The One Big Beautiful Bill(OBBB) passed through Congress and was signed into law by President Trump. Let’s take a close look at some of the changes that have been made under the new law and specifically the taxation of your social security benefits. The following are effective for the 2025 tax year:
Let’s start with what stays the same.
Social security benefits are still subject to tax as they were before. How much tax you will pay on your social security benefits is a function of the income you have other than social security, such as earned income, interest income, dividends, capital gains, IRA distributions and even tax-free municipal bond interest.
If you’re married and your other income is under $32,000, none of your social security benefits are taxed. From $32,000-$44,000, 50% of your social security will be taxed. If the other income is greater than $44,000, 85% will be taxed.
If you’re single and your other income is under $25,000, none of your social security benefits are taxed. From $25,000-$34,000, 50% of your social security will be taxed. If the other income is greater than $34,000, 85% will be taxed.
Here’s another important benefit that hasn’t changed. If you’re 65 or older, you have an additional increased standard deduction. That additional deduction is $1,600 per person if married filing jointly and $2,000 if filing as single or head of household.
What’s changed with the new law?
The standard deduction has increased to $31,500 for a married couple, $15,750 for single filers and $23,625 if filing as head of household. For people aged 65 or older, there is an increased standard deduction of $2,000 for single filers or heads of household and $1,600 for those married filing jointly ($3,200 if both spouses are age 65 or older).
With the OBBB, seniors aged 65 or older will get a bonus deduction of $6,000 per eligible person. This tax break is intended to help offset taxes on Social Security benefits but you don’t have to receive Social Security to qualify. This new deduction is an above-the-line deduction, so you can take it whether you itemize your deductions or take the standard deduction.
For a married couple each aged 65 or older and electing to take the standard deduction, their deduction is $31,500 plus the 65+ additional standard deduction of $3,200 and the new bonus deduction of $12,000 for a the maximum of $46,700..
For a single filer aged 65 or older and electing to take the standard deduction, their deduction starts at $15,750 plus the 65+ additional standard deduction of $2,000 and the new bonus deduction of $6,000 for the maximum of $23,750..
For someone filing as head of household aged 65 or older and electing to take the standard deduction, their deduction starts at $23,625 plus the 65+ additional standard deduction of $2,000 and the new bonus deduction of $6,000 for the maximum of $31,625.
What to else should you know?
The new bonus deduction starts to fade out if the modified adjusted gross income (MAGI) reaches $75,000 for single filers and $250,000 for married filing joint filers. Once the MAGI reaches $150,000 for single filers and $250,000 for married filing joint filers, the bonus deduction is faded out completely. This means taking control of you retirement income is important as ever. The inclusion of a Roth IRA for supplemental IRA could solve this problem.
Lastly, the new bonus deduction of $6000/per person 65 or older is not permanent and will expire after 2028 unless congress changes the law.
If you have any questions, please contact Marc Montini.
