A recent email from the Social Security Administration and media reports surrounding the passage of the One Big Beautiful Bill Act may have led some to believe that Social Security benefits will no longer be subject to federal income tax. However, while the new law introduces a tax benefit for some older Americans, it does not eliminate the taxation of Social Security income.

What the Law Actually Does

The recently passed legislation includes a new, temporary tax deduction of up to $6,000 for individuals age 65 and older, beginning in tax year 2025 and running through 2028. While this deduction could lower the overall tax burden for qualifying seniors, it is not directly linked to Social Security income and does not alter the long-standing formula that determines whether and how much of an individual’s Social Security benefit is taxable.

Under current law, up to 85% of Social Security income can be included in taxable income depending on the taxpayer’s “combined income” (which includes adjusted gross income, nontaxable interest, and half of Social Security benefits). This formula remains unchanged.

Who Qualifies for the New Deduction?

• The deduction applies only to taxpayers aged 65 and older.
• It is not limited to those receiving Social Security benefits; seniors who have not yet claimed benefits may still qualify.
• The deduction phases out for higher-income earners—specifically, those with modified adjusted gross income above $75,000 (single) or $150,000 (married filing jointly).
• It is fully eliminated at $175,000 for single filers and $250,000 for joint filers.
• It is only available for tax years 2025 through 2028.

Implications for Social Security Taxation

The new deduction may reduce taxable income for some seniors, indirectly lowering the taxes they pay on their Social Security benefits—but it does not remove the tax altogether. For many, Social Security benefits will still appear as taxable income on their returns, depending on their income level.

Broader Context and Impact

From a policy standpoint, the deduction was designed in a way that preserves more revenue for the Social Security trust fund than a full elimination of taxation on benefits would. According to estimates from the Committee for a Responsible Federal Budget, removing taxes on Social Security income entirely would reduce the trust fund’s revenue by roughly $55 billion annually. The new deduction, by comparison, is expected to reduce revenues by about $30 billion per year.

 What Clients Should Know

 For clients receiving Social Security or approaching eligibility, it’s important to understand that:

• The core taxation rules around Social Security benefits remain unchanged.
• A temporary deduction may offer some tax relief starting in 2025, depending on income levels.
• Planning around the deduction should be done in coordination with overall retirement and income strategies, especially since the provision is temporary and subject to change based on future legislation.

Please don’t hesitate to reach out to your CWA Advisory Team with any questions. We’re here to help you understand how these changes may impact your personal financial plan and to discuss any planning opportunities that may arise.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based upon third party information and may become outdated or otherwise superseded without notice. Third-party information is deemed reliable, but its accuracy and completeness cannot be guaranteed.