OBBBA & Social Security Taxes
Congress has passed – and the President has signed into law – the One Big Beautiful Bill, which includes important tax changes with the potential to impact many U.S. savers.
One provision in the bill that specifically targets savers age 65 and older: A new tax deduction that’s intended to offset the taxation of Social Security benefits1.
So what is this new tax benefit, and who can take advantage? Below is an overview of the details you may want to know.
Is my Social Security benefit taxable?
Yes, potentially. The taxation of Social Security benefits is a relatively new phenomenon, passed in 1983 as part of the Social Security Amendments2 as a way to shore up the struggling Social Security trust fund. Depending on your income level, your Social Security benefit may be taxable up to 85% of that benefit.2 Unlike other forms of income, the taxes paid on Social Security benefits do not go to general IRS coffers. Instead, they go specifically to the Social Security and Medicare trust funds3.
Did the OBBBA eliminate taxes on my Social Security benefit?
Not exactly. The bill did not eliminate the taxation of Social Security benefits outright. However, it does contain
provisions to give Americans age 65 and older an additional tax deduction, which can be seen to “offset” taxes paid
on their Social Security benefits.
What did the OBBBA do?
Instead of eliminating the taxation of benefits directly, the bill1 provides a new tax deduction available to Americans age 65 and older.
The deduction amount is based on a saver’s modified adjusted gross income (MAGI). The deduction starts at $6,000 for individual filers with up to $75,000 in annual income (and $12,000 for joint filers with up to $150,000 in annual income). The tax deduction then phases out at a rate of six cents per dollar over the income thresholds, completely phasing out at $175,000 of income for single filers and $250,000 of income for joint filers1.
This deduction is provided in addition to the existing standard deduction and can also be used by Americans who itemize their deductions.
Americans who qualify for the new deduction will still pay applicable taxes on their Social Security benefits. Nothing in the One Big Beautiful Bill has changed the tax status of these benefits or the calculation of how these benefits are taxed4.
However, Americans age 65 and older will potentially have up to $6,000 in new tax deductions they can take starting this year. So for these Americans, their overall tax liability can go down.
Who is eligible for the new deduction?
The deduction is available to all Americans age 65 and older, regardless of whether an individual has elected Social Security yet5. If a saver is not yet 65 years old, the individual must reach age 65 by December 31 of a given tax year to receive the deduction for that year.
Is the new deduction permanent?
No. This new tax deduction is temporary.
Under current law1, this new deduction is only authorized for tax years 2025, 2026, 2027, and 2028. That means unless Congress votes to extend the deduction (and a future President signs the legislation into law), this deduction will go away after the 2028 tax year.
So this new tax deduction will provide some additional tax relief for some Americans over a very limited period.
Can you give me a quick summary?
For the next four years, Americans age 65 and older will have a new deduction they can take on their taxes (if they’re filing with a qualifying income level). And they can take this deduction regardless of whether they’ve elected Social Security or chosen to defer it.
