You may have heard about the One Big Beautiful Bill Act (OBBBA) which was signed in to law on July 4th, 2025.
Critics deem the name a misnomer calling it Ugly rather than Beautiful, but I think almost everyone agrees it is in fact Big.
There are dozens of provisions. Some go into effect immediately, others are implemented in later tax years. Some provisions end in various future years, while others are “permanent”, or as permanent as anything can be when it comes to legislation.
Many of my clients are retirement age, so today I will review the OBBBA provision that effects most taxpayers over 65 and begins this year.
Starting in 2025 (but ending after the 2028 tax year), seniors age 65 and older will receive an extra deduction of $6,000.
This deduction applies whether you itemize deductions or take the standard deduction.
Married taxpayers, as long as they file jointly, will each receive a $6,000 deduction if both are 65 or older. (Maximum deduction = $12,000)
The deduction is phased out (reduced) for seniors above certain income thresholds.
For Single taxpayers the phase out starts at $75,000 of Modified Adjusted Gross Income. (MAGI)
For Married taxpayers the phase out starts at $150,000 of MAGI.
For both singles/marrieds the phase out range is $100,000.
In other words, singles receive no deduction once MAGI is above $175,000 and marrieds receive no deduction once MAGI is above $250,000.
Estimates are that this new deduction will reduce total income tax for about 90% of seniors.
You may have heard this deduction touted as ‘no tax on Social Security’. That is not accurate.
The deduction will reduce tax for most people on Social Security, but not eliminate it except in some cases. Additionally, Social Security benefits for many low income seniors were not taxed prior to this legislation. Also, you do not need to be receiving any Social Security benefits in order to receive this deduction.
Practically speaking, what does the deduction mean for you?
If you and/or your spouse are 65 or older and below the phase out income limits, it likely means your total income tax bill will go down.
If you got a refund for 2024, and 2025 is essentially the same, then you will get a larger refund.
If you had to pay in for 2024, you will pay in less or get a refund. The amount of your increased refund will depend on your tax bracket and MAGI.
Let’s look at a real life example: I plugged the information for a client into my tax planning software. She is single, over age 65. In 2024 her income consisted of ≈$2400 of investment income, ≈$19,500 of IRA distributions, and Social Security benefits of about $32,000.
The tax withheld throughout the year was $343 more than her actual tax liability, therefore she got $343 refund.
If I assume all the income and withholding numbers are the same for 2025, her refund increases to $1,084.
Get in touch with your tax preparer to learn more about OBBBA and how it might affect your particular tax situation!
