What is the Big Beautiful Bill Impact on Social Security Taxes?

Reading time: 5 minutes

Published: July 10, 2025
Modified: August 23, 2025

After the Social Security Administration (SSA) sent out a celebratory email about the new 887-page One Big, Beautiful Bill Act (OBBBA), many seniors are understandably excited, but possibly confused. The SSA claims that “nearly 90% of Social Security beneficiaries will no longer pay federal income taxes on their benefits.” But what is the Big Beautiful Bill impact on Social Security taxes really about?

While the sentiment is welcome, the mechanics of how the new law works are a bit more nuanced, and it’s worth clarifying what’s changed and what hasn’t.

Note: This is one of several articles we’ll be publishing to break down different parts of the One Big Beautiful Bill Act (OBBBA) in a clear and apolitical way, and how it affects your finances.

Key Takeaways

• The new $6,000 senior deduction does not change how much of your Social Security is taxable.
• However, the deduction can reduce the taxes you pay on that taxable portion, and may even lower your overall tax bracket.
• The SSA’s statement that most beneficiaries “will no longer pay federal income taxes” on benefits oversimplifies how the law works.

What the OBBBA Actually Changed

Starting in 2025, the OBBBA introduces a $6,000 deduction for each senior aged 65 or older. On a joint return, that could mean up to $12,000 in deductions, but only if both spouses meet the age requirement. The deduction begins to phase out when modified adjusted gross income (MAGI) exceeds $75,000 for single filers or $150,000 for joint filers, reducing by 6% of the amount over the threshold.

Importantly, this is a below-the-line deduction, which means it comes after adjusted gross income (AGI) is calculated. That technical detail has big implications for how much, if any, of your Social Security is taxed.

How Social Security Benefits Are Taxed

As we explain in our Social Security taxation guide, the amount of your benefits subject to tax depends on a formula known as Combined Income (sometimes referred to as Provisional Income):

Combined Income = Adjusted Gross Income (AGI) + nontaxable interest + 50% of Social Security Benefits, where:

• AGI does not include Social Security.
• Nontaxable interest, such as municipal bond interest and any interest from U.S. savings bonds that has been reported, typically after redemption or maturity.
• Social Security Benefits are taken from Box 5 of all your Forms SSA-1099 and RRB-1099.

Depending on your Combined Income and filing status, up to 85% of your Social Security can be taxed. But here’s the key: Combined Income is calculated before any below-the-line deductions, such as the new OBBBA senior deduction or even the standard deduction.

Why the New Deduction Doesn’t Change Your AGI

The $6,000 senior deduction is considered a below-the-line deduction, meaning it’s applied after your AGI is calculated. And because Combined Income is based on AGI, this deduction does not reduce the taxable portion of your benefits.

However, it can still meaningfully lower your overall tax bill. By reducing your taxable income, the deduction lowers the amount of tax you owe, including on your Social Security. And in some cases, it may even move you into a lower tax bracket, reducing the rate at which all your income is taxed.

A Quick Example

Imagine a 65 year-old single filer, Joe, has an AGI of $20,000 and receives $20,000 in Social Security benefits, with no tax-exempt interest.

• Combined Income = $20,000 + 50% of $20,000 = $30,000
• That puts them in a $25,000 to $34,000 threshold for single filers that determines taxability, so 50% of the portion of combined income exceeding $25,000 ($5,000) is taxable.
• Taxable Social Security = 50% of $5,000 = $2,500
• Total taxable income = $20,000 (AGI) + $2,500 = $22,500

Now let’s apply the $6,000 senior deduction. Joe’s taxable income drops to $16,500 ($22,500 – $6,000), but the taxable portion of his Social Security stays at $2,500.

So Joe will owe tax on the same amount of Social Security, but his overall tax bill will be lower thanks to the deduction. Based on the 2025 tax bracket for single filers (12% for taxable income between $11,926 and $48,475), the $6,000 senior deduction saves Joe $720, calculated as ($22,500 – $16,500) × 12%.

This example does not capture every exception or special rule that may apply to your specific situation. Tax laws are complex, and your financial situation is unique. Consider consulting a tax professional or advisor before making financial decisions.

Can You Reduce the Taxable Portion of Social Security?

If you’re looking to reduce the portion of your Social Security benefits that are taxable and lower your total tax bill, one option is to lower your AGI. A contribution to a traditional IRA may help, as it can qualify as an above-the-line deduction that reduces AGI directly. Since Combined Income is based on AGI, this could lower the amount of your benefits that are subject to tax.

Eligibility to deduct IRA contributions depends on factors like age, income level, and whether you or your spouse are covered by a workplace retirement plan. But for those who qualify, it’s one of the few strategies that can reduce both your tax bill and the taxable portion of your Social Security.

For another perspective on the Big Beautiful Bill impact on Social Security taxes, see this article ↗ on CBS News.

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