Summary

Reduces the taxable share of old-age Social Security benefits for two years and changes how Social Security benefit types are taxed. For the 2026 tax year the bill lowers the taxable portion of old-age and survivors benefits by 10%, and for 2027 it lowers that portion by 20%. It also requires the tax calculation to be done separately for old-age/survivors (including tier 1 railroad retirement) and for disability benefits. To make up for the lost Treasury revenue, the bill directs transfers from the general fund to the Social Security and Medicare trust funds equal to the revenue reductions.

Key Points

• Requires separate tax calculation for old-age/survivors benefits and disability benefits when determining taxable Social Security income.
• Reduces the taxable portion of old-age and survivors benefits by 10% for the 2026 tax year and by 20% for the 2027 tax year.
• Applies only to taxable years beginning after December 31, 2025 (temporary change for 2026–2027 tax years).
• Directs transfers from the general fund to OASI, DI, and Medicare HI trust funds equal to the lost Treasury revenue caused by the tax change.
• Does not change monthly Social Security benefit payments themselves—only how much of those benefits are included in taxable income.
• Will reduce federal income tax liability for many retirement-age beneficiaries who receive old-age Social Security benefits.
• Requires IRS and tax-preparation systems to adjust rules and forms to implement separate calculations and the temporary reductions.
• The bill’s fiscal effect on the general fund is increased outlays (transfers to trust funds) to offset lower tax receipts.

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