OBBBA: Tax Brackets Are Staying Put — But There’s a New Deduction for Seniors — Even Taxation of Social Security Didn’t Change
Good news: Most of the favorable tax brackets implemented under the 2017 Tax Cuts and Jobs Act are now permanent under the new OBBBA law — including the top 37% bracket and the “spread” of lower brackets below it. However, there are two key changes you should note:
1. Slightly Larger Brackets Ahead
Starting in 2026, the 10% and 12% tax brackets will be indexed from an earlier base year — meaning they’ll get a little bigger than expected. That’s more income taxed at lower rates, which translates to modest savings for most households.
2. A Brand-New $6,000 Deduction for Seniors
If you’re 65 or older, you’ll now get a temporary $6,000 deduction ($12,000 for married couples where both spouses are 65+), starting in 2025 and running through 2028.
But there’s a catch: the deduction phases out as income rises. It starts to shrink at $75,000 of MAGI (single) or $150,000 (joint) and disappears entirely at $175K/$250K.
This new deduction is in addition to the existing extra standard deduction for age 65+ — meaning many retiree couples could enjoy over $40,000 in total deductions if they don’t itemize.
📌 Timing: The deduction becomes available with your 2025 tax return filing and income thresholds are based on full-year MAGI. Any strategies to take advantage of this new deduction should be considered and completed before year end.
🚨 Key Detail: If you're near the phaseout range, now’s the time to reexamine Roth conversions, plan capital gains timing, or consider qualified charitable distributions (QCDs) to manage 2025 income levels.
Social Security Is Still Taxable
Despite widely circulated rumors suggesting otherwise, OBBBA does not eliminate taxes on Social Security benefits. The new age 65+ deduction helps reduce taxable income — but it doesn’t change how Social Security is taxed.
If your other income is high enough, you could still end up with 85% of your benefits taxed, just like before. Worse, recognizing additional income (say, via Roth conversions) could push more of your benefits into the taxable range — creating a sneaky 40%+ marginal tax rate zone.
Over the coming weeks, we’ll break the new law into bite-size topics to help you understand how it impacts you, your family, and your long-term planning.
Next Up: OBBBA created an entirely new category of itemized deductions. We’ll also cover how the rules for itemized deductions changed in our next post.
Have questions about how this impacts your 2025 tax strategy? We’re just a call away and, as always, will coordinate with your tax advisor to determine the best strategy for you.
