Social Security & One Big, Beautiful Bill

“And now the rest of the story”    Paul Harvey

In what’s being hailed as a major policy win for retirees, the Social Security Administration (SSA) recently announced the passage of the One Big, Beautiful Bill—a sweeping piece of legislation that promises long-awaited tax relief for millions of older Americans.

With bold language and celebratory tone, the SSA declared that the bill “ensures that nearly 90% of Social Security beneficiaries will no longer pay federal income taxes on their benefits,” adding that the law delivers “meaningful and immediate relief to seniors who have spent a lifetime contributing to our nation’s economy.”

While the headlines and official press releases paint a rosy picture, the actual mechanics of the bill reveal a more nuanced reality—particularly for high-income retirees and those accustomed to navigating the tax code’s complexities.

Let’s unpack what the bill actually does—and, just as importantly, what it doesn’t do.

A New Deduction—But Not a Repeal

At the heart of the new legislation is a temporary deduction of up to $6,000 for taxpayers aged 65 and older, available for tax years 2025 through 2028. While this may indeed reduce taxable income for many older Americans—thereby indirectly lowering or eliminating taxes on their Social Security benefits—it is not a repeal of Social Security taxation itself.

That’s a crucial distinction.

The formula that determines whether up to 85% of Social Security income is taxable remains intact. Under current law, if a taxpayer’s “combined income” (which includes adjusted gross income, tax-exempt interest, and half of Social Security benefits) exceeds $25,000 for single filers or $32,000 for joint filers, a portion of their Social Security income becomes taxable. These thresholds have not been adjusted since the 1980s and are not indexed to inflation, which means more retirees are subject to taxation each year simply due to rising incomes and cost-of-living increases.

In fact, many retirees are surprised to find themselves paying tax on Social Security even though they consider themselves middle class. What may have been considered high income in 1984 is now a fairly typical retirement income.

This new deduction does nothing to change the outdated thresholds or the complex calculation used to determine taxable benefits.

Who Benefits from the New Deduction?

The $6,000 deduction (or $12,000 for a married couple where both spouses are 65+) will provide relief primarily to low- and moderate-income seniors, especially those living primarily on Social Security and modest retirement savings. It is available regardless of whether the taxpayer is currently claiming Social Security, as long as they are 65 or older.

But it’s phased out at higher income levels:

• For single filers, the deduction begins phasing out at $75,000 and disappears entirely at $175,000.
• For married joint filers, it phases out starting at $150,000 and is completely eliminated at $250,000.

For high-income retirees—those who rely on IRAs, pensions, investment income, or continued earnings—the deduction may be partially available or not apply at all.

In short, most affluent clients will still pay tax on up to 85% of their Social Security income, just as they did before.

A Three-Year Window—Then What?

The deduction is only available for tax years 2025 through 2028, creating a three-year window for this limited form of tax relief. After that, unless Congress passes an extension, the deduction vanishes—leaving retirees right back where they started, and still facing unindexed income thresholds that continue to penalize seniors over time.

This temporary nature raises a key concern for financial planners and retirees alike: Should retirement income planning strategies be changed for just three years of relief? And if so, how do we plan around what might be repealed, revised, or replaced in 2029?

Why Not Eliminate the Tax on Benefits Altogether?

The idea of eliminating taxes on Social Security benefits is politically popular—but economically problematic. According to the Committee for a Responsible Federal Budget, eliminating these taxes outright would cost the Social Security trust fund about $55 billion annually, accelerating its depletion and undermining the program’s long-term sustainability.

By contrast, this temporary deduction will reduce tax revenue by roughly $30 billion per year—still significant, but far less damaging to the trust fund.

As SSA Commissioner Frank Bisignano noted, the bill “reaffirms President Trump’s promise to protect Social Security,” and from a budgetary perspective, the new deduction represents a compromise: modest relief without completely dismantling an important revenue stream for the program.

What Retirees Should Know Going Forward

While the marketing and media headlines may suggest broad tax elimination, the reality is more measured:

1. Taxes on Social Security are still here.
   The same formula applies. Up to 85% of benefits may still be taxable depending on income.
2. Thresholds remain outdated and unindexed.
   Since they are not tied to inflation, more retirees will face taxation each year.
3. The new deduction is helpful—but limited.
   It only applies for three years (2025–2028) and phases out for higher incomes.
4. Long-term planning is still essential.
   This is not the time to change your withdrawal strategy based on a temporary deduction. But it may be worth optimizing your tax picture during these years if eligible.

Unlike the IRMA which dramatically affects Medicare Premiums, the Big Beautiful Bill will probably do little or nothing in regards to reducing the taxes many of your clients will pay in regards to Social Security benefits.