One Big Beautiful Bill Act: Senior Bonus Deduction
The Social Security Administration (SSA) recently sent an email proclaiming that President Trump’s One Big Beautiful Bill Act eliminates federal income taxes on Social Security benefits for nearly 90% of retirees. It sounds amazing—until you read the fine print. Here’s what’s really changing in 2025.
“The new law eliminates federal income taxes on Social Security benefits for most beneficiaries, providing relief to individuals and couples.” –SSA mass email, July 2025.
That headline hinges on the word “most.” In reality, the bill doesn’t repeal the existing tax rules for Social Security benefits; it merely introduces a temporary “bonus” deduction many—but not all—older filers can use to offset those taxes.
Tax laws are inherently complex. A sweeping statement that Social Security will no longer be taxed hardly captures the full story. To clarify, your Social Security benefits will likely still be taxable. They still factor into your gross income calculation, meaning taxes on these benefits remain in effect regardless of campaign headlines.
The New Senior Bonus Deduction
Section 110103 of the new bill introduces a new Senior Bonus Deduction: $12,000 for joint filers ($6,000 single) for seniors aged 65 and older. This acts as an additional personal deduction, reducing your taxable income if you meet eligibility requirements. It is not part of the standard deduction and does not reduce your Adjusted Gross Income (AGI), but it applies whether you itemize or not.
For reference, AGI is your total gross income minus specific deductions known as “above-the-line deductions.” These are subtracted from gross income before calculating AGI, directly reducing your taxable income. Examples include contributions to IRAs or Health Savings Accounts (HSAs). AGI also determines your eligibility for other tax benefits.
You qualify by turning 65 and meeting other requirements. You can claim the deduction whether or not you’re receiving Social Security benefits. For example, you might begin benefits at 62 but will need to wait until 65 to claim the deduction. Or, you might delay benefits until 70 and still claim the bonus deduction starting at 65.
MAGI and the Phase-Out
The full deduction applies only if your Modified Adjusted Gross Income (MAGI) is below $75,000 for single filers or $150,000 for joint filers. Once your MAGI crosses that threshold, the deduction begins to phase out at 6 cents per dollar of income above the limit, disappearing entirely at $175,000 (single) or $250,000 (joint).
What Is MAGI for this Deduction?
MAGI calculations vary across different tax situations. For the Senior Bonus Deduction, MAGI equals AGI plus:
- Foreign-earned income and housing exclusion
- Income excluded by bona fide residents of American Samoa, Guam, and Puerto Rico
Simple Example for Joint Filers
To illustrate, let’s look at two fictitious examples.
Maria, age 66, expects a 2026 MAGI of $72,000, below the $75,000 single-filer limit. Because she’s over 65 and within the income threshold, she qualifies for the full $6,000 Senior Bonus Deduction. No phase-out applies.
Another couple, Alex and Jamie, both age 67, expect a 2026 MAGI of $163,000—$13,000 above the $150,000 joint limit. Their deduction is reduced by 6% of that excess ($780 for each of them). As a result, they still receive a combined deduction of $10,440 ($12,000 minus $1,560).
Reaching the $150,000 MAGI threshold is easier than many realize, especially if both spouses receive Social Security along with pension income, rental income, or Required Minimum Distributions (RMDs).
Temporary Relief Only
Unless Congress renews the provision, the Senior Bonus Deduction is temporary, available only for tax years 2025 through 2028. After 2028, it disappears.
The deduction exclusively helps seniors aged 65 and older. Beneficiaries who claim Social Security benefits before turning 65 won’t receive this tax break. However, if you’re 65 or older and meet MAGI thresholds, you can claim this deduction—even if you haven’t yet started receiving Social Security. Currently, approximately half of Social Security recipients pay taxes on their benefits. This deduction will offer relief to many, but certainly not all.
Planning Opportunities
To make the most of this temporary provision, consider the following:
- Strategically time income sources, such as Roth conversions or capital gains harvesting, to maximize your eligibility.
- Use Qualified Charitable Distributions (QCDs) from IRAs to reduce MAGI and help preserve the full deduction.
- Review your sources of retirement income to help them align with the phase-out thresholds.
While the SSA email sounds promising, the details matter. The claim that Social Security is now “tax-free” applies narrowly and temporarily to certain eligible seniors. Understanding the specifics of the new law helps to ensure that your tax planning reflects reality, not just the rhetoric.
At Savant Wealth Management, we’re here to help guide you through these changes. Contact us today to discuss how the Senior Bonus Deduction may affect your personal financing strategy.
Sources:
https://www.journalofaccountancy.com/news/2025/jun/tax-changes-in-senate-budget-reconciliation-bill
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Ritu Jain
Financial Advisor
CFP®, CEP®, EA