Deductions

Is Social Security tax-free under the new 2025 tax law?

by
Michael Conticelli
on
7/14/2025
Is Social Security tax-free under the new 2025 tax law?

Not entirely—but almost. The One Big Beautiful Bill Act (OBBBA) signed into law on July 4, 2025, introduced a $6,000 per-person senior deduction for taxpayers aged 65 or older. This deduction, combined with the expanded standard deduction, effectively makes Social Security income tax-free for up to 90% of recipients, up from about 60% prior to the law.

Key details:

Deduction amount: $6,000 per person aged 65+ ($12,000 for couples)

Income limit for full benefit: $75,000 (single) / $150,000 (married filing jointly)

Phaseout: Begins immediately above those thresholds, with a hard cliff

Expiration: Deduction is temporary—valid for 2025 through 2028 only

What does this mean for most retirees?

Most retirees with modest income from Social Security, pensions, and IRAs will owe little to no federal income tax. In real-world terms:

A retired couple, both age 72, with $68,000 total income (SS + IRA + pension) would owe $0 in federal tax under the new law.

Before OBBBA, they would have owed roughly $4,500.

This shift can mean thousands in savings, especially for:

Seniors with $40K–$100K total income

Households living off a mix of SS and retirement withdrawals

Married couples both over 65

Is this a total tax exemption for everyone?

No. Higher-income retirees lose the benefit entirely if their income exceeds:

$75,000 for singles

$150,000 for couples

This creates a tax planning “cliff”—exceeding the threshold by even $1 can mean losing the entire deduction.

Should retirees change when they claim Social Security?

Possibly. For the first time, tax strategy may influence when you claim Social Security:

Delaying benefits could help keep total income below the threshold

Roth conversions become more attractive while income is low

Smart timing of retirement withdrawals could help you qualify for the full deduction

How long does the Social Security tax break last?

The senior deduction under OBBBA is temporary:

Applies 2025 through 2028

Unless extended by Congress, it expires after 2028

Tax planners recommend retirees act now to take full advantage of this limited-time window.

Should retirees consider Roth conversions now?

Yes. With lower taxable income due to the new deduction, 2025–2028 is an ideal window to convert traditional IRA funds to Roth at reduced tax rates. This could lower future required minimum distributions (RMDs) and avoid higher tax brackets in retirement.

How does this change affect retirement planning?

This law shifts the retirement planning landscape by introducing:

A time-limited tax-free window for many retirees

New income-based cliffs to watch

A rare chance to restructure how and when to draw income

Experts are calling this a “use-it-or-lose-it” scenario.

“The 2028 sunset means retirees have a narrow window to potentially save thousands.” — Michael at mysolutionstax.com

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Michael Conticelli

Michael Conticelli

Solutions Money Management
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Florida

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