Many important changes were included in the “One Big Beautiful Bill”. In addition to the current tax rates and standard deductions being extended permanently, there is one provision that will have a significant impact on retirees: The Enhanced Senior Deduction.
The Enhanced Senior Deduction
There will be an additional deduction of $6,000 per person over the age of 65. The deduction is phased out based on income and tax filing status. For a married couple with both spouses over the age of 65, the potential additional deduction would be $12,000. For a single person, or a married couple where only one spouse is over 65, the potential additional deduction is $6,000.
This is the part of the bill you may have heard described as “no tax on social security.” However, this deduction is available to anyone over age 65, whether they’re collecting Social Security or not. For example, if someone files for Social Security this year at age 62, they won’t be eligible for the deduction, despite collecting Social Security. Conversely, if someone plans to wait to start collecting Social Security until age 70, if they’re over 65 in 2025, they still get the deduction.
Phase-Out
The Enhanced Senior Deduction gradually reduces once your income goes over a certain level.
- For Married Filing Jointly, the deduction starts to phase out when income is above $150,000 and disappears entirely at $250,000.
- For Single filers, the phase-out range is from $75,000 to $175,000.
Here’s how it works:
- If you’re eligible for a $6,000 deduction (one person over 65), you lose 6 cents for every dollar your income is over the threshold.
- If you’re eligible for a $12,000 deduction (both spouses over 65), you lose 12 cents per dollar over the threshold.
Example:
Let’s say both you and your spouse are over 65 and your income is $151,000:
- That’s $1,000 over the $150,000 threshold.
- You’d lose $120 of your $12,000 deduction (12 cents x $1,000).
- So, your total Enhanced Senior Deduction would be $11,880 instead of the full $12,000.
Yes, and…
Standard Deduction + Enhanced Senior Deduction
If you’re over age 65, you already qualify for an extra amount added to the standard deduction:
- Married Filing Jointly:
- Base standard deduction: $30,000
- Additional amount: $1,600 per person over 65
- So, if both spouses are over 65, that’s $30,000 + $3,200 = $33,200
- Single filer over 65:
- Base standard deduction: $15,000
- Additional amount: $2,000
- Total: $17,000
With the new Enhanced Senior Deduction, those amounts can increase further if your income is below the phase-out range:
- Married couple, both over 65:
- $33,200 (standard deduction with age add-ons)
- $12,000 (Enhanced Senior Deduction)
- = $45,200 total deduction
- $33,200 (standard deduction with age add-ons)
- Single filer over 65:
- $17,000 (standard deduction with age add-on)
- $6,000 (Enhanced Senior Deduction)
- = $23,000 total deduction
- $17,000 (standard deduction with age add-on)
Important: The original extra deduction (the $1,600 or $2,000) only applies if you take the standard deduction. However, the new Enhanced Senior Deduction is still available even if you do not itemize.
Here’s a simple side-by-side comparison table to help visualize how the deductions work for taxpayers over 65:
| Filing Status | Base Standard Deduction | Additional for Age 65+ | Enhanced Senior Deduction | Total Deduction (if income is below phase-out) |
|---|---|---|---|---|
| Single, under 65 | $15,000 | $0 | $0 | $15,000 |
| Single, age 65+ | $15,000 | $2,000 | $6,000 | $23,000 |
| Married Filing Jointly, both under 65 | $30,000 | $0 | $0 | $30,000 |
| Married Filing Jointly, one spouse 65+ | $30,000 | $1,600 | $6,000 | $37,600 |
| Married Filing Jointly, both 65+ | $30,000 | $3,200 | $12,000 | $45,200 |
This too shall pass…
With this deduction set to expire at the end of 2028, it’s important to take advantage of it while it lasts.
The Enhanced Senior Deduction is a meaningful and potentially impactful change for retirees and those approaching retirement. It provides an opportunity for tax savings not only for those collecting Social Security, but for anyone over age 65, regardless of their filing method or income source. However, income levels will affect eligibility through phase-outs.
As always, proactive planning is key. Whether it’s adjusting estimated tax payments, evaluating Roth conversion timing, or reassessing itemized deductions, now is the time to revisit your financial strategy. Changes like these are why working with a comprehensive financial planner matters. So, you can confidently navigate the shifting tax landscape and make the most of every opportunity the “One Big Beautiful Bill” has to offer.
Insights:
- A holistic financial planner should be reviewing and adjusting their clients’ plan to maximize this and other changes from the “One Big Beautiful Bill”.
- The Enhanced Senior Deduction will likely create tax savings for many of our clients and others over 65.
- There could be an impact on estimated payments, Roth conversion strategies, and more.
