Taxes on Social Security Benefits

Social Security benefits are a crucial financial lifeline for many retirees. Many taxpayers are often shocked to learn that their Social Security benefits can be taxed by the federal government. Taxes on Social Security benefits are dependent on a variety of factors, making it essential for retirees to understand the rules and implications of Social Security taxation, especially in light of recent changes under the One Big Beautiful Bill.

What’s New: The One Big Beautiful Bill and Seniors’ Tax Deductions

Before discussing the traditional taxation of Social Security benefits, let’s clarify the recent headlines about the One Big Beautiful Bill (OBBB), which has sparked some confusion, particularly among Social Security recipients.

The OBBB introduces a temporary, bonus tax deduction of $6,000 for taxpayers age 65 and older. It applies whether you itemize or take the standard deduction, as long as you include your Social Security Number on your return. The deduction begins to phase out for individuals with modified adjusted gross incomes over $75,000 (or $150,000 for joint filers).

But Does It Change How Social Security Benefits Are Taxed?

No. The OBBB does not change the underlying rules of how Social Security benefits are taxed. Instead, it indirectly reduces the number of seniors who will owe federal income taxes on those benefits. This is done primarily by reducing their taxable income with the new deduction. Estimates suggest that up to 88% of seniors may no longer owe taxes on their benefits, though many of those were already exempt due to low income.

Importantly, the bill does not modify the Social Security program itself, nor does it eliminate federal income taxes on benefits outright, despite some misleading communications, most notably, an email from the Social Security Administration that inaccurately claimed otherwise.

Eligibility and Phase-Out Limits

Under the One Big Beautiful Bill (OBBB), the new $6,000 bonus deduction is available to taxpayers aged 65 and older, with an income-based phase-out. To claim the deduction, you must include your Social Security Number on your tax return and, if married, file jointly. The deduction begins to phase out at $75,000 in modified adjusted gross income (MAGI) for individuals and $150,000 for joint filers. Taxpayers above these thresholds receive a reduced deduction or none at all. The deduction applies whether you take the standard deduction or itemize.

Who Will Benefit the Most

While the OBBB has been widely touted as a tax cut for all seniors, the greatest benefits go to middle- and upper-middle-income retirees. Specifically, it benefits those with incomes between $80,000 and $130,000, who would otherwise see part of their Social Security taxed. Lower-income seniors, who already paid little or no tax on Social Security, are less affected. Likewise, higher-income seniors above the phase-out thresholds are not eligible at all.

Controversy: Messaging and Misleading Claims

The bill has stirred controversy due to inaccurate claims made in official messaging. Notably, the Social Security Administration sent out an email claiming the bill “eliminates federal income taxes on Social Security benefits for most beneficiaries.” This statement is misleading because the underlying tax rules remain unchanged, and not all seniors qualify for the deduction. Independent fact-checkers and media outlets have flagged this as overstated or “mostly false.”

A Temporary Change with Long-Term Implications

The $6,000 senior deduction is set to expire after 2028 unless Congress renews it. Additionally, some economists warn that the resulting reduction in taxable Social Security income could accelerate the insolvency of the Social Security and Medicare Part A trust funds, possibly as soon as 2032. Without further reforms, this could result in a 24% cut in future benefits. Now, let’s look at the rules that determine whether your Social Security income is taxable in the first place.

The taxation of Social Security benefits is determined by your total income, not just your benefits. The IRS uses a formula called combined income, which includes:

Half of your annual Social Security benefits

Your adjusted gross income (AGI)

Any tax-exempt interest

If your combined income exceeds certain thresholds, your benefits may be taxable. The IRS base amounts are:

$25,000 for single filers, heads of household, or qualifying widows(er)s

$32,000 for married couples filing jointly

How Much Will I Be Taxed?

The IRS may tax 50% or 85% of your Social Security benefits, depending on your combined income.

50% of benefits are taxable if:

You’re a single filer, head of household, or qualifying widow(er) with combined income between $25,000–$34,000

You’re married filing jointly with combined income between $32,000–$44,000

You’re married filing separately and lived apart from your spouse all year, with income in the same ranges

85% of benefits are taxable if:

You’re a single filer or head of household and earn more than $34,000

You’re married filing jointly and earn more than $44,000

You’re married filing separately and lived with your spouse at any point during the year

Example

Let’s say a single filer receives $20,000 in Social Security and has a combined income of $27,000:

Half of Social Security = $10,000

Excess over IRS base = $27,000 – $25,000 = $2,000

50% of the excess = $1,000

Result: $1,000 of Social Security benefits is taxable, since it’s the lesser of $10,000 and $1,000.

While the federal government may tax your benefits, some states do too, but many don’t. As of 2025, these states tax Social Security benefits to some degree:

Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont

However, these states often offer age- or income-based deductions. Kansas, Missouri and Nebraska have phased out taxation of benefits and no longer tax them as of 2024. Always check your state’s specific rules or consult with a tax professional.

Tax Planning Strategies

Being proactive can help you reduce or avoid taxes on your Social Security benefits. Some strategies include:

Diversify Your Income Sources

Drawing income from tax-free accounts like Roth IRAs can help keep your combined income below the taxable thresholds.

Manage Your Retirement Withdrawals

Coordinate withdrawals from traditional IRAs or 401(k)s to limit your total income in any given year.

Delay Social Security

Delaying benefits until age 70 increases your monthly payments and may keep your taxable income lower in earlier retirement years.

The One Big Beautiful Bill introduced a meaningful, though temporary, tax break for seniors, but it doesn’t change the core rules on how Social Security benefits are taxed. If you’re receiving Social Security, it’s still critical to understand your income thresholds, evaluate your filing status, and plan strategically to minimize taxes in retirement. And keep in mind: without further legislation, the senior deduction will disappear after 2028, and questions about the long-term solvency of the Social Security program will likely become more pressing. Optima Tax Relief is the nation’s leading tax resolution firm with over $3 billion in resolved tax liabilities.

If You Need Tax Help, Contact Us Today for a Free Consultation

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