Retirees, Here’s How to Take Advantage of New Tax Breaks

Trump’s “Big Beautiful” law offers a new deduction up to $6,000 for seniors. Getting it may not be so simple.

President Trump‘s “Big Beautiful Bill Act” doesn’t change the rules on taxation of Social Security benefits, but offers another tax break. (BRENDAN SMIALOWSKI / AFP / Getty Images)

There’s a major new tax break for seniors in Republicans’ tax law, enacted by President Donald Trump on July 4. But deciding whether—and how—to take advantage of it isn’t so simple.

Despite Trump’s campaign promises to eliminate taxes on Social Security benefits, the law doesn’t change the status quo. Up to 85% of benefits are still subject to tax at certain income levels.

Instead, the law provides a temporary, enhanced deduction of $6,000 for taxpayers 65 and older from tax years 2025 through 2028—which, for some, will mean that less of their Social Security benefit is subject to tax.

But only about half of older adults would benefit, according to estimates by the Urban-Brookings Tax Policy Center. And retirees may need to rejigger income sources, decide whether to keep working, or take other steps to take advantage of it.

To qualify for the full amount, your income can’t exceed $75,000 for a single filer and $150,000 for a married couple filing jointly.

Since the tax break is a deduction, taxpayers wouldn’t benefit unless their income is high enough to generate a tax liability. High-income seniors also wouldn’t qualify if their income exceeds the limits.

But for millions of taxpayers in the middle, or those on the cusp of qualifying, there could be ways to take advantage of the deduction.

The law also boosted the base standard deduction for 2025 to $15,750 for single filers and $31,500 for married people filing jointly.

“It’s a great time to be proactive,” says Nadia Rodriguez, a certified public accountant at Intuit TurboTax. Taxpayers, she points out, may need to weigh whether it’s worth it financially to continue earning income from a job, and which accounts to tap for living expenses.

Provided your income is within the limits, the $6,000 applies whether you take the standard deduction or itemize deductions. For seniors who take the standard deduction, it’ sits on top of the extra $2,000 deduction allowed in 2025 for single filers 65 and over, or $3,200 for married couples filing jointly.

The $6,000 senior bonus is reduced by six cents for every dollar of modified adjusted gross income, or MAGI, over $75,000 for singles and is fully phased out at $175,000, according to calculations by the nonprofit Tax Foundation; married couples filing jointly who are both 65 or older get a deduction of $12,000 at incomes of $150,000 or less, to be fully phased out at $250,000.

For most seniors, your MAGI for the purposes of this deduction will simply be your adjusted gross income, says Alex Durante, senior economist at the Tax Foundation; those with certain kinds of foreign income must include that in their total.

Older adults might want to keep their income within these limits, or at least consider whether the extra income from work or retirement withdrawals outweighs the tax benefits of staying within the cap and taking the additional $6,000, says Miklos Ringbauer, founder of MiklosCPA in Southern California.

The key question: “Do I want to [work more], or will I just hang out with my friends and play chess, or volunteer at the museum?” he says.

Complicating the math for retirees who may be working part time is a provision in the law that exempts tip and overtime pay from income taxes up to certain limits. Up to $25,000 of tip income is deductible for workers in traditionally tipped industries from 2025 through 2028, phased out at $150,000 for individual filers and $300,000 for joint filers. Up to $12,500 in overtime pay is deductible within the same parameters.

Roth conversions are another factor to consider, since they boost your taxable income for the year you do them. It might pay to hold off on converting your traditional, pretax retirement account to a post-tax Roth if that will push your income above the cap.

Those age 73 and older have less flexibility to control their income, since they are subject to required minimum distributions. Starting at that age, the Internal Revenue Service makes older adults withdraw money from their traditional retirement accounts and pay income taxes on it. It’s the government’s way of finally getting its share of savings that have grown tax deferred for decades.

For the original owner, income from post-tax Roth accounts isn’t subject to RMD requirements, and it doesn’t count as taxable income. Older adults with a Roth account can use it as another way to help them stay within the income limits for the enhanced senior deduction.

Write to Elizabeth O’Brien at elizabeth.obrien@barrons.com