In July, the Senate passed the “One Big Beautiful Bill Act” (OBBBA), a comprehensive tax reform law that, among other changes, promised to remove federal taxes on Social Security benefits. However, the reality is more complex.
The law doesn’t completely eliminate these taxes but introduces a temporary bonus deduction aimed at helping taxpayers aged 65 and older. While this brings hope for many retirees, it leaves a significant group behind: Social Security Disability Insurance (SSDI) beneficiaries under 65.
SSDI and OBBBA: Will It Lower Your Taxes?
Currently, up to 85% of Social Security benefits can be taxed if the recipient’s combined income exceeds certain thresholds. For individuals, the threshold is $25,000, and for couples, it’s $32,000.
These thresholds, unchanged since the 1980s, have increasingly subjected retirees to taxes on their Social Security benefits. The OBBBA addresses this issue but in a more limited way than many expected.
So, what kind of relief does the OBBBA provide? The law introduces an additional standard deduction of $6,000 for taxpayers aged 65 and older. This deduction will apply from 2025 to 2028 and will be added to the regular standard deduction.
Importantly, this deduction is available to seniors whether they itemize their deductions or not.
According to White House and Council of Economic Advisers’ reports, this new deduction will have a significant impact. It’s estimated that 88% of seniors receiving Social Security will no longer pay federal taxes on their benefits.
For example, a single filer receiving $24,000 in Social Security benefits would see their total deductions exceed their taxable income, effectively wiping out their tax burden.
The Impact on SSDI Recipients Under 65
While retirees aged 65 and older will benefit from this bonus deduction, SSDI recipients under 65 are left out of this relief. SSDI recipients who are younger than 65 do not qualify for the extra $6,000 deduction.
This means that for many disabled individuals relying on SSDI as their primary income before reaching traditional retirement age, their benefits remain subject to current tax rules.
For SSDI recipients, this means that if their combined income exceeds the existing tax thresholds of $25,000 for individuals or $32,000 for couples, a portion of their SSDI benefits will still be taxed, regardless of the new deductions for seniors.
This leaves many SSDI recipients in a difficult position, as they are not receiving the same tax relief as older retirees.
What Does the Future Hold?
The OBBBA’s age-based exclusion has raised concerns. By offering a bonus deduction for seniors and leaving out younger SSDI recipients, the bill fails to address the needs of millions of Americans who rely on SSDI benefits before retirement.
These individuals, many of whom struggle with disabilities, could face additional financial strain as a result of the new law’s exclusion of SSDI recipients under 65.
In addition to immediate concerns, long-term issues also arise. Organizations such as the Committee for a Responsible Federal Budget (CRFB) have warned that reducing revenue from taxes on Social Security benefits (estimated to be $100 billion in 2025 alone) could speed up the insolvency of Social Security and Medicare trust funds.
Their projections suggest that Social Security could become insolvent by 2032, triggering automatic cuts to benefits if Congress does not take action.
The temporary nature of the $6,000 deduction, which only lasts until 2028, also adds uncertainty to long-term financial planning for retirees. While the OBBBA provides relief for some, the law’s temporary nature and limited scope leave significant unanswered questions about the future of Social Security.
Maximum SSDI Benefit in 2025
The SSDI program provides monthly payments to individuals who are no longer able to work due to severe, long-term disabilities. To qualify for SSDI, applicants must have earned enough work credits through prior payroll tax contributions.
Unlike Supplemental Security Income (SSI), SSDI eligibility depends on work history rather than income or assets.
In 2025, the maximum monthly SSDI benefit will be $4,018 for high-earning recipients, although most SSDI recipients receive less than this. The average SSDI payment is around $1,580, with most recipients receiving amounts closer to this average.
Is OBBBA Enough for SSDI Recipients?
While the OBBBA offers significant tax relief for many seniors aged 65 and older, it leaves SSDI recipients under 65 with no additional benefits. This exclusion creates an unequal situation for millions of disabled Americans who are not able to take advantage of the new tax breaks.
The law also raises concerns about the long-term sustainability of Social Security and Medicare, as reduced revenue from benefit taxes could accelerate insolvency. As the tax code evolves, it’s clear that more attention will need to be paid to SSDI recipients and their unique needs.
