social security

[IY]

What are the effects of the 2025 tax bill on social security benefits?

[SwapnaM]

The "One Big Beautiful Bill Act" (OBBBA) does not directly change the rules for how Social Security benefits are calculated or paid. 

What it does is change how your benefits are taxed. The bill gives a new, temporary $6,000 tax deduction to people aged 65 and older.

This extra deduction helps in two ways:

1. Lowering your overall tax bill: The deduction reduces your taxable income, so you'll pay less in taxes on your Social Security and any other income you have.

2. Making Social Security tax-free for more people: For many seniors with low to moderate income, this new deduction is big enough to make their Social Security benefits completely tax-free.

@IY Thanks for the question.

[IY]

Thank you.

Are there any changes to the 2025 SS Benefits Worksheet for calculating taxable amount of Social Security Benefits?

Surely appreciate this forum today!

Frank

[Jennifer_A]

While there is no change on how social security is taxed, there is a new deduction for seniors that will lower overall taxable income.

Firstly, earned income is still subject to social security taxes no matter your age or if you are receiving social security benefits.

Secondly,  it still holds true that 50% to 85% of social security benefits are subject to income tax if your combined income ( including wages, pensions, interest, dividends, and capital gains)  is between $25,000 and $44,000.

What has changed is that after taxable income is calculated, there will be a new deduction of $6,000 (or $12,000 for married)  that reduces how much overall income will be subject to income taxes.

Below is a summary from the IRS newsroom:

Deduction for Seniors

• New deduction: Effective for 2025 through 2028, individuals who are age 65 and older may claim an additional deduction of $6,000. This new deduction is in addition to the current additional standard deduction for seniors under existing law.
  • The $6,000 senior deduction is per eligible individual (i.e., $12,000 total for a married couple where both spouses qualify).
  • Deduction phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers).
• Qualifying taxpayers: To qualify for the additional deduction, a taxpayer must attain age 65 on or before the last day of the taxable year.
• Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing taxpayers.
  • Taxpayers must:
    • include the Social Security Number of the qualifying individual(s) on the return, and
    • file jointly if married, to claim the deduction.

[SwapnaM]

The 2025 Social Security Benefits Worksheet (used to calculate the taxable portion of Social Security benefits on Form 1040) has not changed in its core structure.

The taxability of your Social Security is based on your "provisional income," which is a different calculation than MAGI. It's your Adjusted Gross Income (AGI) plus non-taxable interest plus half of your Social Security benefits.

• Taxation Thresholds:

  • Single: Provisional income between $25,000 and $34,000 means up to 50% of your benefits are taxed. Above $34,000, up to 85% is taxed.

  • Joint: Provisional income between $32,000 and $44,000 means up to 50% of your benefits are taxed. Above $44,000, up to 85% is taxed.

The new senior deduction reduces your AGI, which in turn lowers your provisional income. This pushes many people below the thresholds where their Social Security benefits become taxable. The IRS will likely update the Form 1040-SR and the Social Security Benefits Worksheet included in its instructions to account for this new deduction.

TurboTax has a Tax Reform calculator which will be updated soon for various scenarios.

@IY Hope this helps!! Thanks again for attending the event!!

[IY]

So, the 2024 SS Benefits Worksheet used a Standard Deduction on line 1c of $12,000 (I am working with married filing jointly) to subtract from Total Benefits.  Does that figure change?

[Jennifer_A]

No, the figure does not change because the benefit is still taxable.  When the new 2025 1040 is drafted, there will be a new line to address the Senior Deduction that is separate and apart from calculating taxability of social security benefits.  The additional deduction will lower all income, not just social security.