How Social Security beneficiaries’ tax bills may change this year

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

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

The forms, known as the SSA-1099 or SSA-1042S, will be available online beginning Dec. 25, according to a Social Security Administration spokesperson. The agency will start mailing the documents on Dec. 26, with all 1099s slated to be received by the end of January.

The 1099 forms show the total amount of benefits received for the year to be reported to the IRS.

For beneficiaries, federal tax liabilities from that income may change because of legislation that was signed into law this year. President Donald Trump’s “big beautiful bill” introduced a $6,000 deduction for qualifying seniors, among other tax changes, while the Social Security Fairness Act may have increased benefit income for certain pensioners.

The new $6,000 senior deduction is limited to individuals age 65 and over. It is a temporary deduction that will be in place for the tax years 2025 through 2028.

Eligibility will be based on income, with the full deduction available for individual tax filers with up to $75,000 in modified adjusted gross income and married couples with up to $150,000. The deduction phases out for income above those thresholds and is fully eliminated for individuals with income of $175,000 and married couples with $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 senior deduction is intended to help retirees offset those levies on their Social Security benefits, up to 85% of which may be taxed based on how much “combined income” they have — the sum of adjusted gross income, nontaxable interest and half of Social Security benefits.

For tax filers, the effects of that new senior deduction will be combined with other changes, particularly a higher standard deduction. For tax year 2025, the new “big beautiful” law increases the standard deduction to $15,750 for single filers and $31,500 for married couples who file jointly. In tax year 2026, the standard deduction will increase to $16,100 for single filers and $32,200 for married taxpayers.

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

Altogether in 2025, a single older taxpayer may have a total standard deduction — and therefore not owe federal tax — on their first $23,750 in income. For older married couples, the same applies for up to $46,700 in income.

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

“It does effectively wipe away tax liabilities for most elderly taxpayers,” he said.

Because the new tax law was enacted in the middle of 2025, it is possible that some seniors overwithheld for federal taxes and will see bigger 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 the combination of deductions, said Marianela Collado, a certified financial planner, certified public accountant and senior wealth advisor and CEO at Tobias Financial Advisors in Plantation, Florida. Collado is also a member of the CNBC Financial Advisor Council.

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

They may also consider selling investments in their portfolio that have appreciated, she said. For those with little to no taxable income, selling at a gain won’t cost them anything. Then by buying those securities back, the taxpayer can get a free step-up in basis that adjusts to today’s value, Collado said.  

Another new law, signed by President Joe Biden in January, the Social Security Fairness Act, eliminated provisions that reduced or eliminated Social Security benefits for more than 2.8 million individuals.

Now, retirees who receive pension income based on work that did not include Social Security payroll taxes may receive an increase in benefits. Additionally, spouses and widows or widowers may now receive more benefits or, in some cases, be newly eligible for benefits.

Because the law applies to benefits from January 2024, those beneficiaries will also receive lump-sum payments for that period.

Some individuals affected by the law may see their taxes go up.

“If you have a lot of other income and all of a sudden you’re getting the lump sum and higher Social Security benefits, you can absolutely be thrown into having more of your benefits taxable,” Collado said.

Social Security benefits are taxed based on certain combined-income thresholds.

Up to 50% of Social Security benefits are taxed for individuals with combined income between $25,000 and $34,000, and for married couples with between $32,000 and $44,000. Up to 85% of benefits are taxed for individuals with more than $34,000 in combined income and married couples with 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, a CFP, chartered financial analyst and partner at Eppolito, Carbone & Co. in Chelmsford, Massachusetts.

The law has provided a substantial increase for some, such as for one client who saw a $30,000 annual increase in net income, he said.

The extra income is a net benefit, though affected clients will owe more taxes, Carbone said. That money may limit their ability to take advantage of strategies contingent on lower incomes, such as Roth conversions or selling appreciated assets at a 0% long-term capital gains rate, he said.

For example, the full $6,000 senior deduction is only available to individuals with up to $75,000 in modified adjusted gross income. If your income is $5,000 above that threshold, the deduction will be reduced, Collado said. But taxpayers who know they’re in that situation may prevent that by donating $5,000 through a qualified charitable distribution, she said.

The higher senior deduction will be in place through 2028. For some retirees, it may make sense to reduce withholdings for federal taxes from pensions or other sources, Collado said.

For beneficiaries to best understand the effects of the new laws on their personal tax circumstances, consult a tax professional who also acts as a fiduciary, Collado said, such as a CPA who has a personal financial specialist designation.