Your wallet just got a little happier. Social Security Changes
- Constantine J Kitrinos, CPFA
- 5 minutes ago
- 8 min read
The thing we've been hearing about for a while that everyone thinks they know, but not really sure how it works and what the bill itself does. It's the "One, Big, Beautiful Bill" or O, triple B that everyone's throwing around like they know it front and back! We have only just scratched the surface about the bill and what it means to fellow Americans. Let's get a little more context and talking points to get an idea of how things actually played out. Just enough to keep things interesting.
Social Security: A Breath of Fresh Air for Retirees
Let's kick things off with a change that's bringing smiles to millions of faces: the end of federal taxation on Social Security benefits, well, sorta. The girl in this photo is a bit young to cash in on this particular benefit, and it'll be many moons before she's able to even collect Social Security. Perhaps she's smiling about one of the other benefits the bill has built into it. For years, many retirees have watched a portion of their hard-earned benefits disappear to Uncle Sam. Yes, Social Security can be taxable. It felt like a double-whammy (or even a Ponzi scheme) – you paid into it your whole life, have to wait almost an eternity to get a dime out, then when you do, you get taxed on it! Sound like a retirement plan you want to enrol in? Uhm, that's a hard NO! Too bad. The government says you're in it whether you like it or not.
Historically, if your "combined income" (which includes your adjusted gross income, non-taxable interest, and half of your Social Security benefits) exceeded certain thresholds, a portion of your Social Security benefits became taxable. Shazam, like magic, the IRS says you're in the club and you need to pay up. Not the kinda club you want VIP passes to. For instance, an individual filer with a combined income between $25,000 and $34,000 might have about half of their benefits taxed, and above $34,000, almost all of it could be taxed. It almost sounds like a shell game you'd play in an alley with some hood rats. This is different; we're talking about the government, not some young punk looking to collect. These thresholds hadn't been adjusted for inflation in decades, meaning more and more retirees were being pulled into the tax net.
But now? Poof! Gone! Like when David Copperfield dropped the cloth in front of the Statue of Liberty in the 90s. Well, like the illusion he pulled off, it's not that straightforward. Taxes can be reduced in many scenarios, but the details on how much and if it actually goes to zero will be left to your CPA. Regardless of how you look at it, this means more money in the pockets of retirees, offering a much-needed boost to their fixed incomes. Based on the cost of everything these days, any savings will help. Think about the immediate impact: more funds for groceries, medical expenses, or even that well-deserved vacation. There's nothing like visiting Florida for those living in the Northeast when the gray and cold drag in March and April. It's a significant improvement in financial security for a demographic that truly deserves it. I chalk this up to a win, and I plan to have a CPA on my podcast in the not-too-distant future to capture some insight for a seminar and future blog posts.
Cheers to No Tax on Tips!
Next up, a shout-out to our incredible service industry heroes: servers, bartenders, baristas, and anyone else who relies on tips to make a living. Things nowadays are a bit different than the traditional tipped positions. It seems like everyone is asking for a tip. Think McDonald's, other fast food restaurants, and one day you might even be prompted by a grocery store. Who knows! The "One, Big, Beautiful Bill" brings fantastic news with its "no tax on tips" provision! I'm sure many wouldn't have an issue with that, especially those who choose to make that type of position a career.
Previously, all cash and non-cash tips received were considered taxable income and subject to federal income tax, Social Security, and Medicare taxes. And why not? They are all earned income. How much of that is actually claimed is questionable for obvious reasons. While there were often debates and complexities around reporting actual tip income, the general rule was that if you earned it, you paid tax on it. This could significantly reduce the take-home pay for individuals in often demanding roles.
Imagine working a busy Friday night, serving countless tables or mixing hundreds of drinks, and then seeing a chunk of your hard-earned tips go to taxes. It was just part of the game. But now, a substantial portion of tip income will be exempt from federal income tax. Again, we're not talking about tax breaks and incentives for a mega-wealthy family that doesn't need it. These are your middle-class families and those striving to work hard and earn a living.
This isn't just a small change; it's a direct and immediate financial boost for millions of Americans. It acknowledges the hard work and often unpredictable income streams of those in the service industry, allowing them to keep more of what they earn. This could mean extra savings, a little more breathing room in the budget, or even finally putting that down payment on something special. It's a win for fairness and for the backbone of our hospitality sector.
