Currently the federal taxation of Social Security benefits is calculated based on your provisional income, depending on your income level, and up to 50% or 85% of your Social Security benefits could be subject to federal taxes. This calculation has been key in calculating your overall federal tax obligation.
The One Big Beautiful Bill does provide a special deduction for seniors. It's important to note that this is a deduction, not a tax credit, meaning it reduces taxable income rather than directly reducing the taxes owed.
Here’s a summary of the new senior deduction:
Eligibility and Amounts:
- A new $6,000 deduction is available for individuals aged 65 and older. For married couples where both spouses are age 65 or older, the deduction increases to $12,000.
Purpose:
- This deduction is an addition to the standard deduction already available to taxpayers, further reducing the total taxable income.
- It applies to all taxable income, not just Social Security benefits.
Income Phase-Outs:
- The deduction starts to phase out for single filers with a modified adjusted gross income (MAGI) above $75,000.
- For married couples filing jointly, the deduction begins to phase out when their MAGI exceeds $150,000.
- The deduction is completely phased out for individuals with MAGI above $175,000 or married couples filing jointly with MAGI over $250,000.
Impact on Social Security Taxes:
- For many seniors, this deduction will lower their taxable income enough that their Social Security benefits may no longer be subject to federal income tax.
- The deduction can substantially cover the portion of benefits that would have been taxable under prior tax rules.
Limitations:
- This deduction does not entirely eliminate Social Security taxation for all seniors.
- Higher-income seniors who remain above the phase-out thresholds may still owe federal taxes on a portion of their Social Security benefits.
For more information see:
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Terri Lynn
