By Peter Wechsler
President & Co-Founder, Franklin Retirement Solutions
[email protected]
You got to love politicians. Remember when Obama promised that we could all keep our same doctors with Obamacare? Right! The new New York mayoral candidate is promising free mass transit for all New Yorkers. Right! And Donald Trump promised no taxes on Social Security. Right again!
On July 4th, Mr. Trump signed the One Big, Beautiful Bill Act (OBBBA), and somewhere in 887-page bill, it talks about Social Security. Nowhere does it mention a tax-cut. The bill talks about direct changes for some older Americans, but also the long-term consequences for Social Security’s financial health—and the indirect but major impact on the program’s most vulnerable beneficiaries through cuts to essential support programs.
As for Social Security, some are calling it a “Senior Bonus” instead of a tax-cut. In a statement, the Social Security Administration (SSA) declared the law a “historic step forward,” ensuring “nearly 90% of Social Security beneficiaries will no longer pay federal income taxes on their benefits.”
Here’s the problem: the legislation doesn’t eliminate federal income taxes on Social Security benefits. Instead, it creates a new, TEMPORARY, and income-limited tax deduction specifically for folks who have reached age 65.
The final version of the bill provides a new deduction of up to $6,000 per person age 65 or older. A married couple can potentially claim a $12,000 deduction to income. This works whether you take the standard deduction or not.
Here are the 2 catches:
• First, there are income limitations. The benefit begins to phase out for individuals with modified adjusted gross income (MAGI) of $75,000 ($150,000 for married couples). Incomes substantially above these thresholds will receive reduced benefits—or no benefit at all.
• Second, this is a temporary “Senior Bonus,” as it is only for four tax years, ending in 2028. The benefit ends the same year Mr. Trump’s term would end.
A few points to keep in mind:
• No benefit for the lowest-income seniors, as they don’t pay any federal taxes on their Social Security benefits. According to the administration’s own analysis, 64% of seniors receiving Social Security benefits paid no taxes on their benefit.
• No benefit for high-income seniors: If you’re above the phase-out thresholds, you’re ineligible for any deductions.
• No benefit for beneficiaries under age 65: The “Senior Bonus” is strictly age-gated at age 65. So if you collect Social Security before age 65, or receive SSDI or survivor benefits, this tax break doesn’t help you.
Example:
If you are married and you receive $48K a year in Social Security benefits and have an additional $22K of income—for a total of $70K—you would save about $1,500 in taxes annually. But if you and your spouse had income of $200K a year or more, there would be no tax savings for you.
Questions? You know where to find us—and we’ll be here to decipher all this for you.
Enjoy the weekend…
Peter
Disclaimer:
Peter Wechsler and/or Franklin Retirement Solutions are not affiliated with or endorsed by the Social Security Administration or any other government agency.