One Big Beautiful Bill Tax Act – How Can You Benefit?

Focus: Taxability Of Social Security Benefits and Tax Deduction For Seniors  

On July 4, 2025 President Donald J. Trump signed into law H.R.1 – One Big Beautiful Bill Act (“OBBBA”).  OBBBA contains hundreds of provisions including permanently extending the individual tax rates Trump signed into law in 2017, which were originally set to expire at the end of 2025.

OBBBA introduces a temporary tax deduction for seniors aged 65 and older, potentially reducing or eliminating taxes on Social Security benefits for many, but it does not eliminate Social Security taxation entirely. This new deduction is in addition to the existing standard deduction and any age-based deductions. According to the Council of Economic Advisors, 88% of retirees who receive Social Security benefits will pay no tax on their benefits under OBBBA because of their total deductions exceeding their taxable Social Security benefits.

Prior Law – Partial Taxability Of Social Security Benefits

A taxpayer is subject to tax on a portion of his or her social security benefits only if the sum of the taxpayer’s modified adjusted gross income (“MAGI”) plus 50% of the social security benefits the taxpayer received exceeds a “base amount” determined by the taxpayer’s filing status. Married taxpayers who file a joint return must combine their incomes and benefits to figure whether any of their combined benefits are taxable, even if only one of the spouses received social security benefits.  This rule is referred to as the “income test”.

A taxpayer’s MAGI is essentially adjusted gross income (“AGI”) adjusted for certain items, the most common being an increase by the amount of any tax-exempt interest not included in AGI.

The “base amount” is:

(1)        $32,000 if the taxpayer is married filing jointly;

(2)        $0 if the taxpayer is married filing separately and lived with his or her spouse at any time during the tax year; or

(3)        $25,000 in any other case.

So for taxpayers who are filing married jointly, none of the social security benefits would be taxable where the sum of the taxpayer’s modified adjusted gross income (“MAGI”) plus 50% of the social security benefits the taxpayer received is less than or equal to $32,000.  For taxpayers who are single, the non-taxable threshold is $25,000.

For taxpayers exceeding thresholds above, under the income test you can expect to include at least 50% of the taxpayer’s social security benefits as income and in some cases, a taxpayer may have to include in income up to 85% of such benefits.

Prior Law – Additional Amount For Seniors Over The Standard Deduction Amount  

Regardless of whether a portion of social security benefits are taxable, an individual taxpayer is entitled to a higher standard deduction if the individual is age 65 or older at the end of the year and does not itemize deductions.  This amount is adjusted for inflation in each year and for tax years beginning in 2025, the additional standard deduction amount for the aged is $1,600. This amount is increased to $2,000 if the individual is unmarried and not a surviving spouse.

An individual is considered 65 on the day before his or her 65th birthday. Therefore, individuals who were born before January 2, 1960, can take the additional standard deduction for the aged for 2024. Individuals who were born before January 2, 1961, can take the additional standard deduction for age for 2025.

On a joint return, if both spouses are age 65 or older, both are entitled to an additional standard deduction for the aged. A married taxpayer who files a separate return can take the higher standard deduction for a spouse who is age 65 or older if the taxpayer can claim a personal exemption for the spouse because the spouse had no gross income and another taxpayer cannot claim the spouse as a dependent.

Current Law – Partial Taxability Of Social Security Benefits

OBBBA does not exempt Social Security benefits from taxation and the income test will still apply, but it does provide an additional deduction for seniors. The prior law computations for income testing discussed above still apply.

Current Law – OBBBA Senior Tax Deduction

OBBBA provides a new enhanced $6,000 deduction for individuals aged 65 and older, and a $12,000 deduction for married couples filing jointly, starting in 2025. This new deduction takes place regardless of whether the senior itemizes or takes the standard deduction.

But Beware……

OBBBA senior tax deduction is phased out for higher earners, with the full amount available for single filers with a Modified Adjusted Gross Income (“MAGI”) of up to $75,000 and for married couples filing jointly with MAGI up to $150,000. The application of the phase-outs will completely eliminate the deduction at $175,000 for single filers and $250,000 for joint filers. Also, keep in mind that this deduction is not a blanket exemption. While the deduction can significantly lower taxes for many, it does not eliminate Social Security taxation for everyone due to the pre-existing income test. Also this senior deduction is temporary, currently set to expire in 2028, unless extended by Congress.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. It is advisable to consult with a tax professional to understand how these tax deductions might affect your situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles, San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.