Remains In Effect With Newly Created Deduction
While reporting on the repeal of Social Security’s WEP & GPO laws, we reminded our members that Social Security benefits may be subject to federal income tax (see April 2025 Voice and the February 2025 Special Edition). Please don’t forget that Social Security benefits are not subject to Mass state income tax.
This reminder took on added significance since next year members, who received retroactive and increased monthly SS benefits this year, will be receiving a 2025 SSA- 1099 tax form that shows these benefits.
With the recent federal budget reconciliation law, misleading public statements were being circulated, even by the Social Security Administration itself, that the tax on SS benefits was eliminated. These statements were false and had to be retracted.
Yes, the tax, that was created with the WEP & GPO in the 1983 Social Security Amendments, remains in effect, and our earlier reports on this remain accurate. Then what change did they make?
While the federal tax is still on the books, a new $6,000 deduction has been created for this tax year and the next 3 years. Here are the deduction’s key features:
- To qualify for the $6,000 deduction, you must be at least 65 years old by the end of the tax year and have a modified adjusted gross income (MAGI) of less than $175,000. If you’re married and filing a joint tax return, your spouse can also claim the deduction if they’re 65 or older and your combined MAGI is less than $250,000.
- The maximum deduction is $6,000 per eligible taxpayer. For married couples filing jointly, the maximum deduction is $12,000 if both people are age 65 or older.
- The deduction is gradually reduced — potentially to $0 — if your MAGI exceeds $75,000, or $150,000 for joint filers. Once your MAGI reaches $175,000 for singles or $250,000 for joint filers, the deduction is fully phased out.
- The new deduction is in addition to the existing extra standard deduction for people age 65-plus ($2,000 for single filers and $1,600 each for joint filers). And, you can claim the new deduction regardless of whether you itemize your taxes or claim the standard deduction.
- The new legislation only authorizes the deduction for the 2025 to 2028 tax years.
It’s important to note that federal taxes on SS benefits go into the Social Security’s two Trust Funds, one for retirement and survivor benefits and one for disability benefits. In 2024, those taxes added $55.1B to Social Security’s coffers.
Social Security Trustees project that the Fund for retirement and survivor benefits, which faces the most significant gap, will run short in 2033. The Committee for a Responsible Federal Budget, a nonpartisan fiscal policy think-tank, estimates that the new deduction and other provisions of the new federal reconciliation law will accelerate that Fund’s insolvency by a year, to 2032.