October 23, 2025
Background
Since the passage of the 2025 Act (formerly known as the One Big Beautiful Bill Act), you may have an unusually high number of clients asking: Is Social Security income exempt from taxation now? Their confusion is understandable and stems from some mixed signals—bold campaign promises to end taxation on Social Security benefits and a mass e-mail and press release from the Social Security Administration claiming that the 2025 Act ensures that nearly 90% of Social Security beneficiaries will no longer pay federal income taxes on their benefits, providing meaningful and immediate relief to seniors who have spent a lifetime contributing to our nation’s economy.
Despite what your clients may have read or heard, the 2025 Act does not exempt Social Security benefits from taxation. In fact, the taxation of Social Security benefits hasn’t changed at all post-2025 Act—and, unfortunately, believing otherwise could prompt planning choices that end up increasing the amount of benefits subject to tax.
This article outlines the unchanged basics of how Social Security benefits are taxed and considers the new temporary 2025 Act provision—not specific to Social Security—that seniors aged and older may use to offset some of their income.
Back to Basics: How Social Security Benefits are Taxed
The taxation of Social Security benefits is very much dependent on a beneficiary’s “provisional income,” which is a combination of adjusted gross income (AGI), tax-exempt interest and half of the social security benefits [IRC Sec. 86]. Simply, the higher the income, the greater the federal income tax liability on Social Security benefits:
- For single filers with provisional income less than $25,000 and joint filers with provisional income less than $32,000, Social Security benefits are not subject to federal income tax.
- For single filers with provisional income between $25,000 and $34,000 and joint filers with provisional income between $32,000 and $44,000, up to 50% of their Social Security benefits could be taxed.
- For single filers with provisional income exceeding $34,000 and joint filers with provisional income exceeding $44,000, up to 85% of their Social Security benefits could be taxed.
Married taxpayers who file separate returns are subject to tax on their benefits without a $25,000/$32,000 floor.
Example: S has $20,000 in taxable dividends, $2,400 of tax-exempt interest, and Social Security benefits of $9,000. So, S’s income plus half S’s benefits is $26,900 ($20,000 plus $2,400 plus 1/2 of $9,000). S must include $950 of the benefits in gross income (1/2 ($26,900 − $25,000)).
Caution: If a Social Security beneficiary isn’t paying tax on their Social Security benefits now because their income is below the applicable floor or is paying tax on only 50% of those benefits, an unplanned increase in income can have a triple tax cost. The beneficiary:
(1) must pay tax on the additional income;
(2) must pay tax on (or on more of) their Social Security benefits (since the higher the income the more Social Security benefits that are taxed); and
(3) may get pushed into a higher marginal tax bracket.
This situation might arise, for example, when a beneficiary receives a large distribution from a retirement plan (such as an IRA) during the year or has large capital gains. Careful planning might be able to avoid this stiff tax result. For example, it may be possible to spread the additional income over more than one year, or liquidate assets other than an IRA account, such as stock showing only a small gain or stock whose gain can be offset by a capital loss on other shares.
New Temporary 65+ Deduction
The 2025 Act introduced a temporary senior deduction for tax years 2025–2028: individuals age 65 or older can claim $6,000 ($12,000 for joint filers), whether they itemize or not. Both spouses can qualify on a joint return. The deduction is reduced by 6% of any MAGI over $75,000 (single) or $150,000 (joint), and it is in addition to the regular standard deduction for seniors and the blind.
Notably, this new deduction is not directly related to Social Security benefits—whether a person aged 65+ receives Social Security benefits or not, they will still be eligible for the deduction. More specifically, the new deduction is a “below-the-line” deduction (i.e., taken after calculating AGI); thus, the deduction doesn’t impact the taxability of Social Security benefits (which is calculated in part using AGI).
For tax planning purposes, remember the new deduction is not linked to Social Security benefits, and the tax rules for those benefits remain unchanged after the 2025 Act. If seniors mistakenly think Social Security is now tax-free, they may make choices—like Roth conversions—that raise taxable income and increase the amount of Social Security benefits subject to tax. For example, converting $100,000 from a 401(k) to a Roth adds $100,000 to income, which can make more of their Social Security benefits taxable. Beneficiaries should understand that the new law does not change this outcome.
Conclusion
Despite widespread confusion, the 2025 Act did not eliminate federal income taxation on Social Security benefits. The longstanding rules governing the taxability of Social Security benefits remain unchanged. While 2025 Act introduced a new, temporary deduction for individuals 65 and older, this deduction is not specific to Social Security benefits. Clarity and careful planning are essential to avoid unintended tax consequences in the post-2025 Act landscape.
Editor’s Note: The full article presented above is available in the Practitioner’s Tax Action Bulletin, as Tax Action Memo (TAM-2338), Issue 18, first published September 23, 2025, along with other valuable tax practitioner articles. Contact Our Sales Team for a Subscription to Checkpoint’s bi-monthly Practitioner’s Tax Action Bulletin, which is available in print, and online or to add Thomson Reuters Planner CS to your advisory toolkit.
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