“Big and Beautiful Bill” Elderly Deduction Provides Planning Opportunity

The 2026 tax changes provide new ways for individuals age 65 and older to plan their finances.

This is largely due to a new temporary senior “bonus,” a deduction of up to $6,000 per eligible individual, enacted when President Donald Trump signed the “Big and Beautiful Bill” package last July. Couples filing jointly can receive up to $12,000 in deductions.

The $6,000 senior citizen exemption is valid for tax years 2025 through 2028. Applies to taxpayers age 65 and older, regardless of whether they itemize their tax return or take the standard deduction.

Experts say retirees may not be making full use of their vacation time since it was introduced midway through last year, but planning for the next three years could be key.

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

“That’s three times $12,000, adjusted for inflation,” Ringbauer said. “That’s a lot of savings that can be built for the future.”

This deduction may reduce or even eliminate the taxes owed by eligible seniors. However, this is not a tax credit, so you won’t necessarily get that amount back as a refund.

The impact of the deduction could be significant, Bill Sweeney, AARP’s senior vice president for government affairs, said at a Jan. 15 briefing on tax reform.

The Council of Economic Advisers, an agency within the President’s Office, estimates that about 33.9 million seniors could qualify for the new senior citizen credit, receiving an average increase in after-tax income of $670 per eligible taxpayer.

“This is four years of immediate relief at a time when older Americans face extremely high costs,” Sweeney said.

For seniors to receive the full deduction, their adjusted gross income must be below a certain threshold. Up to $75,000 if you’re single and $150,000 if you’re married and filing taxes jointly. This deduction would be phased out for taxpayers with incomes above these thresholds and completely phased out for individuals with incomes of $175,000 or more and couples with incomes of $250,000.

During his campaign, Trump advocated eliminating taxes on Social Security benefits. But because the law was passed through a legislative process known as reconciliation, Republican lawmakers could not directly make the changes. Instead, the new senior citizen credit is intended to replace income that could be taken away by federal taxes on Social Security benefits.

Federal taxes on Social Security benefits are still in effect, and beneficiaries may be taxed based on a formula called “combined income,” which is the sum of adjusted gross income, tax-free interest, and half of Social Security benefits.

Up to 50% of Social Security benefits are taxable to individuals with combined incomes of $25,000 to $34,000 and married couples filing jointly with incomes of $32,000 to $44,000. Up to 85% of benefits are taxable for individuals with combined incomes of more than $34,000 and couples with combined incomes of more than $44,000.

This “big and beautiful” tax package also includes other tax changes available to individuals age 65 and older. It includes increased standard deductions and state and local tax deductions, a deduction of up to $10,000 per taxpayer for interest on new auto loans, and tax exemptions on tips and overtime pay for those still working.

“With changes to the tax system comes tax planning opportunities,” said Joe Elsasser, a certified financial planner and president of Covisum, a Social Security claims software company.

Specifically, the new $6,000 senior citizen deduction applies to individuals age 65 and older, regardless of whether they have applied for Social Security benefits, Elsasser said.

“Don’t just focus on adding a temporary senior credit as a reduction in Social Security taxes,” Elsasser said. “Rather, think of it as an additional four-year deduction that can be applied to any type of income.”

This new change went into effect starting with the 2025 tax year. But Ringbauer said some people may not be concerned about their taxable income for the year with the new senior tax deduction in mind.

For example, if a taxpayer over the age of 65 achieves great success in the stock market in 2025, the full amount of the deduction they would have been eligible for could be phased out, Ringbauer said.

For tax years starting in 2026, seniors may focus on how to stay within income limits for deductions, he said.

If you’re 65 or older and still working, you may be able to reduce your taxable income by contributing to a retirement plan. In 2026, individuals age 50 and older may be able to contribute up to $32,500, including catch-up contributions, to a 401(k) retirement plan. Individuals aged 60 to 63 may be able to accumulate up to $35,750 through super catch-up contributions.

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

Ringbauer said individuals age 65 and older also want to be aware of other potential sources of income, such as required minimum distributions or Roth conversions, which can affect the size of their taxable income and, therefore, their eligibility for the senior tax deduction.

Elsasser said the new senior citizen deduction would reduce taxes not only on Social Security but also on other income.

So, for financially flexible taxpayers, it may make sense to withdraw funds from IRAs and other retirement accounts while the temporary deduction is in effect, he said. These withdrawals may also help reduce required minimum distributions later on, which also helps limit the retiree’s future income subject to taxes.

Notably, this strategy may also help individuals age 65 and older delay claiming Social Security retirement benefits. Delaying Social Security guarantees an 8% annual return from full retirement age (usually age 66 or 67) until age 70.

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