This article was originally published in our weekly newsletter.

I’ve heard several sound bites of politicians suggesting that Social Security is now tax-free.

That is not true, and I would like to take a moment to clarify what is actually happening.

The original draft of the “One Big Beautiful Bill” (OBBB) proposed to make your Social Security benefits tax-free.

That clause was removed from the bill.

Instead, the bill included a clause that provides a deduction for individuals or couples who are 65 years or older.

To qualify for the additional deduction, your Modified Adjusted Gross Income (MAGI) has to be below a certain threshold.

If you are single and your MAGI is $75k or less, you’ll get an extra $6,000 deduction in addition to your standard deduction.

If you are married and your MAGI is $150k or less, you’ll get an extra $12,000 deduction in addition to your standard deduction.

Approximately 64% of those receiving Social Security today do not pay taxes on their benefits.

The OBBB adjustment is expected to increase the number of those who will not pay taxes on Social Security from 64% to around 88%.

So, when they say, “we made Social Security tax-free,” what they are really saying is they made it possible for more people to offset the taxes they would have paid for the Social Security benefits.

As a reminder, your MAGI is calculated by taking your Adjusted Gross Income (see line 11 on your 1040) and then adding back in any deductions that apply (IRA contributions, student loans, passive income losses, tax-exempt interest from muni bonds, etc.).

Also, as a reminder, when calculating how much your Social Security will be taxed (your Provisional Income), the standard deduction does not affect the calculation.

Here’s an example:

Let’s say a couple is living off $30,000 from their combined Social Security benefits and $40,000 from their pension (this calculation is deliberately simple).

Step 1: Calculate Provisional Income (for Social Security Taxation)

Provisional Income = Pension + ½ of Social Security.

In this situation, that would be: $40,000 + $15,000 ($30,000 ÷ 2), which equals $55,000

Step 2: Determine the Taxable Portion of Social Security

Below are the Social Security tax calculations:

For Married Filing Jointly:

Below $32,000 = 0% taxed

$32,000–$44,000 = 50% taxed

Over $44,000 = 85% taxed

Since $55,000 is greater than $44,000, 85% of Social Security benefits may be subject to taxation.

It would look like this: 85% × $30,000 = $25,500.

Step 3: Calculate your Adjusted Gross Income (AGI)

AGI = $40,000 (Pension) + $25,500 (Taxable SS Benefits) = $65,500

Step 4: Calculate your Modified AGI (for OBBB deduction phaseout)

MAGI is typically the same as AGI here because there are no deductions that would be added back (e.g., municipal bond interest, IRA contribution deductions, etc.).

In this situation, the MAGI would be $65,500

This is under the $150,000 threshold for couples, which means they would get the full senior deduction from the OBBB.

Step 5: Calculate the Total Standard Deduction

Here are all the basic deductions that would qualify:

Base Standard Deduction: $30,000

Age 65+ bonus ($1,600 x 2): $3,200

OBBB Senior Deduction ($6,000 x 2): $12,000

The Total Deduction would be around $45,200.

Step 6: Calculate the Taxable Income

Take the AGI ($65,500), subtract the deductions ($45,200), and you get your taxable income of $20,300.

Final Result:

Your total taxable income would be around $20,300.

This would likely place you in the 10% and 12% tax bracket, plus any applicable state tax.

The Takeaway

There’s an expression that says, “The tax code is written in pencil.”

In other words, anything can be erased or adjusted.

We just experienced a lot of adjustments to our tax code.

Having retirement income flexibility can help you adapt to the ever-changing tax environment.

A few minor adjustments may be able to put you into a position where you can qualify and enjoy the additional deduction and tax efficiency.

Does your plan allow you to make adjustments to take advantage of these kinds of changes?

If not, maybe it’s time for a new plan.