If you’ve seen recent headlines—or even received an email from the Social Security Administration—you might be wondering whether Social Security benefits are now completely tax-free under the newly passed One Big, Beautiful Bill. Some messages have claimed that nearly 90% of recipients will no longer owe any federal income tax on their benefits. That would be a major change—if it were true.

Here’s the bottom line:
The bill does not eliminate taxes on Social Security income. Instead, it introduces a temporary, income-limited tax deduction for seniors age 65 and older. While this deduction may reduce taxable income for some retirees and indirectly lower the amount of Social Security that gets taxed, it’s a far cry from a full exemption.

What Did Change: A Temporary Deduction for Seniors

The bill includes a new federal income tax deduction of up to $6,000 ($12,000 for married couples filing jointly) for individuals aged 65 and older, starting in tax year 2025. However, it comes with income limits:

• Single filers must have an adjusted gross income (AGI) of $75,000 or less
• Married couples filing jointly must have AGI of $150,000 or less

If your income exceeds those thresholds, you won’t qualify for the new deduction. The deduction is temporary, set to expire at the end of 2028.

What Did Not Change: The Taxation of Social Security

Despite what some headlines imply, the bill does not change the rules for how Social Security benefits are taxed. The existing formula—which uses “provisional income” to determine how much of your benefits are taxable—remains intact.

Currently:

• Up to 85% of your Social Security benefits may be taxable, depending on your income.
• That formula applies to both retirees and those receiving disability or survivor benefits.
• Why All the Confusion?

The Social Security Administration issued a public statement suggesting that nearly 90% of beneficiaries would no longer pay taxes on their benefits. While it’s true that the new deduction could reduce taxable income enough for some seniors to fall below the Social Security tax thresholds, that’s an indirect effect, and it does not apply to everyone.

The bill doesn’t target Social Security specifically. Instead, it offers a broad-based deduction for seniors—applying to all income, not just Social Security. And for lower-income seniors who already pay little or no federal income tax, this deduction provides no added benefit. Paradoxically, the deduction mostly benefits higher-income seniors who qualify based on AGI and age.

Additionally, any direct repealof Social Security taxation is not allowed under current legislative rules. Specifically, the Byrd Rule—a Senate rule that governs reconciliation bills—prohibits changes to Social Security programs in budget-related legislation. That’s why this law could not legally eliminate taxes on Social Security, even if lawmakers had wanted to.

What This Means for You

If you’re over age 65 and your income falls below the new thresholds, you may benefit from the added deduction starting in 2025. This could reduce the amount of your income subject to tax, which may or may not reduce the taxable portion of your Social Security benefits.

If you’re under 65, over the income limits, or already pay no federal income tax, this change likely won’t impact your return.

We encourage all clients—and especially retirees—to be cautious when reading headlines or promotional statements from government agencies. While the new deduction may provide modest relief to some, it does not change the fundamental taxability of Social Security benefits.

If you’d like a personalized review of how the new deduction might affect your tax situation, Contact Us. We’re here to help you make sense of the changes and plan with clarity.