Securing Legacies: The Massive Estate Tax Exemption Hike
Now, let's talk about something that often keeps financially savvy families up at night: estate taxes. What's that, you wonder? It's the burden that comes along with passing on a significant amount of assets to your heirs. The "One, Big, Beautiful Bill" delivers a truly monumental change here, permanently raising the federal estate tax exemption to a whopping $15 million per individual! This has been somewhat of a juggling act for planners, attorneys, accountants, and clients in the past, with changes happening all the time. Imagine playing football where the rules change in the middle of a game. It definitely makes things more difficult to understand and plan for. This could be a huge win for a lot of people. It's not just about tax saving, but it's more about understanding what's in store for the next generation.
To put this into perspective, let's look at how this exemption has evolved (or rather, fluctuated) over recent decades:
Year(s) | Individual Estate Tax Exemption |
2000 | $675,000 |
2001 | $675,000 |
2002-2003 | $1,000,000 |
2004-2005 | $1,500,000 |
2006-2008 | $2,000,000 |
2009 | $3,500,000 |
2010 | $5,000,000 (or repeal for some) |
2011 | $5,000,000 |
2012 | $5,120,000 |
2013-2017 | $5,250,000 - $5,490,000 (inflation adj) |
2018-2025 | $11.18M - $12.92M (TCJA, inflation adj) |
Now (New Bill) | $15,000,000 (Permanent) |
Note: This chart simplifies historical data for illustrative purposes and does not account for all legislative nuances or spousal portability.
As you can see, the exemption has danced around quite a bit, often creating uncertainty for long-term estate planning. Under the Tax Cuts and Jobs Act (TCJA) of 2017, the exemption dramatically increased to over $11 million per individual, but this was set to revert to much lower levels after 2025. Uncertainty creates concern, worry, and anxiety for anyone looking to leave a large amount of assets to. That looming "sunset" provision caused a lot of strategic planning (and anxiety!) for high-net-worth individuals and families.
Now, with a permanent $15 million individual exemption (meaning $30 million for a married couple with proper planning!), many more family farms, small businesses, and substantial personal estates will be entirely exempt from federal estate taxes. That's a huge store for heirs set to inherit wealth. This is a game-changer for preserving family wealth across generations, reducing the need for complex and often costly estate planning strategies solely designed to avoid taxes. Many argue that it was the right thing to do. I'm in that same camp. Estate taxes have been a topic of debate for decades. It's about protecting legacies and ensuring that what you've built can truly benefit your heirs.
The Little Wins: What else could be around the corner?
While those are some of the heavy hitters, the "One, Big, Beautiful Bill" there are other delightful surprises tucked away that could be coming to a home near you very soon. These might not get the big headlines, but they can certainly make a difference in your financial life.
One notable change that many haven't heard about is the expansion of the Child Tax Credit. Ooh, what does that mean? While specific details can be complex, the bill generally expands eligibility and increases the maximum credit amount for families with children. Cha ching, more money in the back pocket of families with the cost of living on the rise. This means more financial support for parents, helping with everything from daily expenses to educational costs. It's a recognition that raising a family is expensive and a direct investment in the future generation.
Another "sweetener" for many families is a proposal for the introduction of a new Universal Savings Account (USA). Wow, that sounds pretty fancy, right? Think of this as a super-charged savings vehicle. Oh, I like the sound of that. Unlike traditional savings accounts, the USA offers tax-free growth and tax-free withdrawals for any purpose, similar to a Roth IRA, but with potentially higher contribution limits and more flexibility regarding withdrawal reasons. Sounds almost too good to be true. This encourages saving for a broader range of life events, from a new car to a down payment on a home, or even just building an emergency fund without worrying about future tax implications on your gains. We'll see what happens if it actually passes and what will be under the hood if it does.
These "little wins" often contribute to a cumulative positive effect on household budgets and financial planning. They reflect a broader strategy to simplify savings, support families, and ultimately leave more money in your hands to spend, save, or invest as you see fit. If those items can pass and still allow our economy to maintain a balanced budget, I think we can say that the circle gets the square! If you don't know the reference, you didn't watch Hollywood Squares in the eighties.
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