I received an email from Social Security Administration on July 3, applauding the new 2025 Trump tax law — One Big Beautiful Bill Act. The email said,
I read the One Big Beautiful Bill Act. This part is not true. The new 2025 Trump tax law doesn’t eliminate federal income tax on Social Security benefits. It raised the standard deduction and created a new temporary senior deduction, but Social Security is still taxable just as before.
Temporary Senior Deduction
The email from Social Security Administration continued to say:
Additionally, it provides an enhanced deduction for taxpayers aged 65 and older, ensuring that retirees can keep more of what they have earned.
This part is true, but the email omitted the fact that the enhanced deduction is only temporary, and it has nothing to do with Social Security anyway.
One Big Beautiful Bill Act created a new $6,000 senior deduction, available only from 2025 through 2028, to seniors 65 and older during those years. It doesn’t matter whether you’re receiving Social Security or not. It doesn’t matter whether you’re even eligible for Social Security or not.
Unrelated to Social Security
If you’re 62 and receiving Social Security, you don’t qualify for this new senior deduction because you’re not 65 yet. Your Social Security is taxable just as before.
If you and your neighbor are both 65, and you’re receiving Social Security but your neighbor isn’t eligible for Social Security because they didn’t pay into it, both of you qualify for this new senior deduction. If you and your neighbor have the same income outside Social Security (pension, interest, dividends, capital gains, etc.), you’ll pay higher taxes than your neighbor when you add your taxable Social Security benefits on top.
If you’re 65 this year and you’re delaying your Social Security, you still qualify for this new senior deduction. When you claim your Social Security next year at 66, your taxes will increase due to the added income from Social Security, which is taxable just as before the 2025 Trump tax law.
Not a Tax Credit
The $6,000 senior deduction is a tax deduction, not a tax credit. It reduces your taxable income by $6,000 ($12,000 if you’re married filing jointly and both of you are 65+). It doesn’t lower your taxes by $6,000 or $12,000.
How much this tax deduction lowers your taxes depends on your AGI and what your AGI is made up of. It can be 0%, 10%, 12%, 15%, 22%, 27%, or anywhere in between. Most people see a 12% benefit. A $6,000 deduction translates into $720 in tax savings. A $12,000 deduction for a married couple both 65 or over lowers their taxes by $1,440.
No Change to AGI
The new temporary senior deduction goes after the standard deduction or itemized deductions. It’s available whether you itemize or not. It’s not part of the standard deduction. It doesn’t replace the existing increase in standard deduction for age 65.
However, it doesn’t lower your AGI. It doesn’t make it easier for you to qualify for things keyed off of the AGI, for example, avoiding higher Medicare premiums under IRMAA. It doesn’t lower state taxes.
No Change to Tax on Social Security
The new senior deduction is just an extra tax benefit for seniors. It has nothing to do with Social Security. It doesn’t remove taxes on Social Security. The new extra tax benefit may be worth more or less than the tax on your Social Security benefits. You have the new tax benefit on one side and the tax on Social Security on the other side. The two are completely unrelated.
It’s like some people saying they picked up $5 on the street and therefore their coffee is free. The two things have nothing to do with each other. You don’t have to buy coffee after picking up $5. The coffee still costs the same whether you picked up $5 or not. The coffee may be more or less than $5. Picking up $5 is nice, but the coffee still isn’t free.
Please use my calculator How Much of Your Social Security Benefits Is Taxable? to find out how much of your Social Security benefits is taxable. The new 2025 Trump tax law didn’t change any of that calculation.
Income Phaseout
Not only is the new senior deduction temporary, but it also phases out as your income goes up. You get the full $6,000 deduction if you’re single and your modified adjusted gross income is $75,000 or less ($150,000 or less for married filing jointly). You get $0 deduction if you’re married filing separately, regardless of your income.
The modified adjusted gross income is the AGI for most people. It doesn’t add back untaxed Social Security or muni bond interest. The “modified” part is only for foreign earned income exclusion and residents in Puerto Rico, Guam, American Samoa, and the Northern Mariana Islands.
As your income goes up, each person’s deduction is reduced by 6% of any additional income above the $75,000/$150,000 threshold. The deduction disappears when your income reaches $175,000 if you’re single or $250,000 if you’re married filing jointly.
The tables below illustrate how the deduction phases out at different income levels. Interpolate when your income is between the numbers shown in the tables.
Single
| Income | Senior Deduction |
|---|---|
| $75,000 or less | $6,000 |
| $85,000 | $5,400 |
| $95,000 | $4,800 |
| $105,000 | $4,200 |
| $115,000 | $3,600 |
| $125,000 | $3,000 |
| $135,000 | $2,400 |
| $145,000 | $1,800 |
| $155,000 | $1,200 |
| $165,000 | $600 |
| $175,000 or above | $0 |
Married Filing Jointly
| Income | One Person Is 65+ | Both Are 65+ |
|---|---|---|
| $150,000 or less | $6,000 | $12,000 |
| $160,000 | $5,400 | $10,800 |
| $170,000 | $4,800 | $9,600 |
| $180,000 | $4,200 | $8,400 |
| $190,000 | $3,600 | $7,200 |
| $200,000 | $3,000 | $6,000 |
| $210,000 | $2,400 | $4,800 |
| $220,000 | $1,800 | $3,600 |
| $230,000 | $1,200 | $2,400 |
| $240,000 | $600 | $1,200 |
| $250,000 or above | $0 | $0 |
Effect on Roth Conversion
Many seniors 65 or older do Roth conversions. If a Roth conversion puts your MAGI in the income phaseout range, it increases the tax cost of your Roth conversion.
