President Trump on several occasions during his recent campaign vowed to end taxes on Social Security benefits. Legislation currently working its way through Congress (i.e., the One, Big, Beautiful Bill Act) is built around his policy priorities, but it stops short of fulfilling that specific promise.
Nevertheless, there is good news for retirees on Social Security. The version of the One, Big, Beautiful Bill (OBBB) that recently passed the Senate includes provisions that would increase after-tax income for millions of seniors. Read on to learn more.
President Trump’s One, Big, Beautiful Bill includes new deductions for seniors
The OBBB passed the House of Representatives by a single vote on May 22, and an amended version slipped through the Senate by an equally narrow margin on July 1. The bill now returns the House, where lawmakers can either approve it or make changes that would require another Senate vote.
Importantly, while budget reconciliation bills are not permitted to change Social Security, both versions of the OBBB include deductions that would help millions of seniors on Social Security. The recently passed Senate bill includes the following:
- Single seniors (aged 65 and older) can deduct $6,000 from taxable income, and married seniors filing jointly can deduct $12,000 as a couple.
- The full $6,000 per-person deduction is available to single filers with income up to $75,000 and joint filers with income up to $150,000. Beyond those levels, deductions are phased out.
Importantly, the new senior deductions would be additive with other tax breaks, including the standard deduction and existing senior deductions, as detailed below:
- Under current law, the standard deduction is $15,000 for single filers and $30,000 for joint filers. The Senate bill raises the standard deduction to $15,750 for single filers and $31,500 for joint filers.
- Under current law, seniors get an additional standard deduction of $2,000 for single filers and $3,200 for joint filers. The Senate bill leaves those existing deductions in place.
Here’s the bottom line: The Senate bill would bring the total deductions available to seniors to $23,750 for single filers and $46,700 for married couples filing jointly. Those tax breaks are more expansive than the ones approved in the House bill earlier this year, which capped the new senior deduction at $4,000 per person.
The Senate bill would raise after-tax income for 33.9 million seniors by an average of $670
The One Big Beautiful Bill does not eliminate taxes on Social Security benefits, but it does include tax breaks for seniors with modest incomes. The White House estimates the new $6,000 deduction will provide some measure of financial relief to 33.9 million seniors, with an average increase in after-tax income of $670 per person.
Importantly, legislation that entirely eliminated Social Security taxes would have resulted in twice as much savings for seniors, according to The Wall Street Journal. However, 88% of seniors on Social Security will pay no taxes on benefits under the Senate bill, up from 64% under current law, according to the White House. Put differently, 14.2 million seniors that currently owe taxes on Social Security would be exempted from those taxes if the bill becomes law.
All things considered, the Senate bill is a win for seniors on Social Security. It does not completely eliminate taxes on retirement benefits, but doing so would actually hurt the Social Security Trust Fund and potentially expedite benefit cuts by two years. Instead, the Senate bill provides financial relief for millions of seniors, but it targets individuals with modest incomes rather than doling out across-the-board tax breaks. That’s good news.
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