The federal tax bill passed in mid-2025 includes a provision marketed as “no tax on Social Security,” but it does not eliminate taxes on benefits.
Instead, the One Big Beautiful Bill Act expands deductions for older Americans, potentially reducing federal taxes for many retirees, a finance leader recently explained.
A blog post by Luke Delorme — director of financial planning at Tableaux Wealth in Great Barrington, Massachusetts — laid out how the change could lower taxable income for people ages 65 and older but also worsen Social Security’s long-term finances.
Actuaries estimate the new provision will move the trust fund’s depletion date ahead by about six months to early 2034. The policy adds to the already higher standard deduction available to older taxpayers.
After calculating gross income — including wages, pensions, investment income and up to 85% of Social Security benefits — filers subtract deductions to arrive at taxable income.
Delorme noted in his post published by the Center for Retirement Research at Boston College that the expanded deduction increases the standard deduction to $23,750 for single filers and up to $46,700 for married couples filing jointly. The increase applies from 2025 through 2028.
The taxable share of Social Security depends on “combined income,” which includes half of Social Security benefits, nontaxable interest and other taxable income.
Once combined income exceeds $44,000 for married couples filing jointly or $34,000 for single filers, 85% of benefits are taxable, Delorme noted.
Who benefits most
The new deduction, Delorme said, effectively reduces taxable income by $6,000 per person for those 65 and older.
For some lower-income retirees, the change could eliminate federal income taxes entirely, although some were already exempt from Social Security taxes under existing rules.
Delorme wrote that the provision “doesn’t explicitly remove federal taxes on Social Security, but it does have the same effect for many people.”
He gave an example of a single woman over 65 with $30,000 in pension income, $10,000 in investments and $24,000 in Social Security benefits. The new deduction potentially reduces her federal tax bill by $720.
Income limits and refunds
The benefit phases out for higher earners — beginning at $75,000 for single filers and $150,000 for joint filers — and disappears entirely at $175,000 and $250,000, respectively.
Because the change applies to tax years beginning in 2025, many older taxpayers may see larger refunds or smaller balances due when filing 2026 returns, according to Delorme.