KEY POINTS
- Gov. Spencer Cox said the cornerstone of his budget recommendation is eliminating the state tax on Social Security income.
- Lawmakers said a tight budget means they will have to increase the Social Security tax credit without removing it entirely.
- The Legislature has prioritized an income tax cut of .05% for all Utahns this year as they have over the last three years.
Utah Gov. Spencer Cox told lawmakers a week before the 2025 legislative session that he had given them “a gift” by pushing for the end of state taxes on Social Security.
But in return for Cox making this proposal a “cornerstone” of his budget, the Legislature appears ready to present Cox with a pebble.
On Monday, the Senate Taxation Committee advanced a bill that would eliminate the state tax on Social Security but only under the condition that bill sponsor Sen. Wayne Harper, R-Taylorsville, narrowed his bill substantially to fit within the “socks and underwear” budget this year.
Instead, lawmakers are looking at another across the board income tax cut, and increasing the tax credit only slightly for Social Security recipients.
Who is affected by a Social Security tax cut?
In its current form, Harper’s SB71 would build on Social Security tax credit expansions from 2021, 2022 and 2023 by completely removing the caps on income, which currently stand at $75,000 for households filing jointly and $45,000 for individuals.
During the presentation of his fiscal year 2026 budget recommendations, Cox said it was an “embarrassment” that Utah is one of only eight states that plans to continue taxing a portion of Social Security payments in the upcoming year.
“This is, I would say, easily the most popular proposal that I’ve made in the past four years,” Cox told a room full of legislators in January, adding jokingly, “I lament what will happen to you if you don’t do it.”
While the policy change would give roughly 150,000 senior Utahns an average annual tax break of $950, doing so would cost the state an estimated $144 million in revenue for the upcoming fiscal year — money lawmakers are unwilling to part with.
In Monday’s hearing, Harper acknowledged there wasn’t enough in the budget to fully fund the governor’s proposal. But he said it was important to chip away at the Social Security tax to make sure individuals are not being taxed twice on money that was already taken out of their paycheck.
Senate Taxation Chair Dan McCay, R-Riverton, spoke forcefully against Harper’s bill, arguing that it would exacerbate the problem of consolidating wealth among those who are over the age of 65 in the country.
“I believe that this bill is morally wrong and we are hurting our children,” McCay said in explaining his “no” vote.
Is there room for more tax cuts in the budget?
Budget committee members met in December to set aside new revenues to ensure they’d have enough for a fourth consecutive year of tax cuts. But the $231 million they set aside was placed under additional scrutiny when updated projections found that new revenues would be $100 million less than expected.
Despite opposition from Democrats who have lamented the social services that will go unfunded, as in past years, legislative leadership have chosen to prioritize a blanket cut to income taxes.
On Thursday, the House passed HB106, which would decrease the corporate and income tax rates for all Utahns from 4.55% to 4.5%, saving the typical Utah family around $45 a year.
The bill was amended on the House floor to incorporate separate bills that would create a large tax credit for businesses that build child care facilities and that would expand the child tax credit to include children who are 5 years old and under the age of 1.
The total cost of the new law, if it passes the Senate and signed by the governor, will be nearly $126 million in FY2026, leaving no room for Cox’s elimination of the Social Security tax, according to legislative leadership.
On Monday, Senate President Stuart Adams, R-Layton, and Majority Whip Chris Wilson, R-Logan, said Harper’s bill will likely be amended to increase the Social Security tax credit by $5,000-20,000, depending on how budget conversations go during the final week of the 2025 legislative session.
Bill sponsor of the income tax cut, Rep. Kay Christofferson, R-Lehi, told the Deseret News that he had originally planned to sponsor the bill to end the tax on Social Security benefits. He predicted that the Legislature would be able to find enough funding to remove the Social Security tax for all those making below $90,000-100,000.
But he said lawmakers will continue to prioritize income tax cuts for all Utahns.
“We can cut programs, we can do things that make government more efficient and give people that money to be able to use how they see fit,” Christofferson said.