I obtained an e mail from Social Safety Administration on July 3, applauding the brand new 2025 Trump tax legislation — One Massive Lovely Invoice Act. The e-mail mentioned,
I learn the One Massive Lovely Invoice Act. This half just isn’t true. The brand new 2025 Trump tax legislation doesn’t eradicate federal revenue tax on Social Safety advantages. Social Safety remains to be taxable simply as earlier than.
Momentary Senior Deduction
The e-mail from Social Safety Administration continued to say:
Moreover, it offers an enhanced deduction for taxpayers aged 65 and older, guaranteeing that retirees can preserve extra of what they’ve earned.
This half is true, however the e mail omitted the truth that the improved deduction is just non permanent, and it has nothing to do with Social Safety anyway.
One Massive Lovely Invoice Act created a brand new $6,000 senior deduction, accessible solely from 2025 via 2028, to seniors 65 and older throughout these years. It doesn’t matter whether or not you’re receiving Social Safety or not. It doesn’t matter whether or not you’re even eligible for Social Safety or not.
If you happen to’re 62 and receiving Social Safety, you don’t qualify for this new senior deduction since you’re not 65 but. Your Social Safety is taxable simply as earlier than.
If you happen to and your neighbor are each 65, and also you’re receiving Social Safety however your neighbor isn’t eligible for Social Safety as a result of they didn’t pay into it, each of you qualify for this new senior deduction. If you happen to and your neighbor have the identical revenue outdoors Social Safety (pension, curiosity, dividends, capital positive factors, and many others.), you’ll pay larger taxes than your neighbor while you add your taxable Social Safety advantages on prime.
If you happen to’re 65 this yr and also you’re delaying your Social Safety, you continue to qualify for this new senior deduction. Once you declare your Social Safety subsequent yr at 66, your taxes will improve as a result of added revenue from Social Safety, which is taxable simply as earlier than the 2025 Trump tax legislation.
Not a Tax Credit score
The $6,000 senior deduction is a tax deduction, not a tax credit score. It reduces your taxable revenue by $6,000 ($12,000 in case you’re married submitting collectively and each of you might be 65+). It doesn’t decrease your taxes by $6,000 or $12,000. Your precise tax financial savings rely in your tax bracket.
No Change to AGI
The brand new non permanent senior deduction goes after the usual deduction or itemized deductions. It’s accessible whether or not you itemize or not. It’s not a part of the usual deduction. It doesn’t substitute the prevailing improve in commonplace deduction for age 65.
Nonetheless, it doesn’t decrease your AGI. It doesn’t make it simpler so that you can qualify for issues keyed off of the AGI, for instance, avoiding larger Medicare premiums beneath IRMAA. It doesn’t decrease state taxes.
No Change to Tax on Social Safety
The brand new senior deduction is simply an additional tax profit for seniors. It has nothing to do with Social Safety. It doesn’t take away taxes on Social Safety. The brand new further tax profit could also be price kind of than the tax in your Social Safety advantages. You might have the brand new tax profit on one facet and the tax on Social Safety on the opposite facet. The 2 are fully unrelated.
It’s like some folks saying they picked up $5 on the road and subsequently their espresso is free. The 2 issues don’t have anything to do with one another. You don’t have to purchase espresso after selecting up $5. The espresso nonetheless prices the identical whether or not you picked up $5 or not. The espresso could also be kind of than $5. Choosing up $5 is good, however the espresso nonetheless isn’t free.
Please use my calculator How A lot of Your Social Safety Advantages Is Taxable? to learn how a lot of your Social Safety advantages is taxable. The brand new 2025 Trump tax legislation didn’t change any of that calculation.
Revenue Phaseout
Not solely is the brand new senior deduction non permanent, however it additionally phases out as your revenue goes up. You get the complete $6,000 deduction in case you’re single and your modified adjusted gross revenue is $75,000 or much less ($150,000 or much less for married submitting collectively). You get $0 deduction in case you’re married submitting individually, no matter your revenue.
The modified adjusted gross revenue is the AGI for most individuals. It doesn’t add again untaxed Social Safety or muni bond curiosity. The “modified” half is just for international earned revenue exclusion and residents in Puerto Rico, Guam, American Samoa, and the Northern Mariana Islands.
As your revenue goes up, every individual’s deduction is decreased by 6% of any further revenue above the $75,000/$150,000 threshold. The deduction disappears when your revenue reaches $175,000 in case you’re single or $250,000 in case you’re married submitting collectively.
The tables beneath illustrate how the deduction phases out at completely different revenue ranges. Interpolate when your revenue is between the numbers proven within the tables.
Single
| Revenue | Senior Deduction |
|---|---|
| $75,000 or much 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 Submitting Collectively
| Revenue | One Particular person Is 65+ | Each Are 65+ |
|---|---|---|
| $150,000 or much 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 |
Impact on Roth Conversion
Many seniors at age 65 or older do Roth conversions. If a Roth conversion places your MAGI within the revenue phaseout vary, it will increase the tax price of your Roth conversion.
If you happen to’re single or in case you’re married however solely one in every of you is 65+ and also you’re within the 22% tax bracket, the tax price to your Roth conversion goes from 22% to 22% * 1.06 = 23.32%. If you happen to’re married and each of you might be over 65, it goes from 22% to 22% * 1.12 = 24.64%.
Roth conversion is all the time in regards to the tax fee you’re paying now versus the tax fee you count on to pay sooner or later in case you don’t convert as a lot. If you happen to assume it’s nonetheless price changing at 23.32% or 24.64%, you’ll proceed changing the identical quantity, ignoring the impact on the senior deduction. If you happen to assume it’s not price it to transform at 23.32% or 24.64% (however it’s price it to transform at 22%), you’ll convert solely sufficient to $75k or $150k AGI to get your full senior deduction.
[Title Image Credit: Google Gemini]
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