4 Ways Trump’s New Tax Law Will Affect Older Americans

The massive tax and spending bill signed into law this month by President Donald Trump will have a broad impact on the healthcare and economic security of older Americans, especially ones with lower incomes.

The impact of the bill for seniors can be broken down into a few key areas:

• Healthcare will be more difficult to access for low-income seniors reliant on Medicaid and Medicare programs designed to help offset costs.
• Changes to the Affordable Care Act will make marketplace policies more expensive across all income groups.
• Lower payments to healthcare providers will jeopardize the availability and quality of care in nursing homes and rural hospitals, and for home-based long-term care.
• Affluent seniors will see reduced taxation of Social Security benefits. But that change is forecast to accelerate the insolvency of the retirement trust fund by one year, to 2032—an event that threatens to trigger a 23% across-the-board cut to benefits.

Here’s a look at some of these changes.

1) Access to Medicare and Medicaid

The law’s changes will translate to lost healthcare coverage for 16 million Americans of all ages over the coming decade, according to the Congressional Budget Office.

This is due to changes to Medicaid and the Affordable Care Act, programs that provide important coverage to lower-income older Americans.

It will especially affect Medicare beneficiaries who are also covered by Medicaid—a group known as “dual eligibles” that makes up one-fifth of Medicare beneficiaries. This group accounts for a disproportionate share of Medicaid spending because it is older and has greater healthcare needs.

The act will increase the burden on dual eligibles by adding new work requirements for Medicaid recipients, imposing more frequent eligibility checks, and terminating coverage for certain immigrant groups. Work requirements, in particular, will have an outsize impact on coverage for disabled and elderly beneficiaries.

Two types of help with healthcare costs, available to dual-eligible seniors, will be affected by the act:

• Medicare Savings Programs, or MSPs, are Medicaid benefits that help cover the out-of-pocket costs of Parts A and B for seniors with low levels of income and assets.
• The Low-Income Subsidy covers prescription drug costs.

The act delays until 2035 the implementation of a new rule aimed at easing enrollment in MSPs, even though both programs are already underutilized.

The Medicaid cuts also threaten to undermine healthcare infrastructure. Medicaid currently represents 19% of national hospital spending and over 40% of nursing home expenditures. Significant cuts could destabilize these critical healthcare providers.

The law’s higher levels of deficit spending also could trigger $500 billion in mandatory cuts to Medicare spending between 2026 and 2034. This is a result of the “sequestration” guardrails approved by Congress in 2010, which require offsetting spending cuts whenever legislation increases the federal deficit over a certain period of time. Individual beneficiaries would not be subject to direct cuts, but sequestration could lead to a 4% cut in payments to hospitals and other providers. (Though Congress could decide to waive the cuts.)

The law also makes numerous changes to ACA marketplaces that are expected to result in lower enrollment over the coming decade. Moreover, Congress has not renewed the President Joe Biden-era premium subsidies that made the policies more affordable. Taken together, the changes will result in an additional 8.2 million people losing insurance, according to KFF.

The ACA is a critical source of insurance for older Americans and can serve as an important bridge to Medicare at age 65. This year, 22% of enrollees in ACA marketplaces are age 55 to 64, according to KFF.

2) Long-Term Care Access and Quality

The law’s Medicaid cuts will exacerbate the crisis in long-term care by increasing the cost of care and limiting residents’ payment options. Care providers will face several difficult choices: They can reduce the number of Medicaid patients they accept, increase private-pay rates, or close facilities entirely.

Because long-term care facilities are constrained by fixed government reimbursement rates, providers aren’t always able to simply raise prices when costs increase. They also can’t negotiate higher rates with Medicaid or Medicare, so they will try to turn to the private-pay segment of their patient population. This means private-pay patients would likely face higher costs at a time when prices already are jumping at triple the rate of general inflation.

Along with payment cuts, the law delays implementation of a new rule setting minimum standards for nursing home staffing. This rule would have improved care for residents and supported nursing home workers, with researchers estimating that it would save 13,000 residents’ lives each year. Postponement will jeopardize the health, safety, and lives of nursing home residents.

Healthcare services in rural areas will take a hit: More than 300 rural hospitals will run the risk of closure, conversion, or service reductions. That will cost lives, especially since rural areas tend to have disproportionately older populations.

