OBBBA: Social Security Taxation
The One Big Beautiful Bill Act, signed into legislation on July 4, 2025 provides a significant amount of tax reform to many taxpayers, and potentially a fair amount of confusion with it.
It is important to understand that the taxation of social security has not changed. Rather, the bill enacts an added tax deduction for seniors who are age 65 or over in 2025 and within certain income limitations. This "bonus deduction" of up to $6,000 for single filers and up to $12,000 for couples married filing joint reduces overall taxable income from 2025 - 2028, unless it is further extended by Congress. It does not, however, eliminate taxation specific to social security.
The tax rules for Social Security income have not changed. A portion of your Social Security income may be subject to federal income taxation, depending on your total taxable income and filing status. According to the IRS "taxpayers should take half of the Social Security money they collected during the year and add it to their other income", including pensions, wages, interest dividends and capital gains. For single filers, if that total comes to more than $25,000, then part of their Social Security benefits may be taxable. For married filing joint, "they should take half of their Social Security, plus half of their spouse's Social Security, and add that to all their combined income. If that total is more than $32,000, then part of their Social Security may be taxable." *
Fifty percent of a taxpayer's Social Security benefits may be taxable if they are single, head of household or qualifying widow with $25,000 - $34,000 income. For Married filing joint, that number is $32,000 - $44,000 of income.
Up to 85% of a taxpayer's benefits may be subject to federal tax if they are filing single, head of household or qualifying widow or widower with more than $34,000 of income. For married filing joint, that number is $44,000 of income. More detailed information may be found at irs.gov.
If you live in Wisconsin, congratulations, because our state is one of 41 in the nation that does not impose taxation on Social Security benefits. Of the nine that do, there are often income or age thresholds which may reduce or even eliminate that state's taxation on Social Security income.
A great deal has changed with the One Big Beautiful Bill Act, including the new bonus deduction for seniors. It is important to know that what has not changed are the rules for Social Security taxation.
LouAnn Schulfer of Schulfer & Associates, LLC Wealth Management can be reached at (715) 343-9600 or louann.schulfer@lpl.com TheWealthInformationLady.com SchulferAndAssociates.com
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
*https://www.irs.gov/newsroom/irs-reminds-taxpayers-their-social-security-benefits-may-be-taxable
