“NO TAX ON SOCIAL SECURITY BENEFITS” IN THE BIG BEAUTIFUL BILL?

President Trump signed the Big Beautiful Bill (BBB) into law on Independence Day 2025.  The law, supporters say, fulfilled his promise to relieve seniors of their income tax obligations on their Social Security benefits.  A closer look reveals however, while not ALL seniors will see their income tax disappear, the law does provide significant savings for ALL seniors.

BBB PROVIDES SIGNIFICANT SAVINGS FOR MOST SENIOR TAXPAYERS, EVEN THOSE NOT COLLECTING SOCIAL SECURITY

To understand how the bill works we must first look at how Social Security benefits are taxed (and are STILL taxed).  Benefits are taxable as income but only a certain percentage of the benefit is subject to taxation.  To determine what portion is taxable, first “Provisional Income” is determined.  Provisional Income is Total Income + Tax Exempt Interest + ½ of the Social Security Benefit.  From there look to the following table to see how much is taxable:

The taxable amount of the benefit is then added to total taxable income to determine the taxpayer’s income tax bill.[i]

A NEW BONUS SENIOR DEDUCTION

The BBB doesn’t eliminate the taxation of benefits but it DOES introduce an additional, special “Senior Deduction”, to reduce taxable income and thus the tax on the benefit.

The Big Beautiful Bill

·         Increases the standard deduction to $15, 750 (from $15,000) for Single filers and to $31, 500 (from $30,000) for those Married Filing Jointly,

·         Keeps the Senior Deduction (available to taxpayers over age 65) at $2,000 and $3,200 for those Married Filing Jointly

·         INTRODUCES A NEW “BONUS” SENIOR DEDUCTION OF $6,000 FOR SINGLE FILERS AND $12,000 FOR THOSE MARRIED FILING JOINTLY

Taxpayers will be able to deduct more from their taxable income, resulting in a lower tax bill.  The White House estimates “88% of seniors receiving Social Security benefits will pay no tax on their benefits as a result of their total deductions exceeding their taxable Social Security benefits.”[ii]

LIMITED AVAILABILITY OF THE BONUS SENIOR DEDUCTION AND PHASEOUT

The new bonus deduction is available to seniors 65 and over ONLY during tax years 2025 to 2028, unless later extended or made permanent.  Furthermore, the deductions begin to phase out at $75,000 of income for Single filers and at $150,000 for those Married Filing Jointly.  The deduction is completely phased out at $175,000 and $250,000, respectively.

SENIORS OVER 65 BUT NOT COLLECTING SOCIAL SECURITY BENEFITS CAN STILL BENEFIT FROM THE BBB!

While the news touts the deductions as a method to reduce taxes on Social Security benefits, there is no mention of the deduction being available ONLY for reducing taxes on Social Security benefits.  The deductions are available to any taxpayer, regardless of their benefit situation, who are over 65 and below the phaseout thresholds.  This can include:

·         Retirees who were part of a pension system where they didn’t pay into Social Security and thus don’t have enough credits to qualify for a Social Security benefit, or

·         Retirees who are eligible for Social Security benefits but have yet to begin collecting.

USE THE INCREASED DEDUCTIONS UNDER THE BBB FOR ROTH CONVERSION OR PRE-RMD DISTRIBUTION PLANNING

Even if you aren’t collecting a Social Security benefit, you can still use the provisions of the BBB—do so by using the increased deductions to take MORE out of your IRA or other pre-tax retirement plans.  This can be by a normal distribution or better yet, through a Roth conversion!  Working with your tax advisor, you can calculate how much you take out of your retirement plan and use the BBB deductions to eliminate the income tax on your distribution or conversion![iii]

For example, a 65 year old who converts $12,000 to a Roth IRA for 4 years (tax years 2025 to 2028) will  have $48,000 of Roth IRA funds available later (assuming no growth) for tax-free distributions, should he or she decide to use those funds.  Those funds also pass tax free to beneficiaries at death![iv]

DON’T WAIT – PLAN NOW AND TAKE ADVANTAGE OF THE BBB DEDUCTIONS BEFORE THEY EXPIRE

As mentioned, the new deductions available under the Big Beautiful Bill are available only until 2028 and the deductions are phased out for certain higher earning senior taxpayers.  Take advantage of the deductions while you can to maximize the amount of funds you can get out of pre-tax retirement accounts now, before the benefits go away. 

WealthBridge Capital Management is ready to help you evaluate your income plan, to include Roth contribution and conversion analyses, Social Security benefit timing, and retirement plan distributions.  If you don’t have a retirement income plan, or your need to update or review your current plan, please reach out to us at 614-591-4515 or email us at info@wealthbridgecm.com to schedule an appointment.