Are Taxes on Social Security Going Away?

Carolyn McClanahan, M.D., CFP®

Many of you have seen the announcement from the Social Security Administration that 90% of Social Security beneficiaries will no longer pay federal income taxes on their benefits. This is supposedly part of the “Big Beautiful Bill” and this announcement amounts to what many would call propaganda. Many of you have already emailed me to ask if you are in the 90%. Let’s dive into the details.

There is only one provision that applies to this statement, and it doesn’t mention social security. It says, “Seniors who are over the age of 65 are eligible for an extra deduction of up to $6,000.”

Despite the announcement saying there is a reduction in taxes on social security income and an additional tax break for taxpayers over 65, there is not a reduction in taxes on social security.

What do you get if you are over 65?

•  If you are over 65, you get a deduction on your income of $6,000. It doesn’t matter whether you are getting social security or not. Those of you delaying social security to age 70? You still get the deduction.
•  The deduction is phased out after modified adjusted gross income reaches $150,000 for couples and $75,000 for single filers. It completely disappears after income hits $350,000 for couples and $175,000 for single filers. Basically, most of our clients over 65 will get some of the deduction.
• This is not a tax credit. It is a deduction on income. If you are in the 22% tax bracket, a $6,000 reduction in income will save you $1,320 in taxes.
• This provision sunsets in 2028.

The law is indeed big and like most legislation, extremely confusing. There are several tax provisions that will require further guidance from the IRS. We’ll pay attention and let each of you know how the tax and health provisions affect you as we receive clarification.

My biggest sadness? We have a very complicated tax system and this added to the complexity of tax planning and tax preparation. I dream of the day we have a political system that simplifies our tax code. I actually dream of a lot more, but that is for another day.

We are here for your questions and concerns.