The recent tax proposal, dubbed the “One Big Beautiful Bill,” introduces a $4,000 deduction for seniors aged 65 and older.
While this aims to provide tax relief, it falls short of President Trump’s campaign promise to eliminate taxes on Social Security benefits.
Understanding the $4,000 Senior Deduction
The proposed bill offers an additional $4,000 deduction for individuals aged 65 and above, applicable from 2025 through 2028. This deduction is available to both standard and itemized filers, with income limits set at $75,000 for single filers and $150,000 for married couples filing jointly.
For instance, a married senior couple could see their standard deduction increase from $30,000 to $43,200, potentially saving them around $1,200 annually, depending on their tax bracket.
Limitations of the Deduction
Despite the added deduction, the bill does not eliminate taxes on Social Security benefits. Currently, up to 85% of Social Security benefits can be taxable, depending on income levels.
The thresholds for taxation have remained unchanged for decades, leading to more beneficiaries being taxed over time due to inflation.
Critics argue that the $4,000 deduction provides only modest relief and does not address the fundamental issue of taxing Social Security benefits. For many seniors, the deduction equates to less than one month’s worth of Social Security payments.
Political and Economic Considerations
The decision to offer a deduction instead of eliminating Social Security taxes stems from budgetary constraints and legislative rules.
Completely removing taxes on Social Security benefits would result in a significant revenue loss, estimated at $100 billion annually, and could accelerate the depletion of the Social Security trust funds.
Additionally, the bill includes other tax provisions, such as eliminating taxes on tips and overtime pay, and increasing the standard deduction for all taxpayers. However, these benefits are set to expire after 2028.
Conclusion
While the $4,000 deduction offers some tax relief to seniors, it does not fulfill the promise of eliminating taxes on Social Security benefits.
As the bill moves to the Senate, further debates and modifications are expected, with the potential for significant changes before any provisions become law.