4 Seasons Podcast

Tax Cuts and Social Security: What the Big Beautiful Bill Means for You

• Jeff Bingham • Episode 14

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What Impact Does The Big Beautiful Bill Have On Income Tax And Social Security? 

The landscape of your retirement and tax planning just shifted dramatically with the passage of the "Big Beautiful Bill." Join Jeff Bingham as he breaks down how this legislation impacts your financial future without the typical jargon and confusion.

Wondering how these changes affect your wallet? The bill maintains the 2016 tax rate structure that was scheduled to sunset next year, preventing what would have been approximately a $2,100 tax increase for the average middle-class American family. Markets responded favorably to this stability, preventing potential volatility that uncertainty would have created in investment portfolios.

Perhaps most significantly for retirees, the legislation effectively eliminates taxation on Social Security benefits through 2028, regardless of income level. Jeff walks through a real-world example of a client receiving $30,000 in Social Security alongside a $45,000 pension, demonstrating how this provision could slash their tax liability nearly in half—putting about $333 more in monthly spendable income in their pocket. For anyone living on a fixed retirement income, this represents meaningful financial relief.

Service industry workers receive unexpected benefits too, with the first $25,000 of tip income now tax-exempt. This acknowledges how the shift from cash to credit card transactions had eliminated much of the traditional tax advantages servers and bartenders once enjoyed.

Beyond these immediate benefits, Jeff offers a sobering perspective on the growing national debt, now approaching $37 trillion with annual debt service costs of $1.2 trillion and rising. This mounting fiscal pressure raises important questions about long-term financial sustainability that will affect every American's financial planning.

Whether you're approaching retirement or already enjoying your post-career years, these changes demand fresh thinking about your financial strategy. Reach out today to discuss how these new provisions can be optimized for your unique situation and how to prepare for when these temporary benefits potentially expire.

To learn more about B&H Wealth Strategies visit:
https://www.BHRetire.com
B&H Wealth Strategies
423- 247-1152

Speaker 1:

Welcome to the Four Seasons Podcast brought to you by B&H Wealth Strategies, serving Northeast Tennessee and Southwest Virginia since 1966. Here we guide you through the ever-changing seasons of your financial journey, offering insights to help you grow, protect and enjoy your wealth. Ready to turn your financial dreams into reality, dare to dream. And now here's your host. President of B&H Wealth Strategies, jeff Bingham.

Speaker 2:

New legislation always stirs up concern and curiosity. In this episode, we unpack how the big beautiful bill affects two of your most important financial pillars your tax obligations and your Social Security benefits. Welcome back everybody. Skip Monty here, co-host slash producer back in the studio with president of B&H Wealth Strategies, jeff Bingham. Jeff, how you been this week? I am great, skip. How are you doing on this Friday morning? I'm doing just fine and thankful it's Friday, so I am good to go Now. Jeff, one of those topics that has people watching the headlines and has for some time now those topics that has people watching the headlines and has for some time now. It's a perfect time to dive into how this bill, the big beautiful bill, shapes some key financial decisions. So, from your perspective, what impact does the big beautiful bill have on income tax and social security?

Speaker 3:

Well, thanks for throwing me a softball here this morning, on a Friday morning too, just to kind of weigh it into and, I think, a couple of things to look at there. I mean, there's a ton of things that are in it and we'll focus on these two things right here. From an income tax perspective, from an individual Trump tax deal did from in 2016, which were set to sunset next year if they hadn't been voted on. So it keeps the tax rates where they were. From an individual perspective, so what's important about that, I would say, would be that what folks are not going to see as they move into next year, had those sunsetted is they're not going to see a tax increase, so that you're going to stay at about the same place. You're not going to see a big tax reduction, but what you would have seen I mean, I think and I haven't run the numbers and I've listened to a lot of things out there but just running the numbers from the 2016, when we started calculating those out from an average income perspective and we can talk about what that actually means but for middle-class Americans, it was about a $2,000, something like that $2,100 of tax savings that the 2016 original tax bill eliminated, if you will, or reduced, and so what you would have seen is obviously that increase would have occurred and there's some inflation adjustment and things that are in there from that perspective.

Speaker 3:

But so I think that's important and I think it would have been and we talk about all things, markets and investments and things when we're talking here certainly, so staying focused on that part of it had that not, had the bill not gone through and this tax bill had not. We can talk about a lot of things around it, but had it not been voted and gotten done and put into place, the markets would have reacted quite. They would have been unhappy. We felt the tariff shake out between that week from April 2nd to April 9th, when the initial tariff thing, we saw a lot of market volatility to the downside. We quite likely would have seen something like I can't, who knows, it wouldn't have been looked upon favorably. The market would have reacted in a negative way.

