New Tax Break Worth $6,000 May Come Soon For Older Americans

If the massive tax package currently being debated in Congress becomes law, Americans who are 65 and older will enjoy a hefty new tax break: An additional $4,000 to $6,000 drop in taxable income, thanks to a new additional standard deduction.

The House version of the tax bill calls for a $4,000 additional deduction, while the Senate version ramps that up to $6,000. The House approved its version in May, and the Senate is working now to bring its version to a vote. Then the two chambers will need to massage each bill into one cohesive whole, before sending it to President Donald Trump for signature.

The potential bad news for taxpayers?

• There would be income limits, with the value of the tax break phasing out starting at a modified adjusted gross income of $75,000 for single filers and $150,000 for married-filing-jointly filers.
• This new tax break would be temporary, in effect only from 2025 through 2028.

“The bottom line is if you’re in the modified adjusted gross income that gets this, it will save you on taxes,” says Mark Gallegos, a CPA and tax partner at Porte Brown LLC in Chicago.

This would put “more money back in people’s pockets, and I think that’s the whole point,” he says.

How this ‘senior bonus’ deduction would work

It seems likely that this new tax break would be added on top of the existing additional standard deduction that Americans who are 65 and older already enjoy.

In 2025, that additional standard deduction is worth $2,000 for a single filer aged 65 or older, or $3,200 for a married-filing-jointly couple if both spouses are age 65 or older (if just one spouse is 65+, the additional deduction is $1,600).

Neither the House nor Senate proposals are clear about whether the new tax break would be added on to that existing tax perk, says Mark Luscombe, a CPA and principal analyst for Wolters Kluwer Tax & Accounting in Chicago.

Nothing indicates that it would replace the existing additional deduction, “so my interpretation is it’s in addition,” Luscombe says.

Keep in mind, too, that both bills propose an increase to the existing standard deduction that’s available to all taxpayers. This gets a bit complicated, so let’s back up a bit: The Tax Cuts and Jobs Act essentially doubled the value of the standard deduction, effective from 2018 through 2025. 

Now, both the House and Senate tax bills would make that tax change permanent. On top of that, each of the bills would give the standard deduction a slight bump:

• The House bill would temporarily increase the standard deduction by $2,000 for joint filers, $1,500 for head of household filers and $1,000 for single filers and those married filing separately, effective 2025 through 2028.
• The Senate bill would permanently increase the standard deduction by those same amounts, starting in 2026.

So if one of these bills becomes law, then taxpayers aged 65 or older would enjoy the slightly higher standard deduction, plus their regular additional standard deduction, plus the new additional standard deduction.

Here’s an example of how these tax breaks would work, assuming the Senate’s $6,000 version becomes law and assuming the new tax break is on top of the existing additional deduction.

Tax-free Social Security benefits? Not so fast

This new additional standard deduction would be in lieu of tax-free Social Security benefits for retirees, an idea touted by Trump on the campaign trail. That’s because changing how Social Security benefits are taxed would be complex — and costly, reducing government revenues by as much as $1.5 trillion over 10 years, according to an estimate by the nonpartisan Tax Policy Center. 

Adding an extra standard deduction is simpler and cheaper. The $4,000 proposal in the House bill would reduce government revenue by an estimated $66 billion over 10 years, according to a report from the Bipartisan Policy Center.

Also, the proposed tax break would help out lower-income taxpayers more than ending taxes on Social Security benefits would have, Luscombe says. 

For one, Social Security beneficiaries with lower incomes generally don’t owe taxes on their benefits — that’s a fate that hits higher-income beneficiaries. Plus, the proposed new tax break – both the Senate and House versions — has income limits that would skew the benefit toward lower-income taxpayers.

“This proposal has a phase-out, which is unusual for a standard deduction,” Luscombe says. “That would tend to focus it on lower- to middle-income taxpayers.”

Also unusual for a standard deduction? This one would be available to people who itemize their deductions.

Still, “very few people at these income levels are itemizing,” Luscombe says. “Only about 10 percent of taxpayers currently itemize, even with the current standard deduction.”