The Effect of the 2025 Budget Law on Taxing Social Security
The One Big Beautiful Bill Act (OBBBA) has led to numerous tax law changes for older adults, but you will need to be aware of the adjustments to maximize your benefits. An experienced tax resolution lawyer could help explain these updates, including the effect of the 2025 budget law on taxing Social Security. Contact an attorney at Dayes Law Firm, and we could help you fully understand how the law impacts your retirement income.
What Are the New Deductions Under Federal Tax Laws?
The OBBBA now allows for an additional $2,000 deduction for single taxpayers or those filing as head of households who are in a particular age group. For married individuals filing jointly (or separately) where one spouse is 65 or older, the extra deduction is $1,600 per qualifying individual. In addition, there is also a temporary bonus deduction for people aged 65 or older that adds $6,000 for individuals and $12,000 for joint filers, if both spouses qualify. The effect under the 2025 budget law is that older adults have less income, including Social Security payments, on which they are required to pay taxes.
Social Security Recipients and Federal Income Taxes
The law also affects older adults by reducing or eliminating federal income taxes on Social Security benefits beginning in 2025. It introduces a substantial additional deduction for individuals aged 65 and older, which lowers taxable income for most people in that age group. As a result, an estimated 9 out of 10 Social Security recipients will not owe federal income tax on their benefits.
This change is intended to help older adults keep more of their monthly payments, reducing financial strain as the cost of living continues to rise. While some people over 65 may still face some tax liability, the law ensures that most older Americans can receive their Social Security income without additional federal taxation.
The change did not fully eliminate federal taxes on Social Security benefits, but it did raise thresholds and increase deductions, so fewer people will need to pay income taxes.
How To Plan for Taxes as an Older Adult Under the New Federal Law
Planning for taxes as an older adult under the new federal tax laws requires careful consideration of income sources and deductions. With the law providing larger standard deductions for those aged 65 and older, many will see reduced or eliminated federal taxes on Social Security benefits. Importantly, pensions, retirement account withdrawals, and investment income remain taxable.
Older adults should review their income mix, time their withdrawals strategically, and consider Roth conversions or other tax-advantaged moves. Maximizing deductions, including medical and charitable expenses, can further lower taxable income. Working with a tax professional ensures compliance, helps avoid surprises, and allows older adults to take full advantage of any existing benefits while planning for long-term financial security.
Contact a Lawyer Today To Learn How the 2025 Budget Law May Affect Your Social Security
Navigating taxes as an older adult can be complex, especially under new federal laws. The experienced attorneys at Dayes Law Firm, who take cases all across Arizona, are here to help you maximize deductions, understand the effect of the 2025 budget law on taxing Social Security, and plan strategically to minimize your tax burden. Do not risk your financial security by being unaware of recent changes. Contact us today for a personalized consultation and ensure you manage your retirement income effectively.