Speaker 3:

So, that being said, yeah, I've really seen the market just take off since that, because it was already baked into the cake, if you will right the tax bill getting passed. It just seemed like it was going to happen, the big beautiful bill that was going to happen. That's from an income tax perspective. Let me stop there before I move to social security. Is there anything again as I spit that out right there, anything that you want to ask along those lines or you think our listeners would want me to touch on that? I didn't right there.

Speaker 2:

Well, I think it's interesting. You said this but, depending on what side of the aisle you're on, one side said this will be the biggest tax increase, which technically it would have been, because it would have expired from 2016. Then you got the other side of the aisle saying it's the biggest tax cut, which it's really not a cut. It's a preventative of an increase. That's correct.

Speaker 3:

It's yeah, it's the biggest tax cut which it's really not a cut, it's a preventative of an increase. That's correct. It's yeah, it's the language and framing and how that's done. You know a lot of things. But it would have been. It would have been a big tax increase, certainly we can.

Speaker 3:

Just we just talked about right there as the rates would have changed and the various things, and so it would have been, and it would have been a shock, you know, to average Americans I would say, income earners, and I think that's the thing, and, like I said, the markets would have reacted. You know, lisa, not only might you have seen your pocketbook have a little less in it each month off that paycheck that you get, but also for a period of time anyway, and these things end up kind of, you know, even in themselves out which 401k statement would probably might've suffered a little bit too, at least in the short run. These things tend to. We tend to kind of navigate these things and when the rules change and tax rates change and all this kind of thing, markets and investments, and everybody kind of learns how to navigate those things, I think net for me, I guess I'm more of a supply-sider, I think the more people that can keep their money versus sending their money to Washington. I think that's a better idea. I think people and businesses are better at utilizing their money than Washington is. So I'm certainly a conservative capitalist, if you will.

Speaker 3:

So I was in favor of the tax part of the bill. There's some parts of the bill that you can certainly talk about. There's still an awful lot of spending and things that are in there and we won't go into. But, like I said it would have, it was not a taxed decrease, it just extended and put into permanent law until again somebody comes along later and change, rewrites, changes or you know, in some shape, form or fashion. It's not going to stay, it's not permanent. Nothing's permanent in Washington or in life at all. But it is for now and I think that it's good. I think that a positive reinforcement for the markets and the folks that are listening, their investments that are out there. I think that's a positive.

Speaker 2:

Amen, brother, I'm with you. I'm a free market guy and a capitalist too, so I'll take it all day long. So yeah, I agree, I agree. What about? What about Social Security?

Speaker 3:

Well, I think that's the interesting part of that, where you know from Social Security, the taxation on Social Security and we've talked about that, I think, in an episode not too awful long ago and one of the things I was talking about is that, depending on when you start drawing Social Security, your other income sources that you have, we had as much as 85 percent of your Social Security could be subject to income tax right. So for some people that number and these are clients of mine, I can go through a client list of mine and identify this Some folks don't pay any tax on their social security but it starts graduating up. But none of your social security or not never has any or all of your Social Security. I had a hard time saying that all of your Social Security been subject to income tax, but up to 85% on it depending on your income. Married couples and joint couples a little bit different numbers that are there. But this bill, through a mathematical adjustment in deductions and an extra credit that's in there, basically eliminates taxation on all social security benefits, regardless of your income level in retirement that are out there. So, but that is only good. That is from this year through 2028. So it's not. It also is not a permanent thing and I haven't gone all the way through the bill. This is sorting this out through some summaries of it that we've been kind of studying on a little bit. Artificial intelligence is an amazing thing that can help you. It can help summarize some of these things and then Jake and Matt and folks like that will read them to me. But I think you know it is a significant thing for many of my clients. So an interesting I'll give you some anecdotal little story on that.

Speaker 3:

I was working with a client of mine as we were sorting out and the bill was just getting ready to get passed into legislation, but we were working on her retirement income strategy and so she's getting ready to cut on social security. She's going to be 65 years old in the fall, so she's going to cut her social security on. And then she's got a pension and we were looking at all these things and so we were doing her income tax calculation to determine, okay, how much of the social security is going to be subject to income tax, and in her case it was 85% of it, right? So 85% of her social security benefit. She's around $30,000 worth of social security benefit. That means $25,500 was going to be subject to tax, got a pension of about $45,000.

Speaker 3:

So we were looking at withholding and what she currently had withheld to try to figure it out. So you know, I went through all the mathematical, you know gymnastics of figuring that out and coming up with the numbers. And then she and I talked on the phone and this is how much you need to adjust your withholding, this is how much we need to withhold from social security et cetera. And then boom, then you go through and you read the bill and all that changed right. So her withholding, I mean her tax liability, went from somewhere up in the you know to. Let's say it was roughly $8,000 or something like that is what it looked like from a taxation standpoint and then done the final counts on it, but it probably cut nearly cut our tax liability in half. As a result of that and that's significant. That's a lot more spendable money in your pocket, you know.

