Ed Slott: What You Need to Know About the New Tax Deduction for Seniors

Key Takeaways

• The new law “Deduction for Seniors” makes it so that if you’re 65 or over, you qualify for a $6,000 deduction.
• The deduction doesn’t change your adjusted gross income, the amount of Social Security that will be taxable, or the amount of investment income that could be subject to the 3.8% investment income tax.
• It’s a great deduction because it stacks on top of the already existing standard deductions for seniors.
• The deduction may collide with somebody who wants to do Roth conversions and wants to maximize that 24% bracket because it’s still a good low bracket at 22%.
• At best, the $6,000 deduction will only net you about $1,300 in tax savings, and it’s probably less than that if it all was at the 22% bracket.
• There are strict income limits on the new deduction that married couples should keep in mind.
• This deduction will be available if you’re taking that standard deduction or if you’re an itemizer.

Christine Benz: Hi, I’m Christine Benz for Morningstar. People who are 65 and older may be able to take advantage of a new senior deduction starting in 2025. Joining me to discuss what you need to know about it is tax and retirement expert Ed Slott. Ed, thanks for being here.

Ed Slott: Thanks, Christine.

How Does the New Senior Tax Deduction Work?

Christine Benz: Now, I want to talk about this new senior deduction. Can you discuss what it is and how it will work for itemizers, people who are itemizing their deductions on their tax returns, as well as nonitemizers? And I’d also like to hear you talk about what it means that the deduction stacks on top of other deductions, because that’s the language that I’ve been hearing about this deduction.

Ed Slott: Well, I’ll tell you what it means, and I’ll first tell you what they said it means. So there was a lot of misinformation when this first came out. Some of that I blame by AI things coming out and getting bad information that even leaked into professional journals. It’s not an above-the-line deduction, meaning it doesn’t reduce AGI. It has nothing to do with Social Security. I don’t know if you recall, a lot of the early reports—

Christine Benz: I do.

Ed Slott: This was done over July 4th weekend, and everybody wanted to be the first one out with the AI and all the bots and things. And they said it would be no tax on Social Security. Has nothing to do with Social Security. Two absolutely separate provisions. That’s the biggest piece of misinformation. It’s actually a much more simple concept. It’s a senior deduction. It’s called in the law “Deduction for Seniors.” You get it if you’re 65. That’s all you have to be is 65, and you qualify for a $6,000 deduction. And it has some income limits, they’re kind of low thresholds, but a lot of seniors will qualify for the $6,000 deduction. But it has nothing to do with Social Security, and it’s a below-the-line deduction. It doesn’t change your adjusted gross income, it doesn’t change the amount of Social Security that will be taxable, it doesn’t change the amount of investment income that could be subject to the 3.8% investment income tax. It doesn’t change anything tied to AGI.

So I’ll give you an example. Let’s say you have a person that’s 68 years old, so he qualifies, but he hasn’t started taking Social Security because he wants to wait till age 70 to get a bigger check. He gets the deduction even though he’s not taking Social Security because he’s 65 or over. Let’s go on the flip side. Let’s say you have somebody, and let’s say you have somebody that’s 63 years old but decided to take Social Security because they needed the money early. They’re taking Social Security, but they don’t get the deduction because they’re not 65.

So one has nothing to do with the other, but it’s a great deduction because as you said, it stacks on top of the already existing standard deductions and the extra deductions for being seniors anyway, and you can get, the number is, for a married couple filing joint is 46,700. That’s for 2025, the year we’re in now. Yeah, that’s the standard deduction of 31,500 for a married couple. Assume both are 65 or over, so they get the age 65 extra 1,600, that’s another 3,200, and they each get 6,000, so that’s 12,000. So that adds up to 46,700 not taxable, and that’s a pretty good deal, but it’s all after AGI, a below-the-line deduction. So you can push a lot of income through before you’re paying any tax, so it’s a great deduction. But in the grand scheme of things, it’s not as big a deal as you think. For a $6,000 deduction, it caps out, the thresholds cap out at, when you hit roughly the 22% tax bracket.

So here’s where it may collide with somebody who wants to do Roth conversions and wants to maximize that 24% bracket because it’s still a good low bracket. I might concede the $6,000 deduction in light of getting more income, Roth income in the 24% bracket. So you have to look to see what’s more important to you. At best, the 6,000 deduction will only net you about $1,300 in tax savings, and it’s probably less than that. I’m saying if it all was at the 22% bracket. So it’s not as big a hit. It’s a nice hit, but it’s not as big as it sounds. It’s also not $6,000 off your taxes like some people thought. It’s a $6,000 deduction, but it’s a great deduction that we didn’t have before.

Income Limits on the New Tax Deduction for Seniors

Christine Benz: I wanted to follow up on the married couple filing jointly. If you have one partner who’s over 65 and one is under 65, only the person over 65 can take the deduction?

Ed Slott: Right.

Christine Benz: OK. Can you go back over the income limits? Because they’re fairly strict, I think it’ll rule out this deduction’s availability for a lot of higher-income seniors. Can you talk about that?

Ed Slott: Yeah, 75,000 the phaseout starts, to 175 for individuals, 150 to 250 for a married couple. So I said, that brings both of those situations into about a 22% bracket. Once they’re over that, it starts phasing out and you lose it all together. So I would say not to plan everything around the 6,000. Like I gave the example, if you want to do Roth conversions, I would still do that because long-term, it will produce a greater benefit than the $1,300 that each spouse might actually get if they qualified for the full 6,000 each. And it’s only temporary. It starts this year, like a lot of things in the tax code, in the OBBBA law, but this one started this year. This starts this year and ends in ’28.

Christine Benz: So just to go back over this ground, it sounds like this deduction will be available if you’re taking that standard deduction or if you’re an itemizer, you get it either way, right?

Ed Slott: Yes, that’s a great benefit. Absolutely. You don’t have to itemize to get it, and if you itemize, you still get it

Christine Benz: Wonderful. Ed, thank you so much for being here to run down this new senior deduction.

Ed Slott: Thanks, Christine.

Christine Benz: Thanks for watching. I’m Christine Benz for Morningstar.

Watch Ed Slott: What Retirees Need to Know About Required Minimum Distributions for more from Christine Benz.