‘Big beautiful bill’ senior deduction offers planning opportunities

Tax changes for 2026 offer new ways for individuals ages 65 and over to plan financially.

That is largely due to a new temporary senior “bonus” or deduction of up to $6,000 per qualifying individual that was enacted when President Donald Trump signed the “big beautiful bill” package into law last July. A married couple filing jointly could qualify for a deduction of up to $12,000.

The $6,000 senior deduction is in effect from tax years 2025 through 2028. It applies to taxpayers 65 and over, regardless of whether they itemize their tax returns or take the standard deduction.

Retirees may not have made full use of the break since it was implemented partway through last year, experts say, but the next three years of planning could be key.

“This three-year window is an incredible, valuable opportunity,” said Miklos Ringbauer, a certified public accountant and founder and principal of MiklosCPA Inc., an accounting and tax strategy firm in Southern California.

“It’s three times $12,000, plus adjusted for inflation,” Ringbauer said. “That’s a lot of savings that we can build in for further down the road.”

The deduction will lower, or may even eliminate, the taxes eligible seniors owe. However, because it is not a tax credit, they will not necessarily receive those sums back in their refunds.

The impact of the deduction could be vast, Bill Sweeney, senior vice president of government affairs at AARP, said during a Jan. 15 briefing on the tax changes.

The Council of Economic Advisers, an agency within the executive office of the president, estimates about 33.9 million seniors may qualify for the new senior deduction and receive an average $670 increase in after-tax income per eligible taxpayer.

“That’s four years of immediate relief at a time when older Americans are facing really high costs,” Sweeney said.

Seniors must have a modified adjusted gross income under certain thresholds to qualify for the full deduction — up to $75,000 if single or $150,000 if married and filing taxes jointly. The deduction is gradually reduced for taxpayers with incomes over those thresholds and fully phases out for individuals with $175,000 or more in income and married couples with $250,000.

On the campaign trail, Trump pitched eliminating taxes on Social Security benefits. Yet because the law was passed by a legislative process known as reconciliation, Republican lawmakers could not directly make that change. Instead, the new senior deduction is aimed at replacing the income that any federal taxes on Social Security benefits may take away.

Federal taxes on Social Security benefits that are still in effect make it so beneficiaries may face levies on a formula called combined income — the sum of adjusted gross income, nontaxable interest and half of Social Security benefits.

Up to 50% of Social Security benefits are taxable for individuals with $25,000 to $34,000 in combined income, and married couples who file jointly with between $32,000 and $44,000. Up to 85% of benefits are taxable for individuals with more than $34,000 in combined income and married couples with over $44,000.   

The “big beautiful” tax package includes other tax changes that individuals ages 65 and over may take advantage of — a higher standard deduction and state and local tax deduction, a deduction of up to $10,000 per taxpayer for interest on new auto loans, plus no tax on tips or overtime pay for those who are still working.

“With tax changes come tax planning opportunities,” said Joe Elsasser, a certified financial planner and president of Covisum, a Social Security claiming software company.

Notably, the new $6,000 senior deduction applies to individuals 65 and over, whether they have claimed Social Security benefits or not, Elsasser said.

“Don’t just focus on the temporary additional senior deduction as a reduction of Social Security tax,” Elsasser said. “Instead, think of it as a four-year additional deduction that could be applied against any kind of income.”

The new change went into effect with the 2025 tax year. Yet some individuals may not have been mindful of their taxable income for the year with the new senior deduction in mind, according to Ringbauer.

For example, if taxpayers ages 65 and over had a very successful year in the stock market in 2025, they may be phased out of the full deduction that could have been available to them, Ringbauer said.

For tax years 2026 and beyond, older individuals may want to focus on how to stay within the deduction’s income limits, he said.

Individuals who are age 65 and up and still working may be able to reduce their taxable income by contributing to a retirement plan. In 2026, individuals ages 50 and older may be able to contribute up to $32,500 to a 401(k)-retirement plan, including catch-up contributions. Individuals ages 60 to 63 may be able to set aside up to $35,750, with super catch-up contributions.

Older taxpayers may also consider reducing their taxable income through charitable contributions.

Individuals ages 65 and older also want to be aware of other potential sources of income — such as required minimum distributions or Roth conversions — that may affect the size of their taxable income and therefore eligibility for the senior deduction, Ringbauer said.

The new senior deduction will reduce taxes on other income, not just Social Security, according to Elsasser.

Consequently, for taxpayers who have financial flexibility, it may make sense to withdraw money from IRAs or other retirement accounts while the temporary deduction is in place, he said. Those withdrawals may also help reduce required minimum distributions later, which can also help limit retirees’ future income subject to taxes. 

Notably, that strategy may also help individuals ages 65 and over to delay claiming Social Security retirement benefits. Delaying Social Security provides a guaranteed return of 8% per year from full retirement age — typically age 66 or 67 — up to age 70.

Those who have already claimed Social Security retirement benefits and who have reached full retirement age may consider voluntarily suspending their monthly checks while the senior bonus is in effect to let their future monthly benefit checks grow, Elsasser said.