Speaker 2:

Absolutely Major positive.

Speaker 3:

Yeah, I mean that's not quite, but that's about nearly $333 a month more in her pocket if you think about it on a monthly basis of spendable income.

Speaker 2:

So yeah, it's pretty significant. And some other key notes in the Big Beautiful Bill are no tax on tips. I'd be interested in your thoughts on that.

Speaker 3:

Yeah, up to, I think the first up to $25,000, I think that's if I'm not mistaken. I think that's an. I don't have as much knowledge in this, but I think it's it is. Rather, it's very curious and interesting to me because I do come from. You know. I come from from a restaurant background. I think. I don't know if we've talked about that, maybe a little bit on the air. So I come from, you know, from 18 to, you know, almost 30 years old.

Speaker 3:

When I started here, I was in, I was a bartender, I was a waiter, I was in restaurant management at the same time. So I'm very sensitive to that and there's a lot of ways to look at that. I think if I was a, if I were a server I mean, most of the time these are kids that are, you know, especially at the $25,000 and below level of not being taxed A lot of people, a lot of NSA kids, college kids, high school college kids waiting on tables paying their way through school and doing those kind of things. You know, I think that's I like. I mean, I think that's a, I think that's a pretty, I think it's a decent idea.

Speaker 3:

I haven't seen the revenue numbers. A pretty, I think it's a decent idea. I haven't seen the revenue numbers. I don't know what exactly what that looks like from across the board. What did it take out of the coffers and that kind of thing? But when you look at so first 25,000, that's again depending on how, what you're doing, how much you're working, that's not a tremendous amount of in today's world. That's not a tremendous amount of money. You know from an earnings perspective, but you know it money from an earnings perspective. But it certainly will keep more money in their pocket.

Speaker 1:

And again in servers.

Speaker 3:

Again, this is the way I look at it. I don't know if anybody else has thought about it. This is just my own kind of take on it Is that servers, waiters and bartenders not many people use cash anymore, right? So everybody uses credit cards. So you know you're getting taxed on your tip and everything all the time now because it goes through credit card. Back in the days, not too awful long ago, and certainly when I was doing it, people were paying in cash, you know, and you had to report. It was a requirement of your employer to report some of your tip money from an income tax perspective, but most of it you put in your pocket are a good amount of it, so it was not subject to tax. Put in your pocket, or a good amount of it, so it was not subject to tax.

Speaker 2:

Anyways, don't have the IRS come and get me for that.

Speaker 3:

Everybody knows that Right. And so with the advent so you know today's server, I guess prices are higher and all those kinds of things. Today's server doesn't have that and had that opportunity right Cause there's very little cash transactions in anything and that's includes, you know, restaurants and bars bars I don't know just because of my background and, um, you know, I think it's a I kind of like it I do too.

Speaker 2:

I do too. My daughter used to work at buffalo wild wings and she made like two bucks an hour or 225 or something.

Speaker 3:

Yeah, it used to be two hours yeah, but that's yeah.

Speaker 2:

201, that's right. Yeah, and she she made the majority of her money off of tips, so I can imagine, and she was a college student, so I totally get it. I think it's a good thing and it sounds to me like overall, that the big beautiful bill is a good thing.

Speaker 3:

You know, from my perspective, yeah, I mean, I think a lot of those things are good. I mean, you know we're the, you know, again, again, depending on there's multiple things you can look at, I think there's still a lot of spending that's in it. There weren't a lot of spending cuts. You know there's a lot of consternation about that. The deficit hawks, even on on both sides of the aisle, certainly on the republican side, the the more um, you know kind of uh, yeah, I'll just call them the deficit house. The deficit certainly didn't like it, so there was. So there was a lot of handholding All the whips have to go and there was a lot of negotiation that took place. When you've got to build a something, there's just going to be so much negotiation. Legislation is how the sausage is made and having to listen to it on a regular basis. It's pretty ugly To get people to vote, certainly in congressional districts and things like that. There's a lot of. There's a lot of give and take that takes place in there and it's kind of ugly and it irritates people. I mean, you can saw. You can see rather than saw. You can see what it did, and this is probably likely to happen anyway. But look at the relationship between an Elon Musk you know, in the dose thing versus and Donald Trump. It was that's probably a friendship or a marriage, if you will. In some sense it was doomed for failure anyway, I mean, without going into that, but that was certain. Musk is like you know. I mean there's too much money being spent and he's not. He's not wrong, because we are $37 trillion in debt as a country, right, so that it's a lot. And then we're, you know, plus or minus. We're looking at, you know, nearly $2 trillion deficit. We talked about what the bill forecast and all those kinds of things. That's a different conversation, but give or take about $2 trillion spending more than we're taking in. We put a debt ceiling. We raised the debt ceiling up to over $5 trillion. So basically what that amounts to is you can pretty much guarantee within somewhere between the next 18 and 24 months, that the deficit is going to be $41 trillion, $41 to $42 trillion. That's basically what they deal with. The raising the debt ceiling. That's where we're heading and that's you know, and at some point in time, that's that is you know, and I know I'm not going to beat on this drum too much, but that's your mortgage in your future and it's not. It's not my future here at 60, at 65 years old, where I am, but it's Matt's over here to my right it's Matt, it's my son, jake. I mean that's.

