Social Security uncertainty and policy changes are driving more people to file
With a significant rise in Social Security applications, retirees face financial decisions influenced by legislation and economic concerns in today’s climate.
Scripps News
- A new, $4,000 ‘bonus’ deduction would be available for those age 65 and older who fall within set income limits, under the House GOP mega-bill that passed in May.
- AARP’s Nancy LeaMond says the group strongly supports the $4,000 ‘bonus’ standard deduction for older Americans.
President Donald Trump’s big promise to end taxes on Social Security benefits might not be in the cards for 2025. But a smaller tax cut could be in the works for many middle-income taxpayers 65 and older.
Many moving parts, of course, are involved with the tax and spending package that Trump and GOP leaders in the House call “One Big, Beautiful Bill,” so many that we cannot be certain how specific tax breaks might shake out in the upcoming weeks as the Senate wrangles with crucial issues.
How does ‘senior bonus’ look next to no-tax promise?
“It’s important to understand that much of this is still being debated and subject to change,” said Tom O’Saben, enrolled agent and director of tax content and government relations for the National Association of Tax Professionals, which has 23,000 members.
The way O’Saben sees it, the odds look good for the special senior deduction to pass.
But he noted: “It’s a far cry from the savings that would have occurred had Social Security benefits been excluded from income in general.”
If approved by Congress, tax filers could see many proposed breaks in the sweeping tax bill apply to 2025 tax returns that will be filed next year. Much of this bill extends existing Trump tax breaks from the Tax Cuts and Jobs Act of 2017, which expire at the end of 2025.
The package also includes proposals to further restrict Medicaid and nutrition assistance benefits. It delivers on many of the Trump’s promises made during his presidential campaign in 2024, such as a proposed above-the-line deduction for interest on car loans.
Who would qualify for the $4,000 senior deduction?
A new, $4,000 “bonus” deduction would be available for those age 65 and older who fall within set income limits, under the House GOP mega-bill that passed May 22 by a single vote margin.
The tax break could apply whether someone 65 and older is claiming Social Security benefits or delaying to claim. You could still be working or retired.
This new, $4,000 deduction would be available whether the tax filers take the standard deduction or itemize deductions when filing a tax return. The new break is temporary, beginning in the 2025 tax year running through 2028.
A key point to keep in mind: The deduction still would not benefit all seniors.
“Middle earners would see most of the benefit,” said Garrett Watson, director of policy analysis at the nonpartisan Tax Foundation.
At a 12% marginal tax rate, for example, Watson noted, the $4,000 deduction alone for a single taxpayer who is 65 or older would result in $480 in tax savings.
For a single taxpayer, the 12% tax rate applied on taxable income from $11,926 through $48,475 in 2025. Annual inflation adjustments can be made to marginal tax brackets.
Those with very high incomes and low incomes wouldn’t see any benefit from the extra $4,000 standard deduction.
Lower income households that do not have taxable income would not benefit, experts said, as they do not have income to offset.
“If a retiree is only receiving Social Security benefits, no tax would be owed as Social Security alone is not taxable if it is the only source of income,” O’Saben said.
“Taxpayers must have other income in order for some or up to 85% of Social Security benefits being included in taxable income.”
Other income that goes into the calculation to determine whether Social Security benefits are taxable includes money you’d withdraw from a 401(k) plan, wages, dividends, capital gains, as well as tax-exempt interest. You’d calculate your combined income, which is your adjusted gross income plus nontaxable interest plus half of your Social Security benefits. See IRS Publication 915 to better understand the complex calculations.
Higher income older adults would benefit far less from the new $4,000 deduction in the mega-bill. So, those 65 and older who continue to work or remain well off in retirement would not save as much money on their tax bills.
Under the House bill, the full $4,000 deduction would apply to those with an adjusted gross income that is no more than $75,000 for single filers and no more than $150,000 for married filing jointly.
