Trump's New Tax Law Could Cut Social Security Taxes For Millions

Forbes

11-07-2025

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A new tax break aimed at seniors may lighten the load on retirees' Social Security income, but it's not as sweeping or permanent as some headlines suggest.
Tucked inside the 'One Big Beautiful Bill,' signed into law by President Donald Trump on July 4, 2025, is a $6,000 tax deduction for individuals aged 65 and older. For couples filing jointly , both partners can claim the deduction if eligible, reducing taxable income by up to $12,000. The benefit is set to run from 2025 through 2028.
It doesn't rewrite how Social Security is taxed, but by trimming taxable income on paper, the law could pull millions of retirees below the threshold (below $25,000 in income for individuals or $32,000 for couples), where those benefits get taxed, at least for now.
About 64% of seniors already don't pay taxes on Social Security, according to the White House. This bill raises that number to 88%.
Despite a White House claim that the law means 'no tax on Social Security,' the fine print tells a different story: The break applies to around 88% of seniors, not all. And it doesn't eliminate taxation on Social Security benefits entirely.
'Low-income retirees are already tax-exempt. So, it is reasonable to say the policy provides relief to middle and upper-middle-class households,' says Krisstin Petersmarck, president and founder at New Horizon Retirement Solutions.
For many middle-income retirees, this new deduction could result in smaller tax bills over the next few years. But eligibility hinges on your income.
To claim the full $6,000 deduction: Single filers must have modified adjusted gross income (MAGI) under $75,000
Married couples must stay below $150,000
Above those limits, the deduction phases out—reduced by six cents for every dollar over the cap—and disappears entirely once income hits $175,000 (or $250,000 for couples)
If you're married and only one spouse receives Social Security, you'll generally benefit more by filing jointly, but it depends on each spouse's age.
Here's how it breaks down: The new $6,000 senior deduction only applies to individuals who are 65 or older.
For couples filing jointly, each spouse must be 65 or older to claim the full $12,000 deduction (that's $6,000 per eligible spouse).
If only one spouse is 65 or older, you can still claim just the $6,000—but only if you file jointly.
Filing separately often means more of your Social Security gets taxed, unless you lived apart the entire year.
You'll also benefit from the higher income threshold for Social Security taxation when filing jointly: $32,000 versus $25,000 for individuals.
If even one spouse is 65 or older, filing jointly lets you claim the deduction and potentially reduce taxes on Social Security, especially if your combined income stays below the phaseout range.
Here's how that plays out in practice:
A married couple, both over 65, with $120,000 in income, could deduct: The standard deduction ($31,500 for joint filers)
Age-related additional deduction ($3,200)
The new bonus ($6,000 each)
That's $46,700 in total deductions, significantly reducing their taxable income and potentially removing much, if not all, of their Social Security benefits from the tax equation.
While the law doesn't directly change how Social Security benefits are taxed, it does make it less likely that retirees will owe taxes on those benefits. That's because the new $6,000 deduction for seniors lowers your total taxable income. On paper, at least. And Social Security benefits are only taxed if your income crosses certain thresholds.
So, by subtracting $6,000 (or $12,000 for couples) from your income, you might fall below the level where Social Security starts getting taxed. For example, a couple with $120,000 in income could now deduct up to $46,700 under the new law, potentially reducing the amount of Social Security that's taxable, or eliminating that tax entirely.
In short: Social Security tax rules haven't changed, but fewer people will be affected by the taxes.
'Even though the law has passed, it's smart to stay vigilant. Laws can change again, especially if deficits grow,' says Paul Miller, CPA and founder of Miller & Company LLP. 'For now, retirees should revisit their tax projections and possibly adjust estimated tax payments or withholding.'
There are a few fine-print rules to be aware of: Married couples must file jointly to claim both deductions.
You must include a valid Social Security number for the person receiving the deduction.
Foreign income exclusions from sections 911, 931 and 933 of the tax code must be counted in MAGI.
While the deduction is pitched as a broad benefit, experts say it primarily helps a specific slice of retirees: middle- to upper-middle-income households that were already paying significant taxes on their benefits.
