Starting with the 2025 tax year, roughly 88% of Social Security recipients owe no federal income tax on their benefits. The One Big Beautiful Bill Act, signed into law on July 4, 2025, created a $6,000 bonus deduction for seniors that, stacked on top of the existing standard deduction, cancels out the taxable portion of Social Security income for most retirees. The change is retroactive to the start of 2025, so it applies to returns filed in early 2026. Higher-income retirees can still owe under the taxation rules that have been on the books since 1984, and several states impose their own tax on benefits.
What the New Law Actually Changed
The statute that makes Social Security benefits taxable, 26 U.S.C. § 86, was not repealed. Congress instead added a $6,000 bonus deduction on top of the existing standard deduction for taxpayers who receive benefits. For a single retiree collecting the average retirement benefit of about $24,000 a year, total deductions now exceed the taxable portion of that income. Married couples who both receive average benefits see the same outcome. The White House estimates about 51 million seniors fall into the group that owes nothing.1The White House. The One Big Beautiful Bill
Because the deduction is retroactive to 2025, retirees who had tax withheld from their 2025 benefits or made estimated payments during the year can recover the overpayment when they file in early 2026.2The White House. No Tax on Social Security Is a Reality in the One Big Beautiful Bill
The distinction matters if your income is high. This is a deduction that wipes out the tax bill for most people, not a repeal of the underlying tax. Retirees with substantial income from pensions, investments, or continued work can still exceed the thresholds Congress set decades ago, and they will still owe.
Who Still Owes Federal Tax on Benefits
The roughly 12% of recipients who still owe are those whose total income is high enough that even the new $6,000 deduction doesn’t zero out the liability. The IRS uses a figure called “combined income” to decide whether any of your Social Security is taxable, and if so how much.3Office of the Law Revision Counsel. 26 USC 86 – Social Security and Tier 1 Railroad Retirement Benefits
The thresholds work in tiers:
- Single filers pay no tax on benefits below $25,000 in combined income. Up to 50% of benefits become taxable between $25,000 and $34,000, and up to 85% above $34,000.3Office of the Law Revision Counsel. 26 USC 86 – Social Security and Tier 1 Railroad Retirement Benefits
- Married filing jointly: no tax below $32,000, up to 50% taxable between $32,000 and $44,000, and up to 85% above $44,000.3Office of the Law Revision Counsel. 26 USC 86 – Social Security and Tier 1 Railroad Retirement Benefits
- Married filing separately, if you lived with your spouse at any point during the year: the base amount is $0, and the calculation jumps straight to the 85% bracket.4Internal Revenue Service. Publication 915 – Social Security and Equivalent Railroad Retirement Benefits
A retiree with $80,000 in pension income and $24,000 in Social Security will still owe tax on some portion of the benefits. The new deduction helps, but it doesn’t overcome that level of income.
How to Figure Your Combined Income
Combined income is not the same as your total income or your adjusted gross income. The IRS defines it as your adjusted gross income, plus any tax-exempt interest, plus half of your Social Security benefits for the year.5Internal Revenue Service. Social Security Income
Here is what that looks like in practice. Suppose you are single with $20,000 in pension income, $2,000 in tax-exempt interest from municipal bonds, and $18,000 in Social Security benefits. Combined income equals $20,000 + $2,000 + $9,000 (half of the benefits), which is $31,000. That crosses the $25,000 base amount, so some benefits would be taxable before the new deduction is applied.
