Tax on Social Security remains in effect: Crucial information for you at present
New Senior Bonus Deduction Offers Tax Relief for Older Americans, But Social Security Benefits Remain Taxable
In a significant move, the One Big Beautiful Bill Act signed by President Trump on July 4, 2025, has introduced a new tax deduction for older taxpayers known as the "senior bonus." This deduction is available for tax years 2025 through 2028 and offers a meaningful tax relief to seniors.
For singles aged 65 and above, the senior bonus deduction is worth up to $6,000, while for married couples both aged 65 and above, it can be as high as $12,000. However, it's important to note that this deduction does not eliminate federal income taxes on Social Security benefits for older Americans.
The senior bonus deduction phases out at higher income levels. Full benefits apply for modified adjusted gross income (MAGI) up to $75,000 for singles and $150,000 for joint filers. Above these thresholds, the deduction gradually reduces and ends entirely at $175,000 for singles and $250,000 for joint filers.
The savings from the senior bonus deduction depend on your tax bracket and MAGI. For instance, at a 12% tax rate, a $6,000 deduction could reduce taxes by $720.
It's crucial for retirees to understand that their combined income—which includes Adjusted Gross Income (AGI), nontaxable interest (e.g., municipal bonds), and half of their Social Security benefits—still determines whether they'll owe taxes on their Social Security benefits. Retirees with combined income over $25,000 (single) or $32,000 (married) may pay tax on up to 85% of their Social Security benefits.
The Tax Policy Centre estimates that roughly half of all Social Security beneficiaries still pay federal income taxes on their benefits. Retirees should not rely on campaign statements or agency emails as official tax guidance and should check their income sources to determine if they'll owe taxes.
It's also worth noting that the senior bonus deduction reduces taxable income but does not eliminate tax liability on its own. For example, a single retiree with $90,000 MAGI would have a $5,100 deduction after phasing out.
Contrary to the Social Security Administration's claim that "90% will no longer pay tax," the reality is that many retirees will still cross the income thresholds that trigger taxation, even with the new senior bonus deduction. Therefore, it's essential for retirees to be aware of their tax obligations and plan accordingly.
In summary, the senior bonus deduction offers a valuable tax relief for older Americans, but federal income taxes on Social Security benefits remain in place under the new law. Retirees should carefully consider their income sources and consult with a tax professional to understand their tax liabilities.
In light of the new senior bonus deduction, older individuals may find personal-finance planning more crucial than ever. This deduction, while providing a significant tax relief, does not eliminate federal income taxes on Social Security benefits, meaning personal-finance management must take the taxation of these benefits into account.
