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Social Security is one of the most important sources of income for many retirees. But it is also one of the most misunderstood around its taxation. With the new tax law reshaping standard deduction rules, there are upcoming planning opportunities and pitfalls to watch for.

In this episode of Money Wisdom, Jake Doser, CFP®, CPWA® and Nicholas J. Colantuono, CFP® explain how Social Security benefits are taxed at both the federal and state level. They also share key tax planning strategies that might help you keep more of what you’ve earned.

Federal vs. State Income Taxes

Social Security is taxable at the federal level for everyone, regardless of where you live. However, different states treat Social Security income differently. For instance, in Massachusetts, residents do not pay state income tax on Social Security benefits. In contrast, Connecticut does impose a state income tax on Social Security.

How Taxes on Social Security are Calculated

At the federal level, the taxation of Social Security depends on your modified adjusted gross income (MAGI). Your MAGI includes all sources of earned income, non-taxable interest, and half of your Social Security benefit. Based on that number, you’ll fall into one of three federal income tax brackets:

• If your income is low enough, none of your Social Security is taxed.
• If your income falls in the middle range, you may pay taxes on 50% of your benefit.
• If your income is higher, up to 85% of your benefit can be subject to federal income tax.

But even in the highest bracket, 15% of your Social Security is always tax-free. Understanding how these calculations work is critical but can be overwhelming. That’s why having these discussions with a financial advisor or tax professional is so important.

What the New Senior Deduction Means

Increased deductions under the new tax law could benefit some retirees based on filing status, income, and age. For the 2025 tax year, single filers will receive a $15,000 standard deduction and married couples filing jointly will receive a $30,000 standard deduction.

Effective for 2025 through 2028, individuals aged 65 and older may claim an additional senior deduction of $6,000. Married couples over 65 will receive an extra $12,000. However, these enhanced deductions begin to phase out around $75,000 for single filers and $150,000 for couples, based on MAGI.

Tax Planning Strategies to Implement

Once you understand the rules, the next logical question becomes: What can you do about it? The key tax strategy here is income planning, specifically the timing and source of your retirement account withdrawals. Planning for that early through strategies like Roth conversions or strategic withdrawals can help reduce your future tax burden.

Need help making the right Social Security decisions? Get your free Social Security Decisions guide by texting “SOCIAL” to 800-757-0436.