The report stresses that the new senior deduction “is separate from the determination of the amount of Social Security benefits included in total income.” Image: Olesia Bech/Shutterstock.com
By: FEDweek StaffA report for Congress says that the new “senior deduction” in the recently enacted tax and spending law “does not change the calculation of how much of an individual’s or couple’s Social Security benefits is taxable”—contrary to how it commonly has been portrayed by proponents of that law—although there will be much overlap between those eligible for that deduction and those who pay those taxes.
The Congressional Research Service noted that up to 85 percent of Social Security benefits can be included in taxable income for recipients whose “provisional income” exceeds statutory thresholds, based on tax filing status. Provisional income is adjusted gross income plus certain otherwise tax-exempt income plus 50% of Social Security benefits.
The first-tier thresholds, below which no Social Security benefits are taxable, are $25,000 of provisional income for taxpayers filing as single, head of household, or qualifying widow(er) and $32,000 of provisional income for married taxpayers filing joint returns.
If provisional income is between the first-tier thresholds and the second-tier thresholds of $34,000 (for single filers) or $44,000 (for married couples filing jointly), the amount of Social Security benefits subject to tax is the lesser of (1) 50% of Social Security benefits or (2) 50% of provisional income in excess of the first threshold.
If provisional income is above the second-tier thresholds, the amount of Social Security benefits subject to tax is the lesser of (1) 85% of benefits or (2) 85 percent of provisional income above the second threshold plus the smaller of (a) $4,500 (for single filers) or $6,000 (for married filers) or (b) 50 percent of benefits.
The new “senior deduction” for taxpayers age 65 and older that will be effective for tax years 2025-2028 under the new law (the “One Big Beautiful Bill”) is $6,000 per eligible individual and phases out by decreasing by 6 percent of the amount by which a taxpayer’s modified adjusted gross income exceeds $75,000 ($150,000 for those married filing jointly, not adjusted for inflation).
“As a deduction, it can be used to reduce taxable income by up to $6,000 per eligible individual until taxable income is zero (and no tax is due). The deduction is not a tax credit, so it by itself will not create a tax refund (i.e., any unused deduction is lost),” the report said. That is in addition to an additional deduction already available to those 65 or older or blind who use the standard deduction in filing their taxes, it added.
The report stresses that the new senior deduction “is separate from the determination of the amount of Social Security benefits included in total income.” Taxation of Social Security benefits “is not limited by age” and therefore applies to those receiving those benefits before age 65, it says, with about a fifth of Social Security beneficiaries under that age.
In contrast, the new senior deduction applies—subject to the phaseout—to everyone age 65 and above even if they are not receiving Social Security benefits, it says, which is the case for a sixth of those at or above that age. They include, for example, persons who delay receipt of those benefits to increase their payment amounts, and those who did not have enough Social Security-covered earnings to qualify, such as many federal retirees under the CSRS system.
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