Social Safety Is Nonetheless Taxed Below the New 2025 Trump Tax Regulation
I acquired an electronic mail from Social Safety Administration on July 3, applauding the brand new 2025 Trump tax legislation — One Large Lovely Invoice Act. The e-mail stated,
The brand new legislation features a provision that eliminates federal revenue taxes on Social Safety advantages for many beneficiaries, offering aid to people and {couples}.
I learn the One Large Lovely Invoice Act. This half isn’t true. The brand new 2025 Trump tax legislation doesn’t eradicate federal revenue tax on Social Safety advantages. Social Safety remains to be taxable simply as earlier than.
Momentary Senior Deduction
The e-mail from Social Safety Administration continued to say:
Moreover, it gives an enhanced deduction for taxpayers aged 65 and older, making certain that retirees can hold extra of what they’ve earned.
This half is true, however the electronic mail omitted the truth that the improved deduction is simply non permanent, and it has nothing to do with Social Safety anyway.
One Large Lovely Invoice Act created a brand new $6,000 senior deduction, out there solely from 2025 via 2028, to seniors 65 and older throughout these years. It doesn’t matter whether or not you’re receiving Social Safety or not. It doesn’t matter whether or not you’re even eligible for Social Safety or not.
Unrelated to Social Safety
For those who’re 62 and receiving Social Safety, you don’t qualify for this new senior deduction since you’re not 65 but. Your Social Safety is taxable simply as earlier than.
For those who and your neighbor are each 65, and also you’re receiving Social Safety however your neighbor isn’t eligible for Social Safety as a result of they didn’t pay into it, each of you qualify for this new senior deduction. For those who and your neighbor have the identical revenue exterior Social Safety (pension, curiosity, dividends, capital positive aspects, and many others.), you’ll pay increased taxes than your neighbor whenever you add your taxable Social Safety advantages on high.
For those who’re 65 this yr and also you’re delaying your Social Safety, you continue to qualify for this new senior deduction. While you declare your Social Safety subsequent yr at 66, your taxes will improve as a result of added revenue from Social Safety, which is taxable simply as earlier than the 2025 Trump tax legislation.
No Change to AGI
The brand new non permanent senior deduction goes after the usual deduction or itemized deductions. It’s out there whether or not you itemize or not. It’s not a part of the usual deduction. It doesn’t exchange the prevailing improve in customary deduction for age 65.
Nevertheless, it doesn’t decrease your AGI. It doesn’t make it simpler so that you can qualify for issues keyed off of the AGI, for instance, avoiding increased Medicare premiums beneath IRMAA. It doesn’t decrease state taxes.
No Change to Tax on Social Safety
The brand new senior deduction is simply an additional tax profit for seniors. It has nothing to do with Social Safety. It doesn’t take away taxes on Social Safety. The brand new additional tax profit could also be price kind of than the tax in your Social Safety advantages. You’ve the brand new tax profit on one facet and the tax on Social Safety on the opposite facet. The 2 are fully unrelated.
It’s like some individuals saying they picked up $5 on the road and due to this fact their espresso is free. The 2 issues don’t have anything to do with one another. You don’t have to purchase espresso after choosing up $5. The espresso nonetheless prices the identical whether or not you picked up $5 or not. The espresso could also be kind of than $5. Choosing up $5 is sweet, however the espresso nonetheless isn’t free.
Please use my calculator How A lot of Your Social Safety Advantages Is Taxable? to learn how a lot of your Social Safety advantages is taxable. The brand new 2025 Trump tax legislation didn’t change any of that calculation.
Earnings Phaseout
Not solely is the brand new senior deduction non permanent, nevertheless it additionally phases out as your revenue goes up. You get the total $6,000 deduction if you happen to’re single and your modified adjusted gross revenue is $75,000 or much less ($150,000 or much less for married submitting collectively). You get $0 deduction if you happen to’re married submitting individually, no matter your revenue.
The modified adjusted gross revenue is the AGI for most individuals. It doesn’t add again untaxed Social Safety or muni bond curiosity. The “modified” half is just for overseas earned revenue exclusion and residents in Puerto Rico, Guam, American Samoa, and the Northern Mariana Islands.
As your revenue goes up, every particular person’s deduction is diminished by 6% of any extra revenue above the $75,000/$150,000 threshold. The deduction disappears when your revenue reaches $175,000 if you happen to’re single or $250,000 if you happen to’re married submitting collectively.
The tables beneath illustrate how the deduction phases out at totally different revenue ranges. Extrapolate when your revenue is between the numbers proven within the tables.
Single
| Earnings | Senior Deduction |
|---|---|
| $75,000 or much less | $6,000 |
| $85,000 | $5,400 |
| $95,000 | $4,800 |
| $105,000 | $4,200 |
| $115,000 | $3,600 |
| $125,000 | $3,000 |
| $135,000 | $2,400 |
| $145,000 | $1,800 |
| $155,000 | $1,200 |
| $165,000 | $600 |
| $175,000 or above | $0 |
Married Submitting Collectively
| Earnings | One Particular person Is 65+ | Each Are 65+ |
|---|---|---|
| $150,000 or much less | $6,000 | $12,000 |
| $160,000 | $5,400 | $10,800 |
| $170,000 | $4,800 | $9,600 |
| $180,000 | $4,200 | $8,400 |
| $190,000 | $3,600 | $7,200 |
| $200,000 | $3,000 | $6,000 |
| $210,000 | $2,400 | $4,800 |
| $220,000 | $1,800 | $3,600 |
| $230,000 | $1,200 | $2,400 |
| $240,000 | $600 | $1,200 |
| $250,000 or above | $0 | $0 |
[Image Credit: Google Gemini]
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