Fewer States Will Tax Social Security in 2025. How Does This Impact Solvency?
President-elect Trump has pledged to eliminate taxes on Social Security benefits. That could happen at the federal level, but states can set their own rules. For beneficiaries, that’s not as dire as it sounds.
According to an article in the International Business Times, only nine states will tax Social Security benefits in 2025. They are Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. However, West Virginia plans to end state taxes on Social Security in 2026. Missouri, Nebraska, and Kansas eliminated Social Security taxes in 2024.
Also the article notes that as states work to eliminate benefits taxes, concerns are growing about Social Security’s insolvency issue. The Social Security Trustees’ latest report estimates that the trust fund will be depleted in less than 10 years, at which time only about 79 percent of benefits will be paid.
Calling on Congress
Experts seem to agree that the chances of that kind of drastic cut happening are slim. That’s because lawmakers would likely be voted out of office if they allowed that to happen. Social Security is just too important to Americans and millions of seniors rely on it for their retirement income.
While lawmakers have offered several ideas on how to shore up Social Security, The Seniors Trust stands behind the Social Security Expansion Act introduced by U.S. Sen. Bernie Sanders (I-Vt.). Not only will this landmark piece of legislation ensure the long-term solvency of Social Security, but it will also provide seniors with bigger benefits.
A Strong Solution
Under this bill, seniors would receive an extra $2,400 in benefits each year. In addition, it would recalculate the way the Social Security cost-of-living-adjustment (COLA) is calculated, using the Consumer Price Index for the Elderly (CPI-E) instead of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-E more accurately reflects the actual spending of seniors, which tends to be on expenses such as healthcare and housing.
To fund the proposed benefits boost and maintain solvency far into the future, the Social Security Expansion Act calls for applying the Social Security payroll tax on all income above $250,000. Currently, earnings above $176,100 aren’t subject to the Social Security tax.
If enacted, the Social Security Expansion Act could keep Social Security solvent for about 75 years!
