What You Need to Know About Taxes on Your Social Security Benefits

One of the most common surprises retirees face is learning that their Social Security benefits may be taxable. Many clients come to me with the assumption that Social Security is simply a return on a lifetime of contributions, money they already paid taxes on, and therefore should be tax-free. Unfortunately, that is not how the IRS sees it. The good news is that recent legislation has brought meaningful relief for many retirees, and with smart planning, households may be able to minimize what they owe. Here is what you should understand about Social Security and taxes, including the latest changes that could put more money back in your pocket.

Federal income taxes on Social Security benefits were introduced in 1983 as part of legislative reforms to shore up the Social Security trust fund. Today, whether your benefits are taxable depends on what the IRS calls your "combined income". This figure is calculated by adding your adjusted gross income (AGI), any tax-exempt interest income, and half of your Social Security benefits for the year.

Here is how it breaks down:

• No tax: If your combined income is below $25,000 (single filers) or $32,000 (married filing jointly), your Social Security benefits are not subject to federal income tax.

• Up to 50% taxable: If your combined income falls between $25,000–$34,000 (single) or $32,000–$44,000 (joint), up to 50% of your benefits may be taxable.

• Up to 85% taxable: If your combined income exceeds $34,000 (single) or $44,000 (joint), up to 85% of your Social Security benefits may be subject to federal income tax.

Note the words "up to” as these are ceilings, not flat rates. You will not suddenly owe taxes on all of your benefits the moment you cross a threshold. However, it is important to recognize that these income thresholds have not been adjusted for inflation since 1983, which means more retirees find themselves subject to taxation every year simply due to cost-of-living adjustments to their benefits and other income growth.

You may have seen headlines in recent years claiming that Social Security is now tax-free. As a wealth manager, I want to make it very clear for you. At this point in time, Federal taxes on Social Security benefits have not been eliminated. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, does not include a provision making Social Security benefits tax-free. What it does include is a new and meaningful tax deduction for qualifying seniors. Understanding the difference matters, because planning based on inaccurate information can lead to costly surprises at tax time.

The $6,000 Senior Bonus Deduction (2025–2028)

The most significant tax development for Social Security recipients in recent memory is the new Senior Bonus Deduction created by the OBBBA. Here is what you need to know:

Who qualifies for the deduction?

Taxpayers who are age 65 or older by December 31 of the tax year. This deduction applies whether you take the standard deduction or itemize. This is an important distinction, because it expands access beyond just those who itemize.

How much are you able to deduct?

An additional $6,000 per eligible individual, or $12,000 for a married couple where both spouses qualify. This is on top of the existing additional standard deduction already available to seniors (currently $2,000 for single filers and $3,200 for joint filers), and on top of the increased base standard deduction.

When does the deduction apply?

Tax years 2025 through 2028. It is temporary, so planning ahead of the 2028 expiration is something we should discuss together.

Where does it phase-out based on income?

The full deduction is available to individuals with a modified adjusted gross income (MAGI) of up to $75,000, or married couples with up to $150,000. The deduction phases out gradually and disappears entirely at $175,000 for single filers and $250,000 for joint filers.

For many middle-income retirees, the combined effect of all these deductions is substantial. A single taxpayer age 65 or older in 2025 may have a total standard deduction of up to $23,750. A qualifying married couple could see that figure rise to $46,700. For retirees with income in those ranges, this new deduction may significantly reduce, or even effectively eliminate, their federal income tax liability, including their Social Security benefits.

How Can I Reduce Taxes on My Social Security Benefits?

Knowing the rules is only the first step. The more important question is what actions you can take to combat the issue. I have listed several planning strategies worth discussing below.

Manage your "combined income" intentionally. Since Social Security taxability is triggered by your total income picture, we can look at strategies to keep your combined income below key thresholds. For example, timing withdrawals from traditional IRAs and considering Roth conversions during lower-income years can reduce future taxable distributions.

Use Qualified Charitable Distributions (QCDs). If you are age 70½ or older, you can donate up to $100,000 per year directly from your IRA to a qualifying charity. QCDs count toward your required minimum distribution, but are excluded from your AGI.  This, in turn, lowers your combined income and can reduce the taxability of your Social Security benefits.

Be mindful of capital gains. A large gain from selling a home or investment can spike your combined income in a single year, potentially making 85% of your Social Security benefits taxable. We can look at strategies like spreading gains across years or using tax-loss harvesting to manage this.

Review your tax withholding. Social Security recipients can elect to have federal taxes withheld directly from their benefit check (at 7%, 10%, 12%, or 22%). Given the new deductions available, some clients may be over-withholding and could benefit from adjusting that election.

Explore your state tax situation. Federal taxes are only part of the picture. In 2026, 41 states do not tax Social Security benefits at all. If you live in one of the states that does tax benefits, that is an additional planning consideration and, in some cases, a factor that retirees weigh when thinking about where to live in retirement.

Tax law changes create both challenges and opportunities. If any of these changes are relevant to your situation, I encourage you to reach out to your Wealth Manager. Running a tax projection now, rather than waiting until closer to the filing deadline, gives us the most options. That is the difference between reacting to your tax bill and planning for it.

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IMPORTANT DISCLOSURES

This post was created with the assistance of AI tools for research and drafting.  It was reviewed, edited, and fact-checked by Sean Rosencrance before publication.  Please verify any critical information.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials does not constitute tax or legal advice and may change at any time and without notice. Please consult with a qualified tax professional, attorney, or Wealth Manager regarding your specific situation.

Spire Wealth Management, LLC is a Federally Registered Investment Advisory Firm. Securities offered through an affiliated company, Spire Securities, LLC., a Registered Broker/Dealer and member FINRA/SIPC.