Speaker 3:

You know, at some point in time, you know, nobody's interested in spending, everybody's interested in spending cuts, until you talk about what you're going to cut. You're Everybody's interested in spending cuts until you talk about what you're going to cut, but not on what I'm receiving in benefits or getting out of it and that kind of thing. So you know, how do you? You know, how do we, how do we remedy that? You know, I don't know. Like I said, usually it's usually those things will get remedied when there's a train wreck, you know, and that's a train wreck out there. Maybe I'm wrong, but it seems to me that's a train wreck, you know, and that's a train wreck out there.

Speaker 2:

Maybe I'm wrong, but it seems to me that's a train wreck that's going to happen out there at some point in time. Couldn't agree more and, like you said, this is a whole, nother we could. We could talk about the deficit for a whole, nother couple.

Speaker 3:

Yeah, it's a different thing. But you know we're, you know we're 1.2,. We can talk about interest rates and all those kind of things. The cost of the debt right, the cost of the debt is $1.2 trillion, and that number is not even if it stayed, even if the deficit stayed or the debt stayed where it is not the deficit, the debt stayed where it was. We didn't even increase it. We've got it.

Speaker 3:

Won't be exactly right in this, but roughly a third of the debt comes due over the next nine months or so, maybe a little bit less than that now, and then close to 50% over the next 10 to 24 months. So a lot of, and again we're not paying that debt down right, Then we're just going to refinance it and so, as interest rates, which they have moved and we finance on a very short term basis over the period between 20 and 20, 24. I mean, you know, for obvious reasons, because it's really cheap. But now you're going to, as interest rates have moved up since the point in time when much of that debt was financed, it's going to roll over to higher interest rate and so that debt is projected to move up into the one point, five trillion Excuse me, that's hard to numbers Just a billion, a trillion, whatever, and that debt is the first line item that's going to be taken care of from the government. That's the first money we're going to pay the interest on the debt. That's the first thing.

Speaker 3:

And when that number is 1.5 and that's when we've got a 5 trillion, I think it's roughly $5 trillion in revenue that we take in. You can do the arithmetic on that it's 25. It's too much of the tax receipts, right, it's too much of the revenue stream that we bring in, and then you leave less money for everything else. So it truly is, and this truly stunts growth. It's mortgage in the future. I don't want to go off on the debit, and you know I'm I don't believe that. I don't believe you can. Just you can grow a little of your way out of it. But I think those that adhere to something known as modern monetary theory it's an academic theory that's out there that I think is completely preposterous. I think this thing will have a reset at some point in time on this debt. I don't know when.

Speaker 2:

I have a feeling we'll be talking about this again in the future.

Speaker 3:

But net-net the bill with the things that we talked about, certainly from those that are at retirement or nearing retirement and certainly those that are in retirement, and I say that because the Social Security break on taxation on that is a net positive certainly across the board for my clients. Again, I still haven't read all the way through. I've seen the numbers that are projected but I haven't seen it on a line item basis of what kind of revenue, what kind of loss of revenue is that from the tax coffers that are out there? But I mean, you can see the numbers but it's that are out there in total with the CBO scoring and things like that. But I don't know what that really looks like. I know it's a short time period but for the next four years it certainly gives many. Many of my clients just got a pay raise.

Speaker 2:

Good to know. Good to know, jeff. Appreciate the breakdown, appreciate you helping us to stay ahead of the curve as things shift. So we'll see you next time for more clarity on life's financial seasons.

Speaker 3:

Thank you very much, skip. You have a great weekend and God bless man, you too man, have a blessed weekend.

Speaker 2:

Thanks, you have a great weekend and God bless man.

Speaker 1:

You too, man, have a blessed weekend. Thanks, by calling 423-247-1152 or by visiting bhretirecom, take the first step toward making your financial dreams come true. Until next time, remember every season is the right season to plan for your future. Securities and registered investment advisory services offered through Silver Oak Securities Inc. Member FINRA, sipc. B&h Wealth Strategies and Silver Oak Securities Inc. Member FINRA, sipc. B&h Wealth Strategies and Silver Oak Securities Inc are not affiliated.