have a long-term impact, especially as state-level relief grows; West Virginia, for instance, completed its Social Security tax phase-out this year. Congress reports that the percentage of Social Security recipients who pay federal taxes will still rise sharply through 2050 unless current thresholds are adjusted.
It is difficult to calculate the exact benefit of decreased taxation, though it is not de minimis. According to Pew, the main issue remains the retirement program, where costs have exceeded income every year since 2021. With the “tax torpedo” still affecting middle-income seniors, many are looking toward the $6,000 Senior Bonus Deduction as a temporary buffer through 2028.
How much time does the elimination of taxes buy in terms of when Social Security runs out of money? While the math is complex, shifting the tax burden to high earners—those making over $250,000—is the primary trade-off currently being debated to bridge the gap.
Critical Moves Lawmakers Must Make for Social Security’s Survival
Editor’s Note: This article was updated in May 2026 to reflect the new 2034 combined trust fund solvency date, the impact of the 2025 Social Security Fairness Act, and updated 2026 COLA and taxable wage base figures.
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