One Big Beautiful Bill and Social Security

With the recent passage of the Trump administration’s “One Big Beautiful Bill,” there has been some confusion and uncertainty regarding proposed changes to the taxation of Social Security income. President Trump campaigned on the promise of “no tax on Social Security benefits,” and both he and the Social Security Administration recently praised the new legislation as fulfilling this promise to the American people.

However, the Social Security Administration’s initial communication regarding the changes caused a bit of controversy. In a recent press release, the administration characterized the new law as including “a provision that eliminates federal income taxes on Social Security benefits for most beneficiaries…” and went on to state, “Additionally it provides an enhanced deduction for taxpayers aged 65 and older, ensuring that retirees can keep more of what they have earned.” But as specific details of the provision emerged, it became clear that the description was a bit misleading.

So, what exactly are the changes included in this bill and what are the implications for Social Security? On this edition of Coffee and Cash, we are going to dive into some of the tax and spending provisions of the President’s flagship legislation and discuss what it accomplishes and fails to do as it relates to taxation of SS benefits for seniors.

Social Security remains an indispensable source of income for most retirees, and for them, nothing bears more importance than knowing how much they’ll receive in benefits each month.

Since 2000, National pollster Gallup has conducted an annual survey of retirees to gauge and track how important their monthly payout is from America's leading social program. In the 2025 survey, 62% of respondents said that their monthly Social Security benefit represented a "major" income source. Moreover, an additional 24% responded that it represented a “minor” source of income.

Taken together, this combined 86% aligns with prior surveys which have shown that between 80% and 90% of respondents have needed Social Security income, in some capacity, to make ends meet. Considering this, it’s not difficult to see why the assertion that federal taxes on Social Security have been eliminated would be welcome news to most.

However, the new legislation doesn’t eliminate taxes on Social Security benefits as has been claimed, at least not directly. What the law does instead is include a temporary enhanced deduction for Americans age 65 and older whose income is below certain thresholds. But to be clear, it is not a separate provision that does away with federal taxes on Social Security benefits, as much as 85% of which could still be subject to taxation. Benefits are still factored into the adjusted gross income calculation, but a higher standard deduction could offset a person’s taxable income. The enhanced deduction, which expires in 2028, is $6,000 for qualified individuals and $12,000 for married taxpayers filing jointly.

More specifically, this means that people age 65 and older can claim a $6,000 deduction if their income is $75,000 or less, and married couples in that age group can claim a deduction of up to $12,000 if their combined income is $150,000 or less. A 6% phase-out begins above these income thresholds, with single filers and married couples with AGIs above $175,000 and $250,000, respectively, not eligible for this added deduction.

So, who is most likely to benefit from the new deduction? Many experts anticipate that middle or upper-middle class households will see the biggest benefit, specifically those with incomes between $80,000 and $130,000. Lower-income seniors aren’t likely to notice any change from this deduction, because they already earn too little to pay taxes. And higher-income folks won't see a change, because individuals with incomes over $175,000 or couples over $250,000 won't qualify for the new deduction.

In a nutshell, what the “Big Beautiful Bill” really accomplishes is the reduction of the overall amount of income that is subject to taxation through the enhanced standard deduction, not the reduction or elimination of taxes on Social Security benefits.

I hope this video was helpful in providing some clarity and education on this important topic. If you have any questions on Social Security or any other topic relating to finances, please contact our office. We will be happy to assist you.

Thanks for watching and we’ll see you next time.