The Social Security Administration (SSA) recently sent a misleading email to beneficiaries, claiming that the “One Big Beautiful Bill” signed into law would eliminate taxes on Social Security benefits. However, the actual changes are not as dramatic as the email suggested. Here’s a breakdown of the confusion and what beneficiaries need to know.
On July 3, the SSA sent out an email stating that the new law would “eliminate federal income taxes on Social Security benefits for most beneficiaries,” which led many to believe that they no longer had to pay taxes on their benefits. The email also stated that “nearly 90%” of beneficiaries would be exempt from federal taxes. However, this information is inaccurate.
The provision that would have removed taxes on Social Security benefits was ultimately removed from the bill due to Senate rules. Instead, the law focuses on increasing the standard income tax deduction for seniors, which could be confusing for those expecting tax relief on their benefits.
The new $6,000 tax deduction for seniors aged 65 and older
Although Social Security benefits are not exempt from taxes as originally stated, the legislation does offer seniors aged 65 and older a new tax break. The new law allows these seniors to claim an additional $6,000 in deductions on their federal income taxes. For married couples, both spouses must be over 65 to qualify, resulting in a potential $12,000 extra deduction.
This change, however, only applies to the 2025-2028 tax years and will phase out for individuals earning more than $75,000 annually (or $150,000 for married couples). Beneficiaries who earn more than $175,000 (or $250,000 for couples) will not be eligible for this deduction.
Who benefits from this change? This tax break primarily benefits seniors in the upper-middle-income brackets. According to White House estimates, the number of seniors who won’t pay income tax on their Social Security benefits will rise from 64% to 88%. However, lower-income seniors who already do not pay taxes on their benefits will not see any additional relief. On the other hand, wealthier seniors will miss out due to the phaseout.
How does this affect the Social Security trust fund? Other changes in the bill that impact seniors
While this new deduction may benefit some seniors, it does come with a downside. The taxes that seniors pay on their benefits are used to fund the Social Security and Medicare trust funds. By reducing the amount seniors pay, the program’s insolvency could be accelerated. The Committee for a Responsible Federal Budget estimates that the new deduction could push the trust fund into insolvency a year sooner than previously predicted.
The bill also includes provisions that could negatively affect older Americans, including cuts to the Supplemental Nutrition Assistance Program (SNAP) and new work requirements for Medicaid. Starting in 2027, eligibility for SNAP will be changed, potentially leaving millions of seniors without assistance.
While this law does offer some relief to seniors, it’s important to understand the limitations. If you’re aged 65 or older and earn under the income threshold, the $6,000 tax deduction could be a helpful benefit for the next few years. However, it’s crucial to be aware of the law’s phaseout provisions and the potential long-term effects on Social Security funding.
Stay informed about how these changes could affect you or a loved one. Make sure to check the official SSA updates and consult a tax professional to understand how these adjustments might impact your financial situation.