As incomes go above those thresholds, the deduction would be smaller until it phases out completely for an individual with $175,000 in AGI or a married couple filing a joint return with $250,000 in AGI.
Some scenarios for potential tax savings
O’Saben offers this example for a mythical Tina and Tim. Say the couple — who are each 65 years old — receives $50,000 in income from a pension and receives the national average Social Security benefits at $47, 424 in 2025.
In this example, he said, $31,255 of their Social Security benefits are includable in taxable income. They’d pay $5,290 in federal income taxes before OBBB, as some now call the “One Big, Beautiful Bill.”
The tax created by the inclusion of the Social Security benefits, O’Saben said, costs Tina and Tim about $3,440.
With the new senior deduction of $4,000 each, he said, plus the additional standard deduction, this couple would they save $1,200 in federal income taxes.
The House GOP mega-bill also includes a temporary increase in the standard deduction for those who do not itemize that would apply to tax returns for 2025 through 2028. Under this proposed change, married couples filing jointly would receive an extra $2,000 for the standard deduction. You would not get that extra $2,000 if you itemized deductions.
Tina and Tim’s taxable income would be $46,055 and some of their income is taxed under the 12% marginal tax rate in 2025.
But if a senior couple was very well off, they’d save far less with the $4,000 tax break under Trump’s big, beautiful bill.
Take Ed and Edna who have other income of $200,000 and Social Security benefits for 2025 of $108,000. In this example, 85% of these benefits are included in taxable income or $91,800.
This couple, O’Saben said, is paying $47,758 in federal income taxes — and $16,954 of that total came from the requirement to include 85% of Social Security benefits as income. Their modified adjusted gross income is $291,800.
“Under the OBBB,” O’Saben said, “their MAGI is over $190,000 so they have no benefit for the senior deduction.”
The House Ways & Means Committee lists an example for much larger tax savings by adding up other measures “One Big, Beautiful Bill.”
The House committee’s fact sheet released May 28 used a specific example of a married, retired couple in Florida who buys a car and takes out a new car loan to receive a new proposed deduction on car loan interest; qualifies for the new $4,000 deduction for seniors, and receives an enhanced standard deduction. Those taxpayers, according to the GOP fact sheet, would see a tax cut of $1,650.
How much you’d save as a tax break for a new car loan taken out in 2025 through 2028 would vary based on how much you’d borrow and the kind of interest rate you’d receive for the car loan.
The Ways and Means example doesn’t list specifics on how much taxable income the couple had, the kind of car they bought, the size of the car loan, the amount of interest paid in a given year, or the rate on the loan.
O’Saben said he believes that example used an average tax rate of around 12% to 16%.
If the couple paid cash for that car, as some seniors do, the tax cut would be smaller. Of course, paying cash means you’re not paying high interest on a car loan. “No taxpayer should seek a tax break in return for paying higher interest,” O’Saben said.
The sweeping GOP tax bill calls for an above-the-line deduction of up to $10,000 in car loan interest during a given taxable year. The auto loan interest deduction would be temporary under the GOP plan, and it would apply to auto loans that are taken out in 2025, 2026, 2027 and 2028.
Ways and Means Committee Chairman Jason Smith, R-Missouri, listed another complex example to show how much seniors could save under the mega-bill, showing $1,989 in total tax savings for a married New Jersey taxi driver who is 65 and would benefit from a proposal where income taxes would not apply to income from tips, as well as the extra $4,000 deduction for seniors.
Make no mistake, the extra $4,000 deduction for seniors is far short of Trump’s sweeping promise to eliminate taxes on Social Security. It’s also not as big of a ding on federal revenues.
The Tax Foundation estimates that the $4,000 deduction for seniors would cost about $22.8 billion in 2025 and $23.2 billion in 2026.
By contrast, the Tax Foundation noted that the Social Security and Medicare Boards of Trustees projected that $126.3 billion would be collected in 2026 from the taxation of Social Security benefits, which would go back to the trust funds.