Your adjusted gross income appears on line 11 of Form 1040.6Internal Revenue Service. Adjusted Gross Income Total benefits for the year are on Form SSA-1099, which the Social Security Administration mails each January.7Social Security Administration. How Can I Get a Replacement Form SSA-1099/1042S, Social Security Benefit Statement IRS Publication 915 provides worksheets that walk through the full calculation and show how the new deduction applies.4Internal Revenue Service. Publication 915 – Social Security and Equivalent Railroad Retirement Benefits
The Married Filing Separately Trap
Couples who file separate returns and lived together at any point during the year face the harshest rule. Their base amount is zero, there is no 50% tier, and every dollar of combined income triggers potential taxation at the 85% level.4Internal Revenue Service. Publication 915 – Social Security and Equivalent Railroad Retirement Benefits
This catches couples who file separately for reasons that have nothing to do with Social Security, such as managing student loan repayment or keeping tax liability separate. If both spouses receive benefits, the tax hit from filing separately can outweigh whatever prompted it. Run the numbers both ways before you submit.
Income That Can Push You Over the Threshold
Certain income sources feed into combined income in ways retirees don’t always anticipate.
- Required minimum distributions. Once you turn 73, mandatory withdrawals from traditional IRAs and most employer-sponsored plans hit your adjusted gross income as ordinary taxable income. If you delay your first RMD and take two distributions in one year, both land in the same tax year.
- Capital gains. Selling investments, rental property, or a home above the exclusion generates gains that count toward combined income. A single large sale can make benefits taxable for that year alone.
- Part-time work. Wages from any job add to adjusted gross income, and even modest earnings can push a retiree past the threshold.
- Tax-exempt interest. This is the one most people miss. Municipal bond interest doesn’t appear as taxable income on your return, but the IRS explicitly adds it back when calculating combined income for Social Security purposes.5Internal Revenue Service. Social Security Income
The interaction between RMDs and Social Security taxation is where most retirement tax surprises happen. A retiree who sat comfortably below the thresholds at 71 can blow past them at 73 simply because mandatory distributions kick in.
Ways to Keep Your Benefits Untaxed
If your income puts you above the thresholds, there are legitimate ways to bring combined income down. The most powerful is converting traditional IRA or 401(k) funds to a Roth account before you claim Social Security. Roth withdrawals don’t count toward adjusted gross income and don’t feed into combined income. The conversion itself creates taxable income in the year you do it, so the sweet spot is the window after retirement and before benefits begin, when other income is lower.
Drawing down taxable accounts in years when you aren’t yet collecting Social Security also helps. Smaller balances later mean smaller RMDs, which means lower adjusted gross income during the years benefits are flowing.
Charitable retirees over 70½ can use qualified charitable distributions to satisfy an RMD without adding to adjusted gross income. The money moves directly from the IRA to the charity and never appears on your return as income, which keeps combined income lower.
Paying Tax on Benefits If You Still Owe
If combined income still exceeds the thresholds after the new deduction, you need a plan for the tax. The simplest route is asking the Social Security Administration to withhold federal income tax from your monthly benefit. Only four flat rates are available: 7%, 10%, 12%, or 22%.8Internal Revenue Service. Voluntary Withholding Request
To start, change, or stop withholding, file IRS Form W-4V with the Social Security Administration, not the IRS. You can also request withholding through your my Social Security account online or by calling SSA at 1-800-772-1213.9Social Security Administration. Information for Financial Professionals
If you’d rather not have anything withheld, quarterly estimated payments are the alternative. The IRS expects at least 90% of your liability paid during the year to avoid an underpayment penalty. Estimated payments are due April 15, June 15, September 15, and January 15 of the following year.10Internal Revenue Service. Pay As You Go, So You Won’t Owe
State Taxes Are a Separate Question
Federal is only part of the picture. Most states either impose no income tax at all or specifically exempt Social Security benefits. As of the 2026 tax year, roughly nine states still tax benefits to some degree. Rules vary: some exempt benefits below certain income levels, some offer partial credits that phase out as income rises, and at least one mirrors the federal thresholds.
The direction is toward elimination. Several states ended their Social Security tax in 2024, and another finished a multi-year phase-out in 2026.11Social Security Administration. Research Note 12 – Taxation of Social Security Benefits In states that still tax benefits, exemption thresholds and credits can change year to year. Check your state’s department of revenue for current rules before you file. A retiree who owed state tax last year may qualify for full exemption this year, or the other way around.