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Freedom for Retirement™ is the podcast designed to help you move beyond the fear of the complexity of finances so you can be financially free to achieve personal significance. Tune in with Josh Duncan each week to turn fear into fuel that drives you into Freedom & Significance.
Welcome to the Freedom for Retirement Podcast.
If you're a high-earning professional, business owner, or someone approaching retirement
and wondering whether you are truly on track, you are in the right place.
This podcast is all about helping you make smart, confident financial decisions without
the fear, confusion, or sales pressure that so often comes with money advice.
Each episode is designed to break down complex topics like retirement planning, investing,
taxes, and cash flow in plain English.
So you can understand what really matters and avoid the most common and costly financial
mistakes.
Everything you hear here is educational, fiduciary focused, and grounded in real-world
planning experience working with clients just like you.
I'm your host, Josh Duncan, partner at F5 Financial Planning.
Let's get started.
Maybe you saw a headline this year that said something like: no tax on Social Security.
Maybe someone mentioned it at a family dinner, or you scrolled past it online and thought,
finally, one less thing to worry about in retirement.
Here's the problem.
That's not what happened.
The rules that determine how much of your Social Security benefit gets taxed did not
change at all.
What did change is something else, something that in a lot of cases genuinely helps, but
only if you understand what it is and who it applies to.
I'm Josh Duncan, partnered F5 Financial Planning.
Or we take a fiduciary approach to maximizing our clients' wealth.
Well, in this video, we're going to separate the headline from the law.
We'll look at how Social Security benefits are taxed today, clear up a common mix-up
between this provision and payroll taxes, break down the real deduction Congress passed
and who qualifies for it, walk through two examples so you can see where you might land,
and talk about why this change is temporary and what that means for your planning.
By the end,
You'll have a clear sense of whether this helps you and roughly how much.
Okay, so let's start with where the claim came from, because it wasn't invented out of
thin air.
During the 2024 campaign, there was a promise to eliminate taxes on Social Security
benefits entirely.
When the tax law passed in the summer of 2025, commonly called the One Big Beautiful Bill,
a lot of coverage described it as delivering on that promise.
Some retirees heard no tax on Social Security and reasonably assume their benefit checks
were now.
Off limits to the IRS.
That is not what the law does.
Congress did not touch the formula that determines how much of your Social Security
benefit is taxable.
That formula has been in place since the 1980s and it is still fully intact for every
retiree filing a return for 2026.
What Congress created instead is a new deduction for people age 65 and older, worth $6,000
per person or $12,000 for a married couple where both spouses qualified.
There's a reason lawmakers went this route instead of simply exempting Social Security
benefits from tax.
Social Security's own trust funds are partially funded by the tax collected on benefits.
And changes that directly affect those trust funds run into strict budget rules under the
process Congress used to pass this bill.
A broad new deduction for seniors sidesteps that problem while still putting money back in
many retirees' pockets.
It's a workaround, not a repeal, and understanding that distinction is the key to this
video.
Now, here's why the confusion makes sense despite that.
For a meaningful number of retirees, this new deduction is large enough that it wipes out
the tax they would have otherwise owed on their Social Security benefit, along with some
other of their income.
So in effect, some retirees really will pay no federal tax tied to their benefit this
year, but that outcome depends entirely on your total income.
Not on some blanket rule that Social Security is now tax-free.
Two neighbors with identical Social Security benefits can end up with very different
results depending on what else shows up on the return.
We'll walk through why in a few minutes.
To understand what changed and what didn't, you need to understand how Social Security
taxation has worked since long before this new law.
The IRS uses something called your combined income.
You take your adjusted gross income and add any tax-exempt interest you earned and half of
your Social Security benefit.
That total is your combined income and it determines how much of your benefit is subject
to tax.
For a single filer, if your combined income is under $25,000, none of your Social Security
benefits is taxed.
Between $25,000 and $34,000, up to 50% of your benefit becomes taxable.
Above $34,000, up to 85% of your benefit can be taxed.
For married couples filing jointly, those thresholds are $32,000 and $44,000.
Here's the detail that matters most for this conversation.
Those thresholds were set in law in 1983 and again 1993, and they were never indexed for
inflation.
Not once.
Meanwhile, average benefit amounts and other retirement income have climbed for decades.
The practical effect is that more retirees cross into taxable territory every year, even
though the thresholds themselves have never moved.
The Social Security Administration itself.
Has noted for years that a growing share of beneficiaries owe some tax on their benefits.
And that share keeps climbing as those fixed thresholds fall further and further behind.
This new senior deduction did not raise those thresholds and it did not change the 50% or
85% taxation rates.
It works on a completely different part of your return, reducing your taxable income
overall rather than changing how much of your social security benefit counts as income in
the first place.
So if a well-meaning article or a family member tells you Social Security is no longer
taxed, that's not quite right.
And it's worth knowing why before you make any decisions based on it.
But before we get to the deduction itself, it's worth clearing up a second mix-up.
The no tax on social security conversation sometimes gets tangled up with a completely
different tax, the 6.2% Social Security payroll tax that comes out of every working
person's paycheck.
That payroll tax funds the Social Security system itself.
And this new law did not touch it either.
If you're still working, that withholding is unchanged.
What this deduction addresses is the income tax on the benefit you receive after you've
started collecting, not the payroll tax you or your employer pays while you're still
working.
Those are two entirely separate parts of the tax code, and keeping them straight matters,
especially if you're still working part-time after 65, which brings up another detail
worth knowing.
