No, the ‘Big Beautiful Bill’ won’t really end Social Security tax. Here’s why

WASHINGTON — Following the passing of a new tax and spending bill last week, millions of Americans were told that they no longer will have to pay taxes on Social Security benefits. The problem is, that’s not entirely accurate and for some Americans, it’s not true at all.

Shortly after the House of Representatives passed the bill Thursday and sent it to President Donald Trump to sign into law, the Social Security Administration issued a press release and sent an email to beneficiaries, applauding the spending package. Trump signed the bill into law Friday.

“The bill ensures that nearly 90% of Social Security beneficiaries will no longer pay federal income taxes on their benefits, providing meaningful and immediate relief to seniors who have spent a lifetime contributing to our nation’s economy,” reads the second paragraph of the press release.

However, the actual text of the bill paints a different picture in how Social Security beneficiaries will profit from the bill. The bill actually describes the change as a “bonus” and is a tax-deduction available to those over the age of 65 – if they meet certain financial criteria. The deduction only lowers the amount of income that is subject to taxes – it does not in any way repeal taxes on Social Security benefits.

The bonus is also temporary and will only be in place until 2028. After that, Congress would have to vote to extend the bonus.

Who can claim the bonus?

A $6,000 deduction is available to individuals over 65 who make less than $75,000 a year or couples who file jointly who make less than $150,000 combined in adjusted gross income. Those who earn above those thresholds will see the deductions phase out.

Individuals who earn more than $175,000 a year and couples who earn over $250,000 do not qualify for the deduction.

How are Social Security benefits taxed?

Benefits are taxed based off the combined income of the person receiving the benefits. Combined income is calculated by adding the person’s adjusted gross income, nontaxable interest and half of their Social Security benefits.

For individuals, if the total is below $25,000, the person generally doesn’t pay taxes on benefits. If the total is between $25,000 and $34,000, up to 50% of benefits can be taxed. If the total is above $34,000, up to 85% of benefits are subject to taxation.

For couples, the thresholds increase slightly. Combined incomes of less than $32,000 typically don’t pay taxes on the benefits. Combined income between $32,000 to $44,000 can be taxed up to 50% and incomes above $44,000 are subject to having up to 85% of benefits taxed.

It’s also worth noting that the bonus deduction is separate from the regular standard deduction. Both deductions are available to those who qualify for the bonus deduction.

Who will benefit from the bonus deduction?

Those in the middle are expected to benefit the most as their adjusted gross income can be significantly impacted by the deduction.

For example: If a 70-year-old senior receives $30,000 a year in Social Security benefits and earns an additional $15,000 a year from a retirement account, their combined income is $30,000 a year (remember half of SS benefits are used in the formula). With the $6,000 bonus deduction, the combined income becomes $24,000, meaning the benefits may no longer be subject to taxation or the amount subject to tax would be reduced.

Social Security beneficiaries near the top of the thresholds will benefit from the combined regular standard deduction and the bonus deduction. The standard deductions for those 65 and older in 2025 is $15,000. An additional $2,000 is also available if you are single or file as head of household.

Using the example above, if the 70-year-old beneficiary receives $30,000 a year in Social Security and earns $30,000 from a retirement account, their combined income is $45,000. By subtracting the standard deduction of $17,000 and the $6,000 bonus, from the $45,000, their combined income would then become $22,000. That would then mean their benefits may no longer be taxed.

Who won’t benefit?

Lower income beneficiaries who already don’t pay taxes on Social Security benefits typically won’t be impacted.

Higher income beneficiaries aren’t expected to benefit either as they already earn too much to qualify for the $6,000 deduction. Meaning the ”no tax on Social Security” claim is untrue for those Americans.

Beneficiaries under the age of 65 will not be impacted by the bonus deduction.