Following weeks of debate, negotiations, and compromises, the House passed President Trump’s budget bill – better known as the One Big Beautiful Bill Act (OBBBA)1 – by a vote of 218 to 214, after the Senate approved the bill 51-50. Following those votes, the bill went back to the president who signed it into law in a ceremony on Friday, July 4, 2025.

The question now is what the law will mean for Social Security and other retirement accounts, and when those changes will start to show up.

According to the Council of Economic Advisors (CEA), 88% of retirees who receive Social Security benefits will pay no tax on their benefits under the OBBBA as a result of their total deductions exceeding their taxable Social Security benefits. But that is just one of the ways that the new budget will impact retirees across the country.

The short story is that the OBBBA is reducing the tax collected on Social Security income by temporarily increasing the standard deduction by $6,000 (for those who are single) and $12,000 (for married couples filing jointly) for everyone aged 65 and up. According to the White House, this new deduction, in addition to the existing standard deductions, will cover the tax collected on 88% of American retirees’ Social Security benefits.

Under current law, up to 85% of Social Security benefits are considered taxable for retirees making more than $25,000 and joint filers making more than $32,000.2 To determine if your benefits are taxable, take half of the Social Security income you collect during the year, along with non-taxable interest, and add it to your other income sources, such as pensions, part-time work, interest, dividends and capital gains. Social Security calls this your "combined income".

If you’re single and the total is more than $25,000, then part of your Social Security benefits may be taxable. If you’re married, take half of your Social Security benefits, half of your spouse's benefits, and add in all your combined income. If it’s more than $32,000, then part of your Social Security may be taxable. How much? It depends on which income bracket you fit into.3

50% of your benefits may be taxable if you are:

  • Filing single, head of household, or qualifying widow or widower with $25,000 to $34,000 in total income.
  • Married, filing separately, and living apart from your spouse all of last year with $25,000 to $34,000 income.
  • Married, filing jointly with $32,000 to $44,000 in income.

Up to 85% of a your benefits may be taxable if you are:

  • Filing single, head of household, or qualifying widow or widower with more than $34,000 in total income.
  • Married, filing jointly with more than $44,000 income.
  • Married, filing separately, and lived apart from your spouse for all of last year with more than $34,000 income.
  • Married, filing separately, and lived with their spouse at any time during 2021.

Social Security will continue to be taxed based on these limits, regardless of the new deductions in the OBBBA.

How the New Deductions in the OBBBA Will Work

The deductions introduced in this year’s budget bill will be available for tax years 2025 through 2028 and start for filers at age 65. If filing jointly, one spouse needs to be age 65 or older.

According to the Administration, a retiree who files singly will see a total deduction of $23,750 starting this tax year, including the $15,750 standard deduction, $2,000 existing senior deduction, and the new $6,000 senior deduction. For married couples filing jointly, it will add up to $46,700, including the $31,500 standard deduction for joint filers, the $3,200 existing senior deduction, and the new $12,000 senior deduction for couples.4

These new deductions will expire after the 2028 tax year if they aren’t renewed between now and then. Also, remember, you can request to pay taxes on your Social Security benefits throughout the year instead of paying a large bill at tax time, withholding 7%, 10%, 12%, or 22% of your monthly payment by filing the form W-4V.5 Taxes on Social Security benefits are not automatically withheld like they commonly are on your paycheck while you’re working.

8 Additional Tax Implications of the OBBBA

The new senior deductions are just one way that the OBBBA is set to overhaul the tax system. It will also build on a number of changes made in the Tax Cuts and Jobs Act (TCJA), passed in 2017 during President Trump’s first term. These additional updates include:6