If you’re single or if you’re married but only one of you is 65+ and you’re in the 22% tax bracket, the tax cost for your Roth conversion goes from 22% to 22% * 1.06 = 23.32%. If you’re married and both of you are over 65, it goes from 22% to 22% * 1.12 = 24.64%.
Roth conversion is always about the tax rate you’re paying now versus the tax rate you expect to pay in the future if you don’t convert as much. If you think it’s still worth converting at 23.32% or 24.64%, you would continue converting the same amount, ignoring the effect on the senior deduction. If you think it’s not worth it to convert at 23.32% or 24.64% (but it’s worth it to convert at 22%), you would convert only enough to $75k or $150k AGI to get your full senior deduction.
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Barry says
Harry – You write: “ Having qualified dividends or long-term capital gains in the AGI makes it more complicated.“. I’ve always assumed that all taxable income, except Soc Sec, contributes to AGI dollar for dollar even if some types are taxed at different rates, such as qualified dividends and capital gains. Is this not so?
Harry Sit says
They contribute to the AGI dollar for dollar but they affect how much you’re taxed and how much benefits you see from the senior deduction in reducing your tax.
In an extreme case, you may see little benefit from the senior deduction even with a high AGI when you have large qualified dividends and long term capital gains.
Harry Sit says
I ran some examples in a spreadsheet. All for married filing jointly, both 65+.
$145k AGI:
– 100% ordinary income, no dividends or capital gains: save 22% from the $12k deduction.
– $35k ordinary income, $110k qualified dividends and long-term capital gains: save 15% from the $12k deduction.
– $125k ordinary income, $20k qualified dividends and long-term capital gains: save 27% from the $12k deduction.
Higher tax savings came from having some dividends and capital gains but not too much.
$130k AGI:
– 100% ordinary income, no dividends or capital gains: save 12% from the $12k deduction.
– $35k ordinary income, $95k qualified dividends and long-term capital gains: save 0.25% from the $12k deduction.
– $110k ordinary income, $20k qualified dividends and long-term capital gains: save 12% from the $12k deduction.
Mixing in dividends and capital gains doesn’t increase tax savings when the AGI isn’t high enough. Too much in qualified dividends and long-term capital gains at a lower AGI destroys tax savings.
Conclusion: The highest tax savings goes to people with an AGI right before the phaseout starts, with the right amount of qualified dividends and long-term capital gains in the AGI, not too much, not too little.
Mark E says
Barry,
I believe the complicated part Harry was referring to is that besides those be taxed 1 for 1, the Taxable % of SS calculation causes it to increase in a sliding scale using the same “other” income. The % taxable can go from 0% to 85% base on the amount of the “other” income.
Jeff Enders says
@Barry – I’ll provide a different view. I believe the “extreme case” Harry is referencing is specific to the benefit of the Senior Deduction when there is solely capital gains and dividends.
Normally, we’d think the benefit of the $6,000 deduction impacting the ORDINARY income tax brackets. (10%, 12%, 22%, etc.). But Capital gains and dividends use different tax brackets (0%, 15% and 20%).
Let’s use an extreme case: A married couple over the age of 65 whose only income is $129,000 of Long Term Capital Gains and Dividends. They have not yet begun to take their SS.
Therefore their AGI is $129,000 (a “high AGI”). We subtract the standand deduction of $32,700, leaving taxable income of $96,300.
Capital gains and Dividends on $96,300 is in the zero tax bracket so the tax is ZERO!!!
Subtracting another $12,000 for the Senior Deduction from $96,300 will still yield NO TAX.
There is no benefit of the Senior Deduction!
please read what Harry wrote again: “In an extreme case, you may see little benefit from the senior deduction even with a high AGI when you have large qualified dividends and long term capital gains.”
make sense?
Barry says
Thank you all – I get it now. Though I have always been aware of the different tax brackets for LT cap gains and qualified dividends, how it plays out has always been invisible to me using tax software. And, in this case, having the extra deduction above the line and thus affecting AGI adds another new variable.
Nancy Memmel says
Barry;
Don’t think it IS above the line since the AGI is “the line” and you use your AGI in the calculation to reduce size of your deduction as a function of how much your AGI is above the value of 150,000 (MFJ).
Harry Sit says
The senior deduction is a below-the-line deduction. It doesn’t affect how much of the Social Security benefits is taxed or the AGI. That was part of the original point of the main post.
Once your income is known, how much ordinary income, how much Social Security, and how much dividends and capital gains, the taxable portion of Social Security and the AGI are known and fixed with or without the senior deduction. The senior deduction only lowers taxes. The value to the taxpayer depends on the AGI and its composition. It can be zero (as in Jeff’s example), 12%, 15%, 22%, 27%, or anywhere in between.
Please read today’s post on different types of tax deductions: Tax Deductions: Above-the-Line, Itemized, and Neither.
Mike M. says
Will the new deduction take effect on the return I file in 2025 for 2024? Or on the return I file in 2025 for 2025?
Harry Sit says
The return you file in 2026 for 2025.
Emile says
I saw somewhere that this $6000 deduction is not available if you are married and file separately. What about if you live and file separately?
Harry Sit says
“You are considered married for the whole year if, on the last day of your tax year, you and your spouse meet any one of the following tests.
… …
– You are married and living apart but not legally separated under a decree of divorce or separate maintenance.
– You are separated under an interlocutory (not final) decree of divorce.”
https://www.irs.gov/pub/irs-pdf/p501.pdf
You don’t qualify for the senior deduction if you’re consider married and you file separately.