3) Tax Breaks for Seniors

The act does contain several valuable tax breaks tailored for seniors, but the impact of the cuts will be uneven.

Along with permanent extension of the income tax cuts legislated under the Tax Cuts and Jobs Act, the most significant new break is a $6,000 “bonus” deduction that will allow many seniors to reduce or avoid taxes on Social Security benefits.

This is a cut that helps only upper-income seniors because of the unique formula used to calculate tax liability. Social Security tax rates are calculated according to “combined income,” which includes:

Modified adjusted gross income + Tax-exempt interest + 50% of your Social Security benefits

For most taxpayers, modified adjusted gross income consists of everything in adjusted gross income except the taxable portion of Social Security benefits.

Here’s a summary of how the taxation on Social Security benefits works now.

Trump promised as a candidate to eliminate taxation of Social Security benefits altogether, but that was not possible within the scope of a budget reconciliation bill.

So, the $6,000 bonus deduction is a workaround that will bring the income of many seniors below the levels that trigger the taxation of benefits.

It is available to taxpayers age 65 and older with modified adjusted gross income of up to $75,000 for an individual filer and $150,000 for a couple filing jointly. (Each spouse can take the deduction, for a total of $12,000, if both are at 65 or older.) It starts to phase out above those levels, and disappears for single taxpayers with income of $175,000 or more ($250,000 for joint filers).

However, the deduction is not available at all for Social Security beneficiaries aged 62 to 64, and it is set to expire after 2028.

There has been much confusion around this deduction, as the White House has stated that 88% of seniors will “pay no tax” on their benefits, and the Social Security Administration made the same claim in an unprecedented, politically tinged email blast that it sent to millions of Americans earlier this month.

It’s important to understand that the law doesn’t end the requirement to pay taxes on your benefits. Rather, it temporarily reduces the number of beneficiaries obligated to pay them.

4) Social Security Trust Fund

The reduced revenue from taxation of benefits is expected to hasten the insolvency of Social Security’s trust fund by a full year, to 2032. And other factors could bring the exhaustion date even closer.

If we reach that point (barring action by Congress), benefits would be cut across the board by 23%—a reduction that would be catastrophic for lower-income seniors who depend on Social Security for most or all of their income.

It would also be unfair for younger people, who already bear the brunt of the benefit cuts made in the last major reform of Social Security in 1983. That law set in motion a gradual increase in the full retirement age—the age when you can claim 100% of your earned benefit—from 65 to 67 for workers born in 1960 or later. Every one-year increase in the full retirement age is equivalent to a roughly 7% cut in monthly benefits.

The last report of the Social Security trustees forecast exhaustion in 2033, based on their intermediate, or baseline, assumptions. Their reports also include low-cost (more favorable) and high-cost (less favorable) scenarios. And several factors could drive the trust fund toward the less favorable outcome (that is, an even sooner exhaustion date), according to a recent analysis of the 2025 trustee report by the Center for Retirement Research at Boston College:

• Fertility rates have fallen in recent years, affecting the ratio of workers to beneficiaries. The trustee report makes assumptions about future fertility rates that might be on the optimistic side.
• Immigrants improve solvency, since they tend to work and make payroll tax contributions. The Trump administration’s immigration crackdown could worsen the outlook, depending on its severity and length.
• Longevity gains impact Social Security benefit payouts and play a larger role in the program’s finances than either fertility or immigration, the Center for Retirement Research notes. Longevity has been improving, but the forecast involves some guesswork and could change.

Trust fund exhaustion should be an action-forcing event for Congress, as the window for proactive reform is starting to close.

One solution that is getting more attention lately among Social Security policy experts is an injection of general revenue, perhaps on an emergency or bridge basis, to avoid benefit cuts. That would mean borrowing for the first time to meet Social Security’s obligations, since the federal government already operates on a deficit basis.

The law already will add an eye-popping $4.1 trillion to the national debt through fiscal 2034, which underscores questions about how debt markets will respond to rising deficit spending, and it raises the question whether the country would be able to borrow more at that point to fund Social Security.

But the bottom line is unchanged: Social Security remains our most important retirement program, and the public supports it enthusiastically. Congress needs to do its job and repair Social Security’s finances.