“The more sand that has escaped from the hourglass of our life, the clearer we should see through it.” ―Jean-Paul Sartre
Quick Answers: How Does OBBBA Change How Social Security Is Taxed?
- Many retirees 65+ will see a lower overall tax bill in 2025–2028 thanks to the OBBBA’s new senior deduction — but the Social Security tax formula itself hasn’t changed.
- Individuals age 65+ can claim an extra $6,000 deduction; married couples (both 65+) can claim an extra $12,000.
- The deduction phases out above $75,000 MAGI (single) or $150,000 (married joint).
- This change is set to expire after the 2028 tax year.
If you’re like most Detroit retirees I talk to, Social Security plays a big role in your retirement income. And for years, more and more retirees have been dragged into paying tax on those benefits because the income thresholds were never adjusted for inflation.
But with the OBBBA, things look different. If you’re retired, you’re probably wondering:
“Do I still have to pay federal income tax on my Social Security benefits?”
Let’s talk through it together.
How does OBBBA change how Social Security is taxed?
Pre-OBBBA, the IRS used your “combined income” (adjusted gross income + nontaxable interest + half of your Social Security benefits) to determine whether your benefits were taxable.
And the set thresholds never budged. As pensions, IRAs, and modest investment income grew, more retirees were pulled into higher taxation.
OBBBA didn’t change that Social Security tax formula itself. The IRS is still using the same 0% / 50% / 85% rules it always has.
But now, under OBBBA, individuals 65+ are entitled to an additional $6,000 deduction (or $12,000 if both spouses are 65+). This applies whether you take the standard deduction or itemize.
But there is a catch: if your modified adjusted gross income (MAGI) goes above $75,000 single or $150,000 joint, the deduction starts to shrink. For every $1 over those thresholds, the deduction drops by six cents — and by the time you reach $175,000 single or $250,000 joint, the deduction is gone.
What do the OBBBA’s rules about Social Security taxes mean for me?
For many Redford retirees under those thresholds, this new deduction effectively cancels out the portion of income that triggered Social Security taxation.
It doesn’t make Social Security tax-free.
The IRS still runs your benefits through the same formula to decide how much is taxable. What’s different is that you now get an extra $6,000 deduction per senior after that math is done. And for many retirees, that extra cushion is enough to wipe out the remaining taxable income.
Let’s look at a fictional example. We’ll call her Linda. Linda is 70, single, and receives $20,000 in Social Security, plus another $20,000 from her IRA.
Now, here’s where it surprises people: the IRS doesn’t count all $20,000 of her Social Security as taxable. In Linda’s case, only about $2,500 of it ends up on the taxable side of the ledger. Add that to her $20,000 IRA withdrawal, and her adjusted gross income is about $22,500.
Before OBBBA, Linda’s standard deduction plus her age-65 add-on would’ve been $17,750. That would leave her paying tax on about $4,750 of income.
But starting in 2025, Linda also gets the new $6,000 senior deduction.
Now her total deductions jump to $23,750 — which completely wipes out her taxable income. Her Social Security is still technically “partly taxable,” but thanks to this new deduction, she doesn’t owe a dime of federal income tax.
Do the OBBBA’s Social Security rules apply to everyone?
No, this isn’t a total win for everyone – specifically not for high-earners. If your MAGI is above $75,000 (single) or $150,000 (joint), you may not see any benefit. Your Social Security can still be taxed up to 85%.
For you, the focus remains on advanced tax strategies: Roth conversions, tax-loss harvesting, smarter withdrawal sequencing.
How do I take advantage of OBBBA’s senior deduction?
Between now and 2028, you’ve got a planning window. Here are the smart moves I recommend to make the most of it:
- Review your MAGI: Small adjustments (how much you pull from IRAs, when you realize investment income) can keep you under the threshold.
- Claiming Social Security: If your MAGI is low now, claiming early could mean years of tax-free benefits. If it’s high, you could delay benefits and use the deduction window for Roth conversions.
- Plan your withdrawals strategically: Favor Roth accounts or taxable accounts to minimize MAGI. Defer traditional IRA withdrawals if possible.
- Charitable giving: Qualified charitable distributions (QCDs) directly from IRAs after age 70½ can lower MAGI and keep you eligible for the deduction.
FAQs
“Does OBBBA mean Social Security is no longer taxable at all?”
No. The tax law hasn’t repealed Social Security taxation. The same rules apply, but an extra deduction for seniors 65+ may reduce your overall tax bill to zero.
“When does the new senior deduction apply?”
Starting with the 2025 tax year and running through 2028.
“Do state Social Security taxes change, too?”
No, this is a change at the federal level only. Some states tax Social Security differently, or not at all.
“Do I still pay taxes on Social Security if I’m under 65?”
The senior deduction only applies once you reach age 65. Younger retirees remain under the old rules for Social Security taxes.
“How does the senior deduction phase out?”
You won’t lose the deduction all at once. It’s reduced by 6 cents for every dollar over $75,000 (single) / $150,000 (joint), fully gone at $175,000 / $250,000.
“Should I change when I start Social Security because of the OBBBA?”
Potentially. For some, claiming early means years of tax-free benefits. But for others, delaying is smarter. This is where personalized planning is key (and we can help).
The details on this one are messy. Because your mix of Social Security, pensions, IRAs, and investments is going to be different from that of any other retiree.
This is where a professional eye makes all the difference. I would strongly urge you to talk over these strategies with your financial advisor or retirement planner. And to do so sooner rather than later, to get the full benefit before the deduction disappears.
And if this has raised any questions for you about your overall tax picture, you know my door is open:
http://scheduling.seetax.net