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You may have seen headlines celebrating a major shift in retirement savings: Social Security benefits are no longer taxed, thanks to the One Big Beautiful Bill Act (OBBBA). While this sounds like a sweeping win for retirees, the fine print tells a more complicated story. The OBBBA does introduce significant changes, but not all of them are as straightforward—or beneficial—as they might seem. Understanding what’s changing, and what remains the same, can help retirees avoid costly assumptions and make more informed financial decisions.
How Does the OBBBA Affect Social Security Benefits?
The bill doesn’t repeal the tax on Social Security benefits outright. Instead, it introduces a new deduction that reduces the taxable income of many seniors, lowering or eliminating what they owe on their benefits. As a result, about 88% of retirees are expected to pay no tax on their Social Security benefits, not because the tax is eliminated, but due to a combination of deductions. Currently, 64% of seniors aged 65 and older already qualify for exemptions or deductions that prevent their benefits from being taxed. The bill expands the existing exemptions, increasing the number of retirees who won’t face taxes on their benefits from 64% to 88%.1
It’s important to note that this deduction, introduced through the OBBBA, is a federal initiative. While Social Security benefits are subject to federal tax rules, some states also impose their own taxes on Social Security income—often with very different guidelines.
| Filing Status | Combined Income |
% of SS Taxed |
| Single | <$25,000 | 0% |
| Single | $25,000-$34,000 | Up to 50% |
| Single | >$34,000 | Up to 85% |
| Married Joint | <$32,000 | 0% |
| Married Joint | $32,000-$44,000 | Up to 50% |
| Married Joint | >$44,000 | Up to 85% |
Combined income is calculated as your adjusted gross income (AGI) plus nontaxable interest and half of your Social Security benefits. AGI is your total income minus certain deductions, and the IRS uses this combined figure to determine how much of your benefits may be taxed.
How Social Security Benefits Are Taxed
To understand who still pays taxes on Social Security, it helps to look at how the system currently works. The table below shows how much of your Social Security benefits may be taxable, depending on your filing status and combined income. Here’s a quick look at the current thresholds:
Now, Here’s Where the OBBBA Makes a Difference
Starting in 2025, retirees ages 65 and older will be eligible for a new deduction in addition to the standard and age-based deductions. This deduction is income-based and gradually phases out as income increases. For example, singles earning up to $75,000 can deduct $6,000, while married couples earning up to $150,000 can deduct $12,000. The deduction phases out completely at higher income levels.
| Filing Status | Income Limit for |
Deduction Amount | Phase-Out Range |
| Single | Up to $75,000 | $6,000 | $75,000-$175,000 |
| Single | Up to $150,000 | $12,000 | $150,000-$250,000 |
*Income limit is based on Modified Adjusted Gross Income (MAGI).
Let’s look at two examples to see how this may play out:
Jerry, a Single Retiree, Age 70:
AGI: $80,000
Under the OBBBA, Jerry is eligible for a deduction of up to $6,000. However, because his income exceeds the $75,000 threshold, the amount he can deduct will be reduced accordingly.
Now, we have to do the phase-out calculation at a rate of 6 cents for every dollar over the limit.
For Jerry that means:
$6,000 – ($5,000 x 6%) = $5,700 deduction.
Assuming Jerry is at a 22% tax bracket:
$5,700 x 0.22 = $1,254 in tax savings.
Carol and Tim, Married, Ages 68 and 70:
Combined AGI: $160,000
Under the OBBBA, Carol and Tim are eligible for a deduction of up to $12,000. However, because their income exceeds the $150,000 threshold, the amount they can deduct will be reduced.
How much over the limit?
Phase-out calculation:
$12,000 – ($10,000 x 6%) = $11,400 deduction
Assuming Carol and Tim are at a 22% tax bracket:
$11,400 x 0.22 = $2,508 in tax savings.
“So, Will I Get These Deductions Forever?”
Not quite. It’s important to note that this deduction isn’t permanent; it’s currently set to expire after 2028 unless Congress decides to extend it. The phase-out is designed to balance immediate financial relief for retirees while ensuring the sustainability of Social Security benefits. By setting an expiration date, Congress can reassess the economic impact and effectiveness of the deduction, making adjustments as necessary. For now, this means retirees have a limited window to take advantage of this benefit, and it’s crucial to stay informed about any legislative changes that may affect their financial planning.
“Do I Get This Deduction Automatically?”
No. This deduction is not automatically applied to your Social Security payments or W-2s. You—or your tax preparer—must actively claim it when filing your 2025 tax return. It’s your responsibility to calculate and include the deduction based on your income and eligibility.
Next Steps
The OBBBA deduction can be a valuable tax break for retirees, especially those in the upper-middle income range. However, the rules are complex, and eligibility phases out at higher income levels, making timing and income management critical. Strategic decisions, such as timing withdrawals, converting to a Roth IRA, or selling investments, can help you stay within the qualifying range and maximize your savings. Because this deduction is temporary and nuanced, it’s essential to coordinate with both your financial and tax professionals. With thoughtful planning, you can take full advantage of this opportunity and potentially reduce your tax burden in retirement.
Mike is a managing director of the Hartford Funds Applied Insights Team. The team translates the expertise of the psychologists, physiologists, professors, and practice-management experts we partner with into practical, actionable ideas and tools to make sense of a rapidly evolving market and demographic landscape.
Curtis is a senior internal advisor consultant for Hartford Funds. He’s responsible for marketing Hartford Funds and The Hartford SMART529 in North Carolina and South Carolina. He supports financial professionals and their clients with educational materials, product expertise, and practice-management strategies. He holds his National Social Security Advisor Certificate and is committed to educating professionals and their clients on social security-related topics.
1 Social Security tax breaks: What the ‘Big Beautiful Bill’ really means for 88% of retirees, USA Today, 7/8/25
Tax savings will vary depending on your actual tax bracket.
For illustrative and educational purposes only. The hypothetical situations described above are dramatized scenarios for pre-retirees and Social Security beneficiaries to consider, if they choose, during their own decision-making process and should not be construed as advice. The circumstances and strategies described herein may not reflect an actual client’s experience. The couples described in the above scenarios are fictitious and any resemblance between them and actual couples is coincidental.
All information provided is for informational and educational purposes only and is not intended to provide investment, tax, accounting, or legal advice. As with all matters of an investment, tax, or legal nature, you and your clients should consult with a qualified tax or legal professional regarding your or your client’s specific legal or tax situation, as applicable. The preceding is not intended to be a recommendation or advice. This information does not take into account the specific investment objectives, tax and financial condition of any specific person. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. This material and /or its contents are current at the time of writing and are subject to change without notice.
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