Retirees will enjoy a generous new tax break in 2026, courtesy of the One Big Beautiful Bill Act. Eligible taxpayers who are 65 or older and whose income does not exceed the allowable limits will be able to take advantage of a new $6,000 increase in the standard deduction. That means an older married couple could deduct up to an extra $12,000 from their income tax bill.

The Trump Administration also increased the standard deduction, in addition to the added savings provided to seniors, so that singles who are 65 and older can now deduct $23,750 on their taxes, and married filers can deduct $46,700, as long as they don’t exceed the income limits. These tax breaks will remain in place until 2028, saving seniors a fortune.

While that may sound like a good thing, the Center for Retirement Research has a strong warning about what it will mean for the future of Social Security benefits, and retirees should pay attention.

According to the Center for Retirement Research, the big problem with the new tax cut in the One Big Beautiful Bill Act is the impact it will have on Social Security.

As the CRR report says, “First, it should be noted that this tax cut worsens Social Security’s tenuous fiscal position. Social Security actuaries estimate that the new tax provisions will advance the trust fund’s depletion date by approximately six months, from the 3rd quarter to the 1st quarter of 2034.”

This may seem surprising because, despite the promise to eliminate the Social Security tax, the rules for taxing retirement benefits actually remain unchanged. The thresholds at which benefits become taxable are $25,000 in provisional income for single filers and $32,000 for married joint filers (with provisional income equal to half of all Social Security benefits plus all taxable income and some nontaxable income).

The reason is simple, though.

While the OBBBA left the Social Security tax rules intact, it reduced taxable income enough that it eliminated the Social Security tax for many people and eliminated it entirely for others. “While the new tax provision does not explicitly eliminate Social Security taxes, it will reduce taxes for many filers over age 65,” CRR summarized.

Fewer people paying Social Security taxes, and those paying Social Security taxes being able to pay less because their incomes decline, is not good news for the retirement benefit program because the program gets its funding from:

• Social Security taxes payable by current employees

• Trust Fund Interest (soon to be depleted)

• Income collected from taxes paid to Social Security by retirees

Reducing income from one of the income streams is not ideal when there is already too little money.

Ultimately, the problem comes down to the fact that Social Security is on a dangerous trajectory, and if lawmakers don’t act in the coming years, automatic benefit cuts will become increasingly difficult to avoid. The OBBBA just brings this day a little closer.

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