Q&A – What the BBB Means for Social Security
Each day I feature a listener question sent by one of these methods.
Email: brianmudd@iheartmedia.com
Social: @brianmuddradio
iHeartRadio: Use the Talkback feature – the microphone button on our station page in the iHeart app.
Today’s Entry: Submitted via talkback... BBB is a bunch of BS. What happened to no tax on Social Security payments?
Bottom Line: It’s in the new tax law, just not so explicitly. Just as is the case with “No tax on overtime” and “No tax on tips” as I outlined yesterday, the way the tax relief is being delivered is through tax deductions that will be realized when one either files their taxes, or adjusts their federal withholding so that less tax is withheld from paychecks throughout the year. Specific to Social Security, as I’ve received numerous questions around this dynamic specifically...
The BBB includes a $6,000 senior deduction for taxpayers aged 65 and older, that can be used in addition to taking a standard deduction or itemization, effective from tax year 2025 through tax year 2028. For almost all seniors, this deduction will effectively eliminate the tax on Social Security payments. According to an analysis by the White House’s Council of Economic Advisers, approximately 88% of Social Security recipients—about 51.4 million seniors—will no longer pay any federal income tax on their Social Security payments.
The tax savings apply to seniors with incomes up to $75,000 in adjusted gross income for single filers, and $150,000 for married couples filing jointly, with the deduction phasing out at higher income levels. The only Social Security recipients who aren't eligible for the tax benefit are those who opted to collect early – between the ages of 62-64 or those who earn above $175,000 annually (the level at which the deduction phases out entirely).
As of the 2024 tax year, the average Social Security recipient 65 and older, paid approximately $1,680 per person ($3,360 joint) in federal incomes taxes on Social Security benefits. Therefore, that is the average savings annually for seniors over 65.
One of the questions that’s come up with this topic (and for that matter for taxes on tips and overtime too), is why, if the objective was to eliminate the burden of income taxes on Social Security payments (or tips and overtime), it wasn’t just structured that way. In other words, why use a deduction? The answer comes down to the use of the reconciliation process to pass the One Big Beautiful Bill Act.
According to Senate rules, altering taxation on Social Security payments (and tips/overtime) is considered a structural change to the program. Therefore, to eliminate Social Security taxation a new law would need to be proposed that would be able to achieve at least 60 votes in the senate in order to avoid the reconciliation process. All Democrats in congress opposed the BBB, making the reconciliation process necessary to pass the bill. The Senate parliamentarian ruled that the use of increased deductions to achieve a similar effect wasn’t a structural change. So that’s why the new tax cuts were handled using deductions.
For that reason, some are suggesting, as was mentioned by the listener who submitted today’s note, that “no tax on Social Security (or tips or overtime)” wasn’t included in the law. It (and they) was but with all Democrats opposed to the law, Republicans had to get creative to get it done. As always there are two sides to stories and one side to facts. These are the facts.