“Unlike other types of income,” the Tax Foundation notes in a report, “the revenues generated from the taxation of Social Security benefits are earmarked specifically for the Social Security and Medicare trust funds.”
The “bonus” deduction “would not weaken the trust funds,” according to Alex Durante, Tax Foundation senior economist.
“But given the temporary nature of the policy, it would increase the deficit impact of the House reconciliation bill without boosting long-run economic growth.”
Completely eliminating taxes on Social Security benefits isn’t part of the House GOP mega-bill because it could not be packed into a budget reconciliation process.
The Congressional Budget Act of 1974 prohibits using reconciliation to change the Social Security program, according to the Center on Budget and Policy Priorities. The act prohibits including any provision as part of a budget reconciliation package that changes Social Security’s retirement, survivors or disability costs or revenues.
Other separate bills introduced in the House in early 2025, though, still do call for eliminating taxes on Social Security benefits.
Frankly, it would cost a bundle to stop taxing any Social Security benefits when other tax cuts in the mega-bill already would add trillions of dollars to the national debt.
AARP supports the proposed $4,000 bonus deduction
Right now, though, many do back the $4,000 bonus deduction.
Nancy LeaMond, AARP’s executive vice president and chief advocacy and engagement officer, said the advocacy group strongly supports the $4,000 “bonus” standard deduction for older Americans.
She said the move would provide “meaningful tax relief at a time when many seniors are feeling financial strain.”
The provision is based on an earlier introduced “Bonus Tax Relief for America’s Seniors Act,” which LeaMond said AARP supports.
“For millions of older taxpayers, this change will help keep more of their Social Security benefits in their pockets,” LeaMond said.
Senior advocates have long complained that outdated income thresholds that have not been adjusted for inflation since the 1980s frequently trigger federal income taxes on Social Security benefits.
About 40% of people who get Social Security have to pay income taxes on their benefits, according to a report issued by the Social Security Administration.
Unfortunately, it doesn’t take much extra income to get hit with some taxes because income thresholds that trigger the tax on Social Security benefits do not adjust for inflation.
For single filers, the threshold for paying taxes on up to 50% of your Social Security benefits applies when your combined income is between $25,000 and $34,000 a year. Once the combined income is higher, up to 85% of benefits may be taxable.
Your combined income is your adjusted gross income, plus nontaxable interest, such as interest on certain bonds, plus half of your Social Security benefits received that year.
Couples filing a joint return could have to pay taxes on 50% of their Social Security benefits if their combined income is between $32,000 and $44,000. If the couple’s combined income is higher than that, up to 85% of benefits is taxable.
“For more than 40 years, outdated income thresholds have forced increasing numbers of retirees to pay taxes on their hard-earned Social Security,” LeaMond said.
The Senior Citizens League says a $4,000 bonus deduction would help but the nonpartisan group would like to see far more relief.
“A better approach would be to either eliminate the tax on Social Security benefits entirely or significantly raise the income thresholds that trigger taxation — something we believe would be more aligned with today’s economic realities,” said Shannon Benton, executive director of the Senior Citizens League, which was established in 1992.
“We believe that these benefits, which seniors have paid into through a lifetime of work and payroll taxes, should not be taxed a second time in retirement,” Benton told the Detroit Free Press, a part of the USA TODAY Network.
She noted that the proportion of beneficiaries who pay taxes on their Social Security benefits will continue to increase unless the thresholds are changed.
Income thresholds for taxing Social Security benefits, Benton said, are not indexed for inflation or wage growth, while Social Security benefits are.
“As incomes rise due to inflation and wage growth, more beneficiaries reach the income levels where their benefits become taxable,” Benton said.
Eliminating taxes entirely on Social Security benefits — which would likely be temporary over four years — isn’t an easy lift. But many people age 65 and older won’t scoff at an extra $4,000 bonus deduction, if that’s part of the final deal.
Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X @tompor.
