Changes in taxation of Social Security benefits | Paul Pahoresky
The recent passage of the One Big Beautiful Bill has received a lot of discussion in the press these past few weeks as the bill was being negotiated in both the House and Senate. There has been a lot of information and misinformation around the taxability of Social Security in the popular press.
Social Security benefits have been subject to federal income tax since 1983. Depending on a beneficiary’s combined income—which includes adjusted gross income, nontaxable interest, and half of the Social Security benefits—up to 85% of Social Security benefits can be taxed. This taxation structure means that many seniors face a tax burden on a portion of their retirement income, reducing their overall financial security during retirement. This specific provision of up to 85% of Social Security being taxable continues even with the passage of the new bill. There is no provision in the bill that directly eliminates or even reduces taxes on Social Security benefits.
Rather, the bill introduces a new additional senior citizen deduction that effectively increases the standard deduction. This deduction increases the threshold for income to be taxable, resulting in fewer seniors being required to pay federal income taxes on their benefits. The bill increases the standard deduction for seniors, which, as a result, reduces the number of seniors who will pay taxes on their Social Security benefits.
Under the new provisions, approximately 88% to 90% of all Social Security beneficiaries will pay no federal income tax on their benefits. This represents a significant increase in the number of seniors who are exempt from these taxes compared to prior law.
Under the new law, a single filer receiving the average annual Social Security benefit of $23,750 will see their entire benefit shielded from taxation. Married couples, each receiving the average benefit (a combined $46,700), will also fall below the new taxable threshold due to expanded deductions and income exclusions.
Rather than eliminating Social Security taxes outright, the bill provides a temporary deduction that beneficiaries can claim. This deduction decreases the amount of Social Security income subject to federal tax, offering immediate relief to many seniors. The tax relief measures for Social Security benefits are effective through 2028. While the bill does not permanently eliminate taxes on Social Security, it provides a multi-year period during which many seniors will benefit from reduced tax liability.
In May, more than 74 million U.S. residents received Social Security, Supplemental Security Income or both, according to federal data. The new deduction for seniors gradually decreases for income levels above $75,000 until it completely phases out for individuals earning more than $175,000. People below a certain combined income — currently $25,000 for individuals and $32,000 for joint filers — don’t pay federal income taxes on their Social Security benefits; combined income includes one-half of annual Social Security benefits along with other income sources.
The new deduction wouldn’t help single Social Security beneficiaries younger than age 65, policy experts said. That includes many disability beneficiaries, people who retired before 65, and those whose spouse or parent died.
Before passage of the bill, about 64 percent of senior beneficiaries had exemptions and deductions that exceeded their taxable Social Security income, according to a White House Council of Economic Advisors analysis. That figure rises to about 88 percent under the new measure, the analysis said.
It is important for beneficiaries to note that the tax relief is currently set through 2028. Seniors and financial planners should monitor legislative developments to understand whether these provisions will be extended or modified in the future.
The One Big Beautiful Bill will have a significant impact on Social Security recipients by offering significant tax relief and simplifying retirement planning for millions of Americans.
The bill also causes serious questions about fiscal responsibility and the viability of entitlement programs going into the future. The one thing that is clear is that the taxability of Social Security will be discussed for years to come.
Paul Pahoresky is the managing member of PRP & Associates. He can be reached at 440-974-1040×14 or at paul@prpassoc.com. Consult your tax advisor for your specific situation for additional information and guidance on these topics.
Originally Published: July 12, 2025 at 8:00 AM EDT