Before we get into how OBBBA affects social security taxation, there are a few basic things that we also want to update you on. First, the standard deduction was increased in 2017 and was originally planned to sunset at the end of this year. OBBBA increased this amount to $31,500 for those Married Filing Jointly (MFJ) and made it permanent. In the tax world, nothing is permanent; it’s considered permanent if it doesn’t have a sunset date - anything can change with future legislation.

Second, the tax bracket changes introduced in 2017 are also now permanent. This means that we will not see the 39.6% bracket return after this year. Furthermore, TCJA expanded the lower brackets, and that feature will remain as well. For many people, this means paying less federal income tax.

So, how is income tax on Social Security changing? OBBBA added an additional standard deduction for those over 65. This is on top of the standard deduction that everyone receives and the current 65+/blind deduction that was already in place. This new amount is $6,000 per person aged 65 or older, so a married couple filing jointly where both spouses are at least 65 would receive an additional $12,000 in deductions from their income. A married couple where both spouses are at least 65 could have a total standard deduction of $46,700 for 2025. You can take the additional senior deduction even if you itemize. It is a “below-the-line deduction,” which means it doesn’t reduce Adjusted Gross Income, but it does reduce taxable income.

There are a couple of details to keep in mind. This additional deduction for seniors is only slated to be in place from 2025 through the 2028 tax year- a total of 4 years. There are phaseouts for certain income levels as well, so not everyone 65+ will receive this deduction. The phase out starts at $150,000 for MFJ ($75,000 for single filers). Households with more than $250,000 in Modified Adjusted Gross Income (MAGI) who are joint filers will be fully phased out.

A significant number of taxpayers receiving social security benefits will not see any difference in their tax bill. Here are a few scenarios:

• Anyone under 65 receiving Social Security benefits will not receive any additional deductions.

• Anyone receiving Social Security, but whose income is too high and is fully phased out from the additional deduction for 65+.

The flip side of this is that there will also be people not currently receiving social security, but who will still receive the additional deduction. Anyone between the ages of 65 and 70 who has not started taking benefits will still receive the deduction even though they are not receiving Social Security.

Some seniors will pay less in federal income tax this year and until 2028, but it is not because Social Security is no longer taxable income. If you have any questions about this or anything else you’ve heard about regarding OBBBA, please don’t hesitate to contact us!