President Donald Trump’s so-called “big beautiful bill” may not touch on Social Security directly, but its restructuring of the tax code is so extensive that it’s likely to have an indirect impact on your decision about when to claim benefits.
Specifically, for older Americans, the new bill’s senior deduction could add some wrinkles to the decision about when to start claiming benefits.
Here’s a closer look at why you may need to adjust your retirement plan to fit around these new rules in order to maximize tax efficiency.
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Income thresholds for the senior deduction
The Trump bill — which was enacted in early July — introduces an additional tax deduction for taxpayers who are 65 or older. The deduction could be up to $6,000 for an individual tax filer and up to $12,000 for a married couple if both spouses qualify.
However, age isn’t the only criteria that determines eligibility — the modified adjusted gross income (MAGI) is also a critical factor. There are specific income thresholds built into the new rules that determine the actual amount of deduction you and your partner can claim.
For instance, individuals earning a MAGI of $75,000 or under can access the full deduction. Beyond that amount, the deductions are phased out gradually and, for anyone earning more than $175,000, the deduction is fully phased out.
Similarly, joint filers can expect to see a lower deduction if their combined MAGI is above $150,000 and could see none of the deduction if MAGI is more than $250,000.
Given that the IRS considers income from Social Security as part of the MAGI calculation, claiming benefits early could put you and your partner over some of these income thresholds.
If you earn a relatively high income from other sources and are between the ages of 65 and 70, not only will you have lower benefit payments because of claiming Social Security early, but you could also diminish some of these attractive seniors’ deductions over the next few years.
Let’s use an example to illustrate this: Jamie and her partner are both 65 years old and earn a combined income of $145,000. At this level, they qualify for the full $12,000 in seniors deduction.
However, they both intend to apply for Social Security benefits early and would receive $2,000 a month each (or $48,000 combined annually) through benefits.
Under the Trump tax plan, many experts assume that MAGI (for the purpose of the seniors deduction) includes only the taxable portion of Social Security benefits — not the full amount. For a higher-income couple, up to 85% of Social Security benefits can be taxable.
In Jamie and her husband’s case, 85% of their $48,000 benefit equals $40,800, which would be added to their $145,000 income, bringing their total MAGI to $185,800. At that level, their seniors deduction would be phased down and reduced to $9,852.
Jamie and her partner could potentially lose out on thousands of dollars in tax deductions over the course of a few years.
Fortunately, there are a few levers seniors can pull to reduce this impact.
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Preserving the deduction
Depending on your age and income, there are several ways to preserve some, or all, of the new seniors tax deduction.
Perhaps the most straightforward way to do so — assuming you don’t need the income from Social Security immediately — is to delay benefits. By waiting until age 70 to claim, not only do you boost your monthly benefit, but you may also reduce your taxable income during key years — which could help you qualify for more of the deduction.
However, you also have to factor in the time limit for the senior deduction. According to the IRS, the additional deduction is scheduled to apply only to tax years 2025 through 2028, which means you don’t have to delay taking benefits for too long if you’re at a certain age and simply trying to maximize this specific incentive.
This time limit also means that, for those who want to take Social Security benefits at the earliest possible age — 62 — the new senior deduction might not be much of a factor because it might end before you reach the age of qualification, which is 65.
If you still want to take your benefits early, or are already receiving them, you could try to lower your MAGI in other ways.
For instance, moving some of your investments from dividend-paying stocks to growth stocks could help reduce your passive income and MAGI. You could also take advantage of tax-loss harvesting to offset some of your capital gains and reduce your overall MAGI.
It’s worth noting that these strategies can be a bit complex, so make sure you speak to a financial advisor before you pull the trigger on any major decisions.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.