By: Chip Hunt
Heads-Up… In Case You Haven’t Heard
You may have received an email from the Social Security Administration (SSA) last week. The email was not a fraud or a scam, but the email – while authentic – turns out to be very misleading… unfortunately.
Remember, if it sounds too good to be true, it probably is.
What Happened?
On July 4th, the SSA sent a misleading email to beneficiaries stating that President Donald Trump’s sweeping tax cuts and spending curtailments included in the “One Big Beautiful Bill Act” (OBBBA) eliminated taxes on Social Security benefits for most recipients. Not true.
According to the email, “The new law includes a provision that eliminates federal income taxes on Social Security benefits for most beneficiaries, providing relief to individuals and couples.”
But… believe it or not, the Bill, in fact, does NOT eliminate federal taxes on Social Security Benefits.
People have already asked me about this, so let’s set the record straight.
No Tax on Social Security? Not so Fast
The Wall Street Journal points out that lawmakers didn’t end income taxes on Social Security for two main reasons.
- First, giving up that level of tax revenue would have made it difficult to work within the bill’s fiscal constraints.
- Second, under the legislative procedure lawmakers used to pass the bill, they were not permitted to touch Social Security trust funds.
An Alternative Approach
Instead… lawmakers devised an indirect approach for providing new tax breaks – targeting seniors likely to be claiming Social Security benefits – as an alternative to ‘no tax on Social Security’.
Increased Tax Deductions
According to another article in The Wall Street Journal, the Bill includes an additional $6,000 per-person tax deduction for seniors. Taxpayers 65 and older would still continue to receive the existing tax break known as the additional senior standard deduction. That amount is $2,000 for single filers, and $1,600 each for joint filers for 2025. This is all on top of the base standard deduction, which, under current law, is $15,000 for single filers and $30,000 for joint filers. Adding it all up, that is total income deductions of $23,000 for single filers, and $45,200 for joint filers.
| Deduction Type | Single Filers | Joint Filers |
|---|---|---|
| Base Standard Deduction | $15,000 | $30,000 |
| Additional Senior Deduction | $2,000 | $1,600 each |
| New Senior Bonus Deduction | $6,000 | $6,000 each |
| Total Deductions | $23,000 | $45,200 |
Keep in mind, however, the new $6,000 senior bonus deduction is targeted to benefit people with modest incomes. Therefore, the new deduction gradually begins to phase out for:
- Singles with income in excess of $75,000,
- Married couples with income in excess of $150,000
Conclusion
I tend to be an optimist by nature, so in concluding, while Social Security is not income tax free, American’s with modest income levels now have a valuable new tax break. For many Americans who find themselves just over the 22% tax-bracket threshold ($48,476 for singles; $96,951 for joint filers), this new $6,000 per-person income deduction just might pull them down into the 12% tax bracket. That’s a win.
Please share with friends and family who may benefit from this article.
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This article is provided for informational purposes only. It is always best to counsel with your financial advisor or your tax professional to ensure that you make the best decision for your circumstances.
