No, Social Security Isn’t Tax-Free Now (Despite the Headlines)

July 10, 2025

You may have seen the email.

According to the Social Security Administration, “90% of seniors won’t owe taxes on their benefits” anymore.

Sounds amazing, right?

It’s also wrong.

And if you’re a federal employee or retiree with a pension and TSP…

You’re still paying. Just like before.

Let’s break down what actually changed—and how to play this smart.

What the Bill Actually Says (and Doesn’t Say)

Contrary to what that headline email implied, there was no full repeal of Social Security taxes.

Here’s the real update:

The new bill adds a temporary income deduction for seniors:

  • $6,000 for individuals

  • $12,000 for married couples

But the existing taxation thresholds remain the same:

  • $25,000 (single)

  • $32,000 (married)

If your “combined income” exceeds those thresholds, up to 85% of your Social Security benefits are still taxable.

And “combined income” includes:

  • Your FERS pension

  • TSP withdrawals (including RMDs)

  • Half your Social Security benefits

  • Any other taxable income

👉 For most retired Feds, you’re well past the line.

What Smart Feds Are Doing Instead

The good news? This confusion actually creates opportunity—for those who move deliberately.

✅ 1. Run a Roth Conversion Analysis

Lowering your future RMDs is one of the only legal ways to reduce your Social Security taxation.

Start with your projected income at age 73.

Convert what you can now while rates are still (temporarily) low.

✅ 2. Re-balance Your Income Strategy

If most of your income is taxable, even a “tax cut” might raise your tax bill.

Consider:

  • Using Roth TSP strategically

  • Shifting investments into tax-advantaged buckets

  • Exploring a multi-bucket withdrawal strategy to control annual income levels

✅ 3. Be Wary of Political Promises

Campaigns win votes with emotion. Your retirement wins with math.

This isn’t about left or right—it’s about reading the fine print and planning accordingly.

Bottom Line

Social Security taxation isn’t going anywhere for most FERS retirees.

But if you:

  • Have a solid strategy

  • Minimize your taxable income deliberately

  • Use tools like Roth conversions while they're still available...

You can keep more of your benefits.

And sidestep the noise everyone else is falling for.

—FWR