  1. Lower Marginal Tax Rates: The lower tax rates from the TCJA are now made permanent. The OBBBA is also increasing the inflation adjustment by an extra year for the 10%, 12%, and 22% tax brackets.
  2. Increase the Standard Deduction: The increased standard deduction from the TCJA has also been made permanent, with extra enhancements starting in 2025 at $31,500 for joint filers, $23,625 for head of household, and $15,750 for all others. These deductions will be adjusted for inflation in the years ahead.
  3. Temporarily Increase the Deduction for State and Local Taxes (SALT): The state and local tax deduction cap has been increased to $40,000 for 2025 and will increase by 1% annually through 2029. This will phase out for those with incomes over $500,000 and then reduce the cap to a flat $10,000 thereafter.
  4. No Change to the Personal Exemption: The personal exemption, which was eliminated in the TCJA, continues to be suspended.
  5. Increase the Child Tax Credit: The child tax credit, which was set to expire, has been made permanent with an increased maximum of $2,200 in 2026, with inflation adjustments in the years ahead.
  6. Make the Alternative Minimum Tax (AMT) Exemption Permanent: The million-dollar exemption from the TCJA for the alternative minimum tax was extended and made permanent. The OBBBA also reverts the AMT exemption phaseout thresholds to 2018 levels of $500,000 for single filers and $1 million for joint returns and increases the phaseout rate.
  7. New Auto Loan Interest Deduction: The OBBBA creates a new deduction for auto loan interest up to $10,000, but only for new cars that were assembled in the U.S. It’s temporary, though, only applying for tax years 2025 through 2028.
  8. Increase Estate, Gift, and GST Tax Exemption Increase: Starting in 2026, the federal estate, gift, and generation-skipping transfer (GST) tax exemption will rise to $15 million per individual, up from $13.99 million in 2025. This means an individual can transfer up to $15 million during their lifetime or at death without incurring these federal taxes. For married couples, this combined exemption will increase to $30 million in 2026, up from $27.98 million in 2025.7

What This All Means for the Future of Social Security

Will these adjustments in the OBBBA improve the long-term health and viability of the Social Security system? The short answer is these new tax deductions – while helpful for retirees receiving Social Security benefits in the short term – do not directly address the long-term solvency of the program overall, which still needs to be sorted out.

The Social Security Administration still expects the combined reserves of both the Old-Age and Survivors Insurance and Disability Insurance (OASI and DI) Trust Funds to have enough revenue to pay benefits and administrative costs until 2034, with 81% of benefits payable at that point. That’s one year earlier than was projected last year. The OASI Trust Fund is projected to become depleted in 2033, the same year as last year’s estimate, with 77% of benefits payable at that time.8 Before 2033, the government will need to pass additional legislation to ensure that Social Security remains solvent for years to come.

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1U.S. House of Representatives. (June 2025). H.R.1 - One Big Beautiful Bill Act. https://www.congress.gov/bill/119th-congress/house-bill/1/text

2Social Security Administration. (June 30, 2025). Must I pay taxes on Social Security benefits? https://www.ssa.gov/faqs/en/questions/KA-02471.html

3IRS. (February 9, 2022). IRS reminds taxpayers their Social Security benefits may be taxable. https://www.irs.gov/newsroom/irs-reminds-taxpayers-their-social-security-benefits-may-be-taxable

4The White House. (July 1, 2025). No Tax on Social Security is a Reality in the One Big Beautiful Bill. https://www.whitehouse.gov/articles/2025/07/no-tax-on-social-security-is-a-reality-in-the-one-big-beautiful-bill/

5SSA. (2025). Request to withhold taxes. https://www.ssa.gov/manage-benefits/request-withhold-taxes

6Tax Foundation. (July 3, 2025). “One Big Beautiful Bill Act” Tax Policies: Details and Analysis. https://taxfoundation.org/research/all/federal/big-beautiful-bill-senate-gop-tax-plan/

7Galinski, C., Golds, J. (July 3, 2025). One Big Beautiful Bill Passes, Heads to President's Desk. The National Law Review. https://natlawreview.com/article/one-big-beautiful-bill-passes-heads-presidents-desk

8SSA. (June 20, 2025). Social Security Board of Trustees: Projection for Combined Trust Funds One Year Sooner than Last Year. https://blog.ssa.gov/social-security-board-of-trustees-projection-for-combined-trust-funds-one-year-sooner-than-last-year/