Social Security & the New Senior Bonus Deduction: What Retirees Need to Know

As the 2026 tax filing season approaches, retirees are facing one of the most significant tax changes in years. While President Donald Trump campaigned on eliminating federal income taxes on Social Security benefits, the new tax legislation does not remove Social Security from taxation. Instead, Congress enacted a new provision widely known as the Senior Bonus Deduction - designed to reduce or even potentially eliminate federal income tax liability for many older Americans on Social Security and ordinary income.

1. How Social Security Benefits Are Taxed Today

Social Security benefits remain taxable based on total ordinary income. In summary, depending on your income levels: 50% or 85% of social security benefits may be taxed. The new legislation does not alter these rules nor does it adjust the corresponding social security tax brackets or percentages.

The One Big Beautiful Bill Act created a new deduction beginning in tax year 2025. This deduction provides a “bonus” $6000 deduction per senior in 2025 through tax year 2028. Therefore, if you fall under certain Modified Adjusted Gross Income (M/AGI) levels, you can deduct an additional $6000 (single) or $12,000 (married filing joint).

Eligibility requires you to be age 65 or older, have valid SSN, and filing jointly if married. The Modified AGI phase-outs begin at $75,000 (single) or $150,000 (married filing joint).

For example, if you’re single, 65 years or older, and take the standard deduction and your M/AGI is below $75,000, your total “standard” deduction would be $23,750 ($15,750 + $2000 senior deduction + $6000 senior bonus deduction).

Another example. If you and your spouse are 65 years of age or older and your Modified Adjusted Gross Income is less than $150,000, you can deduct an additional $16,000 ($12,000 senior bonus deduction plus $2,000 senior deduction per taxpayer) on your federal income tax returns on top of your standard and/or itemized deduction(s).

Note, this is a federal deduction. You do not get this deduction on state tax returns.

2. Practical Effects

Although Social Security taxation formulas remain unchanged, the new deduction reduces taxable income enough that many seniors may actually owe no federal incometax — indirectly achieving some of the relief promoted during the campaign. In effect, if you fall under the M/AGI thresholds and are both 65 years of age or older, you should see less taxable income on your federal income tax returns in 2025 through 2028.

Therefore, if you pay less federal income taxes, you’re more likely to get your entire federal income tax withholdings back for the applicable tax years. Without this additional senior bonus deduction, you would not see larger tax relief in these next three years.

3. Interaction with Existing Deductions

The senior bonus stacks on top of the regular standard and/or itemized deduction(s) and the existing additional senior deduction for age 65+. Additionally, you are entitled to this deduction no matter if you take standard deduction or use itemized deductions, yearly.

4. Broader Impact for 2025 tax returns and Beyond

The Senior Bonus Deduction is one of the most impactful income tax code changes for seniors and retirees since the original Social Security taxation structure was introduced. And even though the Presidential campaign promoting no taxes on social security was not realized directly, the senior bonus deduction does, in effect, allow taxpayers over 65 years of age to write-off an additional $6000 (single) or $12,000 (MFJ) of taxable income. This ultimately reduces your expected tax liability and increases the potential for higher federal income tax refunds in the upcoming tax years.

The Senior Bonus deduction sunsets after 12/31/2028.

In Conclusion

The newly passed tax bill marks a major shift in the tax landscape for senior Americans. While the deduction may help many retirees reduce their taxable income enough to owe no federal income tax—mimicking the desired outcome—the underlying Social Security tax provisions remain unchanged. The overall result is a compromise of meaningful tax relief for seniors without completely restructuring the Social Security taxation system.

If you feel like you can take advantage of this new senior bonus deduction and have not utilized the deduction within your 2025 individual income tax returns or were not aware of this new deduction, please call, we are happy to answer any questions you have in regard to this new senior bonus deduction for 2025 and beyond.

Sequoia Tax – Open and Ready to Help

Sequoia Advisor Group now offers tax services! Dustin Wells has joined the team serving as our Director of Tax Services/Financial Services Coordinator (read more about him on our Who We Are web page). Dustin and his team can determine how these changes – and all the others – affect you. Dustin is busy preparing for tax season and has availability to help file yours as well. Reach out with any tax related questions, or to schedule time for Sequoia Advisor Group to prepare your taxes.

Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC. Tax related services offered through Sequoia Tax Group DBA Sequoia Advisor Group. Sequoia Tax Group is a separate legal entity and not affiliated with LPL Financial. LPL Financial does not offer tax advice or tax related services.