'This mostly helps retirees who were paying significant taxes on their Social Security to begin with,' Miller says. 'Lower-income retirees already didn't pay much tax on benefits, so the largest dollar benefits skew toward the middle of the income distribution.'
Under current rules, beneficiaries must pay taxes on a portion of their Social Security if their income exceeds certain thresholds: Individuals with income below $25,000 (or $32,000 for couples) pay no tax
Income between $25,000–$34,000 (or $32,000–$44,000 for couples): up to 50% of benefits may be taxable
Income above $34,000 (or $44,000 for couples): up to 85% of benefits may be taxed
According to the Center on Budget and Policy Priorities, these taxes will generate nearly $1 trillion over the next decade, revenue that supports both the Social Security and Medicare trust funds. Without those taxes, some experts warn, the funding shortfall for Social Security could deepen.
'This deduction provides relief now, but if it's extended or expanded in the future, Congress will need to find a way to pay for it,' says Ash Ahluwalia, managing director and head of Social Security planning at OneTeam Financial. 'Otherwise, it adds to an already massive shortfall.'
Critics also point out that, because the tax break is temporary, it adds to the deficit without boosting long-term economic growth.
Unlike permanent tax policy changes that might influence retirement behavior or savings rates, short-term deductions like the Senior Bonus offer limited economic ripple effects, while still reducing federal revenue in the near term.
The deduction kicks in for tax year 2025, meaning retirees will first claim it when filing in early 2026. But the benefit sunsets in 2028, unless reauthorized by Congress.
That timeline leaves retirees with a short window of opportunity and some uncertainty.
'If the law is eventually reversed or modified, that adds more confusion,' Miller says. 'So while it simplifies taxes in the near term, because fewer retirees will owe tax on Social Security. It complicates long-term planning if you don't know whether this policy will last.'
Here's how experts suggest retirees and pre-retirees prepare: Revisit your withdrawal strategy. With Social Security taxed less, you may want to draw more from taxable retirement accounts instead of Roths. 'It's a good idea to sit down with a tax advisor to model different scenarios,' Miller says.
With Social Security taxed less, you may want to draw more from taxable retirement accounts instead of Roths. 'It's a good idea to sit down with a tax advisor to model different scenarios,' Miller says. Reassess estimated payments. If you're used to pre-paying taxes on your benefits, you might reduce those payments during the deduction years.
If you're used to pre-paying taxes on your benefits, you might reduce those payments during the deduction years. Don't let short-term savings sway long-term decisions. 'When to file for Social Security is a long-term decision and should not be swayed by short-term tax relief,' Ahluwalia says. 'Claiming early still reduces your monthly benefit permanently.'
For some, however, the new deduction could make earlier claiming slightly more attractive.
'Now that benefits are tax-free for most people, claiming earlier could result in more spendable dollars each year,' Miller adds. 'But you still need to weigh that against the lifetime tradeoffs.'
The law may offer near-term relief, but it raises long-term questions about the health of Social Security itself.
According to the 2025 Social Security Trustees Report, the program's main trust fund is projected to be depleted by 2033. Without intervention, benefits would be cut by 23% across the board.
And while this projection hasn't worsened from the prior year, other legislative changes—like the Social Security Fairness Act—have already increased the shortfall.
Making Social Security benefits less taxable may seem like progress to many retirees, but critics warn that it could erode the program's foundation.
'Scaling back taxation would primarily help higher-income beneficiaries,' notes the Center on Budget and Policy Priorities. 'That would make the system less progressive and require either payroll tax increases or benefit cuts to balance the books.'
Demographic shifts compound the challenge: In 1960, there were more than five workers paying into the system for every beneficiary, according to a report by the Bipartisan Policy Center . Today, it's just three-to-one, and falling.
Meanwhile, Social Security taxes cover a smaller portion of total income than they once did: 83% today, compared to 90% in 1983.
So far, lawmakers haven't announced how they'll replace the revenue lost by this deduction, should it be made permanent. Until then, experts urge caution.
'Temporary tax relief is welcome, but it doesn't solve the real problem,' Ahluwalia says. 'And the longer Congress waits to act, the more painful the fix will be.'
*Editor's Note: This story was amended on July 11 to add further details on filing jointly or separately.