No Tax on Social Security? What Seniors Need to Know About the New Deduction

No More Taxes on Social Security? A Big Win for Seniors in the “Big Beautiful Bill”? 

Big news for retirees: under the new "Big Beautiful Bill," a major tax break is on the way — and it's especially good for seniors living on Social Security. According to whitehouse.gov: 

“Under the One Big Beautiful Bill, the vast majority of senior citizens — 88% of all seniors who receive Social Security — will pay NO TAX on their Social Security benefits” 

The headlines and coverage before the bill passed were a bit vague, with some experts saying that the headlines have been a bit misleading. We now have a better understanding of the new law and hope that this will simplify things for our clients. 

How this works:

The Social security tax relief is obtained via a new $6,000 deduction for people age 65 and older. This is on top of the existing extra standard deduction seniors already receive under current law. Seniors over age 65 have previously been able to take a deduction of $1600 per individual if they are married or $2000 if they’re unmarried and not a surviving spouse. This new legislation provides an additional deduction of $6000 per individual or $12,000 per married couple. It is important to note that this will apply to tax years 2025-2028.

Basically, instead of creating a special exemption for taxation of Social Security benefits as maybe was implied, this adds a new deduction for people over age 65, which will mean a greater number of people will pay fewer taxes,  and some will pay no taxes at all. 

IRS.gov breaks it down as follows:

• If you're 65 or older, you can deduct an extra $6,000 from your taxable income.

• If you're married and both of you are 65+, that’s $12,000 total in additional deductions.

• You can claim this even if you don’t itemize deductions — great news for retirees who usually take the standard deduction.

• The deduction begins to phase out if your modified adjusted gross income exceeds $75,000 (or $150,000 for joint filers).

  
  

To qualify:

• You must be 65 or older by the end of the tax year.

• You need to include your Social Security Number on your return.

• If you're married, you must file jointly to get the full deduction.

  
  

According to npr.org, lower income seniors will not notice much change as their benefits were largely untaxed before the passage of the bill. The largest benefit will be realized for people whose incomes are between $80,000 and $130,000. That tax cut would be about $1100 on average.

And of course, higher income earners will not receive any kind of tax benefit as the deduction begins to phase out at higher income levels (see above from IRS.gov).

The following table is provided by whitehouse.gov:

If you would like further reading on the subject you can read this article from taxfoundation.org, that digs much deeper into the topic: https://taxfoundation.org/blog/no-tax-on-social-security-senior-tax-deduction/

Whether you’re already retired or getting close, these changes are worth watching as they take effect in 2025. Be sure to talk to your tax advisor to make sure you’re getting all the benefits you’re entitled to! Let us know if you would like to schedule an appointment to discuss it further. 

Abigail Skipper

Financial Advisor & Coach

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