The new temporary tax break — $6,000 for individuals and $12,000 for couples — is for tax filers age 65 and older. It starts phasing out for those who earn over $75,000 ($150,000 for couples).
“Low-income seniors won’t benefit at all, and nor will very high-income seniors,” Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget, a nonpartisan group that advocates for fiscal responsibility, told Yahoo Finance.
“The biggest beneficiaries are upper-middle-class seniors with significant wealth, who have a lot of discretion over how much income to realize in a given year,” he said.
To be clear, this provision does not eliminate taxes on Social Security benefits as Trump promised in the campaign. It is a temporary income tax deduction, not a cut in the Social Security tax.
The new deduction could also accelerate Social Security and Medicare insolvency by a year, to 2032, per an analysis from the Committee for a Responsible Federal Budget.
Some background: Most lower-income seniors don’t have enough of a tax liability to claim the new deduction. In 2022, the median income of older adults was $29,740, according to the National Council on Aging.
The majority of taxpayers claim the standard deduction, which is $15,000 (or $30,000 for couples) for 2025. Seniors who are single filers already qualify for an additional deduction of $2,000. (If you’re married, filing jointly or separately, it’s $1,600 per qualifying individual.)
This new short-term deduction raises that amount by another $6,000.
Not a Social Security tax cut
Taxation of Social Security benefits is a hot-button issue and often catches seniors at modest income levels by surprise.
Most states do not tax Social Security benefits, but about 40% of people who get Social Security must pay federal income taxes on their benefits, according to the Social Security Administration.
If you file a federal tax return as an individual and your combined income from all sources, including your Social Security benefit, is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. If your income exceeds $34,000, up to 85% of your benefits may be taxable.
For joint filers, if you and your spouse have a combined income between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits; if it’s more than $44,000, up to 85% of your benefits may be taxable.
“That’s a big shocker for our clients,” Ryan Haiss, a certified financial planner at Flynn Zito Capital Management in Garden City, N.Y., told Yahoo Finance.
“A lot of our clients exceed the $44,000 of combined income for Married Filing Jointly, and it is just something that is understood, and we consider when planning for retirement,” Haiss added.
The new deduction could be a meaningful benefit for middle-income retirees, helping lower their overall tax bill. However, Haiss said, “because of those income limits, many higher-income retirees, especially those already taking RMDs and collecting Social Security, likely won’t qualify.”
Most of the nearly 9 in 10 Americans age 65 or older collecting Social Security don’t pay tax on this income and it’s the bulk of cash they use to pay living expenses. The average monthly benefit is $1,975, which adds up to less than $24,000 a year.
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