Retirement Social Security

7 Ways the One Big Beautiful Bill Impacts Social Security

Major tax changes are coming to Social Security: Here's what retirees and near-retirees need to know.

By Adam Palasciano

Edited by Chris Kissell

Updated July 24, 2025

The One Big Beautiful Bill Act (OBBBA) is now law. The legislation brings some major changes that could help you stretch your retirement dollars further, but it also raises important questions about the long-term health of the Social Security program.

If you're retired or nearing retirement, these updates may affect your taxes, income, and long-term planning. Here are seven crucial things you should know about the legislation.

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1. It reduces taxes for millions of seniors

The new law introduces a "senior bonus" deduction on federal income taxes for those who are 65 or older. The extra deduction is up to $6,000 for individuals or up to $12,000 for couples.

To qualify for the full deduction, you must have a modified adjusted gross income (MAGI) of $75,000 or less for individuals and $150,000 or less for couples.

This provision has the effect of eliminating federal income tax on Social Security for many middle-income retirees, which may provide meaningful financial relief for seniors living on fixed incomes.

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2. It does not end all taxes on Social Security

Despite headlines claiming the bill eliminates Social Security taxes, it does not actually change how benefits are taxed. The law adds a new income-tax deduction, but taxation of Social Security income itself remains unchanged.

For millions of Americans, this distinction is not important. If their income is low enough, the extra deduction will ensure that they pay no taxes on Social Security.

However, other seniors with higher incomes will still pay taxes on at least some of their Social Security income. At income levels above $75,000 (individuals) and $150,000 (couples), the benefit begins to phase out.

So, in no way does the legislation "eliminate" taxes on Social Security across the board.

3. It primarily helps middle-class seniors

The senior deduction under the OBBBA mainly benefits households with incomes between $80,000 and $130,000.

The Tax Policy Center estimates that such households stand to save an average of around $1,100 annually.

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4. It does not really help poor or wealthy seniors

Low-income seniors who already pay zero tax on Social Security benefits won't see any change under the new law.

Seniors with incomes above $175,000 for individuals or $250,000 for couples aren't eligible for the deduction.

That means the poorest and wealthiest beneficiaries won't benefit from this change. The impact is therefore quite specific to the middle-income segment of retirees.

5. It ends in 2028

As it stands now, the deduction provision is temporary. It is set to expire at the end of the 2028 tax year unless it is renewed through new legislation.

So, eligible seniors should enjoy the benefit while it lasts. Once the deduction sunsets on Jan. 1, 2029, those in the middle-income range may see a notable bump in the tax on their benefit income.

6. It does not end or reduce state taxes on Social Security

The new legislation is strictly focused on federal taxation of Social Security benefits. It does not affect state-level Social Security taxes.

Nine states still tax Social Security benefits to some extent. They are:

Colorado
Connecticut
Minnesota
Montana
New Mexico
Rhode Island
Utah
Vermont
West Virginia

It's worth noting that West Virginia is in the process of phasing out this tax.

So, even if federal taxes drop to zero, you may still owe state tax on Social Security benefits in these places.

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7. It potentially weakens the Social Security program's future

While the deduction eases taxes today, it reduces revenue flowing into the Social Security and Medicare Part A trust funds.

The Committee for a Responsible Federal Budget warns that this change may accelerate the Social Security program's solvency issues, potentially advancing the trust fund depletion date to 2032.

Bottom line

The One Big Beautiful Bill Act brings meaningful federal tax relief to many middle-income retirees, helping them stretch their Social Security benefits further.

However, the changes are temporary and do not address broader concerns about the long-term solvency of the Social Security program.

Retirees should review their tax strategy now in light of these changes. Staying informed and flexible is key to a stress-free retirement.

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