Did Congress Just Eliminate Taxes on Social Security? Not So Fast.

If you’ve seen the headlines lately, you might think Congress just passed a bill that eliminates federal taxes on Social Security benefits. Even the Social Security Administration joined in, stating that nearly 90% of beneficiaries will no longer pay federal tax on their benefits. But is that really what happened?

As NSSA® professionals, we owe it to our clients to separate myth from reality.

What H.R.1 Actually Does

The newly passed H.R.1 does not repeal the taxation of Social Security benefits. What it does is create a new temporary deduction for seniors aged 65 and older: up to $6,000 per person or $12,000 per couple, so long as their adjusted gross income is under $75,000 (individual) or $150,000 (joint).

This deduction lowers total taxable income, which may reduce or eliminate tax liability on Social Security for some—but not all—retirees.

Importantly:

• It’s not specific to Social Security income.
• It expires after 2028 unless extended.
• Low-income seniors, who already pay no tax, will see no added benefit.
• The biggest tax breaks go to wealthier seniors just under the phase-out threshold.

What Doesn’t Change

• The familiar provisional income thresholds for Social Security taxation are unchanged.

• Up to 85% of Social Security benefits may still be taxable, just as before.

• No change has been made to the solvency of the Social Security Trust Fund. In fact, by reducing overall federal tax revenue, this deduction could further strain funding options in the future.

What This Means for Your Clients

If your clients are middle- to upper-middle income seniors, this deduction may offer a temporary opportunity to reduce their taxable income. But it doesn’t simplify the tax picture—nor does it solve the bigger issue of how we fund Social Security for future generations.

As always, your guidance remains critical. Continue to help clients:

• Understand how provisional income affects taxation

• Leverage timing strategies for benefit claims

• Optimize withdrawals and Roth conversions in light of the new deduction

• Avoid relying on political headlines for retirement decisions

The bottom line: This bill offers a short-term deduction, not a long-term solution. Make sure your clients understand the difference.