How Social Security beneficiaries’ tax bills may change this year

Social Security beneficiaries will soon receive statements showing how much of their total benefits they receive in 2025 may be subject to federal taxes.

Changes enacted by Congress this year mean there’s even more reason to pay attention to those tax documents.

Forms known as SSA-1099 or SSA-1042SIt will be available online starting Dec. 25, according to a Social Security Administration spokesperson. The agency will begin mailing documents on December 26, and all 1099s are scheduled to be received by the end of January.

The 1099 form shows the total amount of benefits received for the year to be reported to the IRS.

Federal tax liabilities for beneficiaries resulting from this income may change due to legislation enacted this year. President Donald Trump’s “big beautiful bill” introduced a $6,000 deduction for eligible seniors, among other tax changes, while the Social Security Fairness Act may have increased some retirees’ benefit income.

The new $6,000 senior deduction is limited to people 65 and older. this one temporary interruption This will apply for tax years 2025 through 2028.

Eligibility will be based on income, and the full deduction will be available to individual taxpayers with adjusted gross income up to $75,000 and married couples up to $150,000. The deduction phases out for incomes above these thresholds and is eliminated entirely for individuals with incomes of $175,000 and married couples with incomes of $250,000.

The senior deduction is available regardless of whether taxpayers take the standard deduction or itemize their returns.

The “big beautiful” package does not eliminate federal taxes on Social Security benefits. Instead, the new severance deduction is intended to help retirees offset taxes on their Social Security benefits, which can be taxed at up to 85% depending on the amount of “combined income” they have (the sum of adjusted gross income, untaxed interest, and half of Social Security benefits).

The effects of this new severance allowance for tax filers will be combined with other changes, in particular a tax deduction. higher standard deduction. For the 2025 tax year, the new “big beautiful” law increases the standard deduction to $15,750 for singles and $31,500 for married couples filing jointly. In tax year 2026, the standard deduction will increase to $16,100 for single taxpayers and $32,200 for married taxpayers.

In 2025, Americans age 65 and older will also be eligible for an existing additional deduction of $2,000 for single taxpayers or $3,200 per married couple filing jointly.

In all of 2025, only one older person The taxpayer may have the total standard deduction on the first $23,750 of income and therefore not owe federal taxes. For older For married couples, the same applies to incomes up to $46,700.

Alex Durante, senior economist at the Tax Foundation, said of the new $6,000 top-line deduction: “It’s really going to be middle- and lower-middle-income taxpayers who are going to see the biggest benefit from this additional deduction.”

“This effectively eliminates the tax liabilities of most senior taxpayers,” he said.

With the new tax law taking effect in mid-2025, it’s possible some seniors will overwithhold on federal taxes and see larger refunds this tax season, Durante said.

Some retirees may find themselves in a situation where their taxable income is zero or even negative due to a combination of deductions, said Marianela Collado, certified financial planner, certified public accountant and senior wealth advisor and CEO. Tobias Financial Advisors in Plantation, Florida. Collado is also a member of the CNBC Council of Financial Advisors.

For retirees, this is an opportunity to consider Roth conversions by moving funds from a retirement account to a Roth account pre-tax and paying taxes on the income to allow the money to grow tax-free. This can be especially helpful to do in years when they are required to take required minimum distributions, Collado said.

He also said that they may consider selling investments in their portfolio that have gained value. For those with little or no taxable income, selling at a profit will cost them nothing. By then buying back those securities, the taxpayer can get a free increase on their current value, Collado said.

another one A new law signed by President Joe Biden in January, the Social Security Fairness Act, eliminated provisions that reduced or eliminated social security benefits. more than 2.8 million individuals.

Now retirees who receive job-based retirement income that does not include Social Security payroll taxes can receive an increase in benefits. Additionally, spouses and widows may now receive more benefits or, in some cases, be eligible for new benefits.

Since the law applies to benefits provided from January 2024, these beneficiaries will also receive a lump sum payment for that period.

Some people affected by the law may see their taxes increase.

“If you have a lot of other income and you suddenly start receiving a lump sum and higher Social Security benefits, you could certainly end up with more of your benefits being taxable,” Collado said.

Social Security benefits are taxed according to certain guidelines combined income thresholds.

Up to 50% of Social Security benefits are taxed for individuals with total income between $25,000 and $34,000 and for married couples with $32,000 to $44,000. Up to 85% of benefits are taxed for individuals with total income of more than $34,000 and married couples with income of more than $44,000.

The extra income from the Social Security Fairness Act has been “a game changer for a lot of my clients,” said Michael Carbone, CFP, certified financial analyst and partner at Eppolito, Carbone & Co. in Chelmsford, Massachusetts.

He said the law provided a significant boost for some people, such as one client who saw a $30,000 annual increase in net income.

The extra revenue is a net benefit, but affected customers will owe more taxes, Carbone said. That money could limit their ability to take advantage of strategies tied to lower returns, such as Roth conversions or selling appreciated assets at a 0% long-term capital gains rate, he said.

Some moves must be completed by December 31 to reduce tax liability this 2026 tax filing season.

According to Collado, beneficiaries would now be wise to have a tax professional conduct projections.

For example, the full $6,000 senior deduction applies only to individuals with modified adjusted gross income up to $75,000. If your income is $5,000 above that threshold, the deduction will be reduced, Collado said. However, taxpayers who know they are in this situation can prevent this by donating $5,000 through an endowment. “Qualified charitable distribution,” he said.