No Tax on Social Security? – Not So Fast

September 12th, 2025 by Jim Allen

During the last presidential election, one of the campaign promises that President Trump made was to eliminate taxes on Social Security. Under the current tax code, Social Security recipients pay tax on up to 85% of their Social Security benefits (depending on their level of income). For single taxpayers having a modified adjusted gross income (MAGI) below $25,000 no tax is due on Social Security. Married couples filing jointly have no tax up to $32,000 of MAGI.

At $25,000 for single filers and $32,000 for joint filers you will pay tax on 50% of your benefit. Once your MAGI equals $34,000 single and $44,000 married, you will pay tax on 85% of your Social Security benefits. So worst case scenario is you will not be taxed on at least 15% of your benefit. Of course, many states also impose an income tax but most (for example California) do not tax Social Security.  Consequently, Social Security benefits are already at least partially tax favored.

So, what’s the “buzz” around there are now no taxes on Social Security? This stems from the recently passed “One Big Beautiful Bill Act” or OBBBA. There is a provision in the bill that the President and members of Congress have touted as “No Tax on Social Security”.  In fact, the Social Security Administration issued a communication touting that the new tax law eliminated taxation of Social Security for most beneficiaries. This turned out to be completely untrue and the SSA had to issue a correction. While there are potential tax savings for seniors in OBBBA, it has absolutely nothing to do with Social Security. The tax laws regarding taxing Social Security benefits remain unchanged and you will still have to pay tax on up to 85% of your benefit.

The provision in OBBBA that has been touted as eliminating tax on Social Security is a new $6,000 per person tax deduction for people age 65 and older. For a married couple you each have this deduction, so it becomes $12,000. This is absolutely a nice tax break for seniors, but there are some caveats.

First, the deduction is only available for the years 2025 to 2028, meaning that it is a temporary benefit. Additionally, there are income limits that reduce or fully eliminate the ability to take the deduction. For single filers, the deduction starts to phase out at $75,000 of MAGI and for married filers, phase out starts at $150,000 of MAGI. The deduction is fully phased out at $150,000 of MAGI for single filers and $250,000 for married filers. The result of this is that higher income earners may see only a partial deduction or none at all.

So how does the deduction work? For a married couple whose MAGI falls below the phaseout thresholds, they would be able to deduct an additional $12,000 from their income, whether they itemize or not. Assuming a 22% tax bracket, this reduces their taxes by $2,640 which is a nice tax savings. However, this couple would have those tax savings whether they are claiming Social Security benefits or not. In addition, there are roughly 13 million individuals who are claiming Social Security benefits that are under age 65. This group will not benefit from the new deduction at all.

So, while this is a very attractive benefit for people age 65 and older, it has absolutely nothing to do with Social Security benefits. In reality, since Social Security is only partially taxed, the deduction is more valuable being applied to other sources of income that are fully taxed.

Social Security planning remains unaffected by the new tax law and the senior deduction is immaterial to Social Security planning. However, tax planning to take advantage of the new deduction will be important over the next few years while it is available. For instance, income planning around staying below the phaseout thresholds will become a part of annual tax planning going forward.

If you have questions about the new senior deduction, OBBBA in general, or planning around Social Security, please contact your financial advisor or our office.