You don't have to be retired to claim this deduction.
If you're 65,
or older and still drawing a paycheck, you can qualify for the full $6,000 as long as your
income falls under the threshold we're about to cover.
Now let's talk about what changed.
Starting with tax year 2025 and running through 2028, taxpayers aged 65 and older can
claim an additional deduction of $6,000.
If you're married and both spouses are 65 or older, that's $12,000 combined with each
spouse's eligibility figured separately.
The IRS created a new form for this, Schedule 1-A.
A few things make this deduction more useful than it might first appear.
You get it whether you itemize your deductions or take the standard deduction, which is
unusual since those two paths are normally an either-or choice.
It also stacks on top of the additional standard deduction that's already available to
people 65 and older under prior law.
So it's not replacing anything you already had, it's adding to it.
And to qualify on the age test,
You simply need to turn 65 on or before the last day of the tax year.
If you're married, you need to file a joint return to claimant.
Filing separately disqualifies you even if you'd otherwise meet every other requirement.
There's also an income limit, and this is where a lot of the planning value shows up.
The deduction begins phasing out once your modified adjusted gross income crosses $75,000
for a single filer or $150,000 for a married couple filing jointly.
For every $1,000 of income above that threshold, the deduction shrinks by $60.
It disappears completely around $175,000 for single and $250,000 for joint filers.
And remember, this deduction is scheduled to expire after the 2028 tax year, unless
Congress acts to extend it.
It was written into the law as temporary, the same way several individual provisions in
that bill were.
We'll come back to why that timeline matters for your own planning.
Now, numbers tend to make this click faster than rules alone.
So let's look at two retirees.
Start with a couple, bull 65, filing jointly.
Between Social Security and a pension and withdrawals from a retirement account, their
combined income lands them with roughly 65% of their Social Security benefit taxable under
the standard formula.
That part hasn't changed for them at all.
But their modified adjusted gross income comes in well under the $150,000 threshold.
So they qualify for the full $12,000 deduction, stacked on top of their regular standard
deduction and their existing age-based deduction.
That $12,000 is enough in their case to push a meaningful slice of what would have been
taxable income below the line entirely, which can easily be worth somewhere in the range
of $1,000 to $2,000 in actual tax savings.
Depending on their tax bracket.
For this couple, the headline they saw wasn't accurate as written, but the outcome
described it as close to true for them this year.
Now take a single retiree still working part-time as a consultant with income from Social
Security, a pension, and consulting fees that puts her modified adjustagross income around
$190,000.
She's 65, she qualifies on the age test, but her income is above the $175,000 cutoff.
Where the deduction fully phases out for a single filer.
She gets none of it.
Her Social Security is still taxed under the exact same formula as before.
This law even existed.
At up to 85%, because her combined income is well above those old unindexed thresholds.
For her, nothing changed at all.
And if she only heard the headline, she'd be in for an unpleasant surprise when she files.
Knowing that ahead of time gives her the chance to plan her withholding accordingly rather
than finding out in April.
Same law, same age, two very different outcomes.
That's the piece the headline leaves out and why it's why your own number matters more
than what you read online.
So where does this leave you?
If your income is comfortably under the phase out thresholds, this deduction is real money
and it's worth making sure your tax preparer is claiming it correctly on that new Schedule
1-A.
If your income is above the phase out range, you shouldn't expect this provision to change
your Social Security tax bill at all.
And it's worth knowing that now rather than being surprised later.
There's a second layer here that's easy to miss because this deduction is only in place
through 2028.
The next few tax years are a window where some retirees have unusually low effective tax
rates on the income that shows up during those years.
For someone who is already weighing a Roth conversion or deciding how much to withdraw
from a retirement account in given year, that temporary window can shift the math.
Converting a slice of traditional IRA to a Roth in a year when this deduction is
offsetting a good part of your taxable income can mean paying tax on that conversion at a
noticeably lower rate, and you might pay once this provision expires.
That doesn't mean everyone should accelerate income in these years.
It means the calculation is worth running now while this deduction is still on the books
rather than after it potentially disappears.
This is the kind of provision where the details matter more than the headline.
A financial planner who's looking at your full picture, your income sources, your required
distributions, your other deductions can tell you which side of that phase out line you're
on and whether the next few years are worth restructuring around.
That's a conversation worth having with your financial planner and CPA before you file,
not after.
So let's bring this together.
Social Security is still taxed the same way it's been taxed since the 1980s, using
combined income thresholds that were never indexed for inflation and haven't moved in
decades.
What changed is a new $6,000 deduction for people 65 and older, $12,000 for a qualifying
married couple available through 2028 and phased out at higher incomes.
For some retirees, that deduction is large enough to erase what they would have owed on
their Social Security benefit.
For others, especially those with higher retirement income, it does nothing at all.
The headline you heard captured a piece of that story, but not the whole thing.
And the difference matters when you're the one filing the return.
That's the kind of gap between what's announced and what's written into the tax code that
we walk clients through every day.
And it's why we think fiduciary planning means going past the headline to the real math
for your threshold.
If you found this episode helpful, please consider subscribing to the podcast and leaving
a review.
It helps more people find the show and continue learning how to make smarter financial
decisions.
I'm Josh Duncan, partnered F5 Financial Planning.
If you would like to learn more about how we help our clients achieve financial freedom
for personal significance, please visit our website at www.f5fp.com.
Thanks for listening, and I'll see you in the next episode.