New Tax Break for Seniors

Part of the recently passed tax bill includes what the administration is calling “No Tax on Social Security.” While the bill does not explicitly remove taxes on Social Security payments, it does provide an additional deduction for seniors under certain income limits. This may effectively reduce or eliminate federal taxes paid by people age 65 or over.

First of all, it should be noted that this tax break worsens the tenuous fiscal condition of Social Security. Social Security actuaries estimate that the new tax provisions will move up the trust fund depletion date by roughly six months—from the 3rd quarter to the 1st quarter of 2034.

Nevertheless, current beneficiaries will enjoy the benefits of lower taxes. This article looks at how the new deduction works and how it may impact your federal income taxes.

How Deductions Work

To understand the mechanics of this new tax break, we must first understand how deductions work in calculating taxes. The following is a simplified explanation of the standard deduction (this is not tax advice).

You start with gross income, which is the total of all sources of taxable income. This typically includes work income, most pensions, taxable investment income, and up to 85 percent of your Social Security income. The taxable share of your Social Security is based on what is called “combined income,” which equals half of your Social Security benefit, plus nontaxable interest, plus all other taxable income. Once combined income is greater than $44,000 for married couples filing jointly or greater than $34,000 for single filers, 85 percent of Social Security benefits are taxable.

Declare the pennies. Image © Tableaux Wealth via ChatGPT

After totaling your gross income, including taxable Social Security, you subtract deductions. You have the option of tallying up individual items and itemizing deductions, but most people do better by taking the standard deduction. The standard deduction is $15,750 for single people and $31,500 for those who are married filing jointly in 2025.

People aged 65 and over also receive an additional standard deduction of $2,000 for single filers and $3,200 for married couples in which both people are at least age 65.

The new tax bill adds to these already increased standard deductions. The new provision allows for up to another $6,000 per person (up to $12,000 for a married couple) on top of these already increased deductions, bringing the total to $23,750 for singles and up to $46,700 for married couples filing jointly.

This potentially whopping standard deduction is subtracted from gross income to arrive at taxable income.

Impact of the New Provision

The new provision doesn’t explicitly remove federal taxes on Social Security, but it does have the same effect for many people, reducing taxable income by $6,000 per person for those age 65 and older. For lower-income retirees who are reliant on Social Security, this might be enough to all but eliminate their entire federal income tax liability.

Let’s look at how this might impact income taxes. Take a single woman over age 65. She receives a taxable pension of $30,000, investment income of $10,000, and Social Security benefits of $24,000 (85 percent of which is taxable). That brings her gross income to $60,400. After subtracting the standard deduction and the $2,000 additional deduction for seniors filing singly, that puts her in the 12 percent federal tax bracket.

Incorporating the new $6,000 tax provision will effectively reduce her federal tax bill by $720.

Pay Attention to Income

An important caveat to this new provision is that it is phased out for single taxpayers with incomes over $75,000 and married filers with incomes over $150,000. The phaseout is $60 for each $1,000 over the threshold. It is fully phased out at $175,000 for single filers and $250,000 for joint filers.

For higher-income households, this phase-out will be something to keep an eye on. Say you’re married filing jointly with gross income of $200,000. Your new added deduction declines from $12,000 to $6,000 because you are over the $150,000 threshold. In the 22 percent tax bracket, this phase-out ends up costing $1,320 in federal taxes.

For these higher income households, it becomes all the more important to minimize income to the extent possible. Roth conversions, for example, become relatively less attractive. Taxable investment income is also something to minimize for these taxpayers. Additional income is taxed at a higher rate and reduces the standard deduction, creating a tax torpedo.

Bigger Refunds in 2026

Although the new tax provision does not explicitly eliminate taxes on Social Security, it will reduce taxes for many filers age 65 and older. If you’ve paid estimated taxes throughout the year or had taxes withheld on your income, you may end up getting a bigger refund (or owe less) in 2026. 

This article originally appeared in The Berkshire Eagle.