Social Security Under the Big Beautiful Bill

Social Security Under the Big Beautiful Bill

I still chuckle at how absurd the name of this tax bill is, but hey, that is the new norm, I suppose.  That said, we have been getting a bunch of questions on different aspects of the new tax bill.  Although we do plan to have a webinar in the next month or so with our tax team, I wanted to address the new “tax-free” Social Security feature people are talking about.  Mainly, I wanted to address this as I believe it is being misrepresented and causing a bit of confusion.

Taxes and Social Security

For starters, what this provision is not is tax-free Social Security for seniors.  Rather, what actually is being provided is a tax deduction of up to $6,000 for single filers and $12,000 for married filing jointly beginning in 2025 for those ages 65 or older.  But wait, there is more, much more, as a matter of fact, and to learn many of the ins and outs, continue reading below.

Now to even be considered for these new Social Security benefits, which will expire unless Congress acts in 2028, you must be 65 years of age or older.  In addition, there are earning limits of $175,000 MAGI if single and $250,000 MAGI if filing jointly to be eligible to receive any deductions.  If you are below $75,000 MAGI, or $150,000 MAGI for joint filers, you should receive the full $6,000 deduction.  Once you start to go over those thresholds, your deductions amount will be reduced 6 cents per dollar over the limit until you are completely phased out at the $175,000 or $250,000 MAGI thresholds mentioned above.

For Instance, if you are single and over 65 with a MAGI of say $125,000, you would be $50,000 over the $75,000 threshold.  $50,000*.06=$3,000.  $6,000-$3,000=$3,000 or the amount you will be able to deduct from taxes this year. 

Deductions

Good news is you get this benefit regardless of whether you itemize or take the new standard deduction.  This will certainly help out regardless of your filing status, assuming you are below the MAGI phase-out thresholds.  Now, remember these deductions are only valid through 2028, starting this calendar year.  After which, if no action is taken, they will sunset and revert back to the pre-2025 rules for taxability.

Now it isn’t all great news as less taxes on Social Security will mean less dollars added to the Social Security trust fund, which is slated to run out, if nothing is done, in 2034.  Now, this doesn’t mean there will be no more Social Security; rather, the benefits will be reduced close to 20% if nothing is done.  That said, this will be a huge topic for future elections and is so critical to our economy’s financial health. I can’t imagine a future that doesn’t have Social Security in its current form, with maybe some minor adjustments.

There you have it, the new non-tax-free, but yes tax tax-deductible feature of Social Security.  I’m sure that is not grammatically correct!  Hope you found the clarifications informative, and keep a lookout for our Big Beautiful Webinar coming out in the next few weeks.

As always, stay wealthy, healthy, and happy.