July 29, 2025
By Bryce Koch CPA CFP(r)
You may have seen headlines recently suggesting that Social Security benefits are now completely tax-free. While that could be true for some individuals, it’s not the full picture. We wanted to provide a brief overview of how the new tax legislation—nicknamed the “One Big Beautiful Bill Act”—may impact you, especially if you’re over age 65 and receiving Social Security.
Here’s what you need to know:
- Social Security tax rules haven’t changed: It still remains true that up to 85% of your Social Security benefits may be taxable, depending on your total income. For example, if your other income—from sources such as pensions, IRA withdrawals, or investment income—pushes you above the income thresholds, and you receive $10,000 in Social Security benefits, up to $8,500 (85%) of your Social Security would be taxable. The new law does not change this formula—but the new senior deduction (explained below) may help reduce or even eliminate the tax owed on those benefits.
- New senior deduction introduced: Beginning in 2025 and continuing through 2028, individuals age 65 and older will receive an additional standard deduction of $6,000 for single filers & $12,000 for married couples filing jointly. This brings the total standard deduction to be the following:
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- $23,750 – Single, age 65 and older
- $39,100 – Married, only one individual age 65 and older
- $46,700 – Married, both individuals age 65 and older
- Phase-out thresholds apply: This additional deduction begins to phase out when Modified Adjusted Gross Income (MAGI) exceeds:
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- $75,000 for single filers
- $150,000 for joint filers
- What this means for you: Seniors who rely solely on Social Security may see their taxable income fully offset by the new deduction if their Social Security benefit is less than the deduction received. In some cases, this could make Social Security income completely tax-free.
- Planning opportunities: Even with other sources of income in addition to Social Security, this increased deduction can reduce overall tax liability and/or create opportunities to pursue other tax strategies such as Roth conversions (i.e., converting pre-tax dollars to Roth).
As these tax law changes take effect, we’ll be looking for opportunities to take a strategic approach based on your specific situation. If you have any questions or would like to discuss how this applies to you, our team is always here to help.
