What Trump Tax Extensions and Additions Mean for Retirees

As of July 4, 2025, President Donald Trump signed the sweeping tax and spending bill known as the One Big Beautiful Bill Act (OBBBA) into law.  The legislation extends provisions from the 2017 Tax Cuts and Jobs Act (TCJA) and introduces new tax benefits specifically targeting retirees. The tax structure itself remains unchanged, but new deductions may reduce taxable income for many retirees.  Here’s what retirees should know about OBBBA and how the resulting changes could impact long-term financial planning.

The OBBBA expands and makes some TCJA-era provisions permanent, including lower individual tax rates, larger standard deductions, and an enhanced Child Tax Credit (CTC). It also adds new retiree-focused features, such as a tax deduction for seniors aged 65 and older.

Implications for Retirees

The OBBBA’s tax changes could influence retirees’ income, tax liability, and planning opportunities in the next five years in the following ways:

1. Expanded Standard Deduction:  The base standard deduction for 2025 increases to $15,750 (up from $15,000) for single filers, and $31,500 (up from $30,000) for married couples filing jointly.  According to the Tax Policy Center, approximately 90% of filers claim the standard deduction, a trend accelerated by the 2017 TCJA tax cuts.
2. Age-Based Additional Deduction:  Individuals age 65 and older continue to receive an additional standard deduction. For 2025, the age-based deduction is $2,000 for single filers (up from $1,950 in 2024) and $1,600 per spouse for married couples filing jointly (up from $1,550).
3. “Senior Bonus” Deduction:  New in 2025, retirees aged 65 and over with a modified adjusted gross income (MAGI) below $75,000 (single) or $150,000 (joint) may claim an extra $6,000 deduction, known as the “Senior Bonus.” This deduction phases out for MAGI above $75,000/$150,000 and disappears entirely at $175,000 (single) or $250,000 (joint). Retirees with very low incomes—below $18,500 for single or $36,000 joint—may not benefit, as their tax burden is already minimal or nonexistent. The deduction is set to expire after 2028.
4. Social Security Impact: According to the Social Security Administration, about 40% of Social Security recipients (approximately 27 million people) currently pay federal income tax on their benefits. Under the new legislation, millions more could see their taxable income drop below the Social Security tax thresholds.  

With the combined effect of the increased standard deduction, age-based addition, and the new senior bonus, qualifying retirees could deduct up to $23,750 in 2025, significantly reducing their taxable income.

Since 1983, Social Security benefits have been partially taxable for many retirees, a provision designed to support the trust’s financial stability. Taxes collected on Social Security benefits help fund future Social Security payments.

Who Benefits Most?

• Middle-income retirees (MAGI of $30,000–$75,000, single, and under $150,000, joint) are positioned to benefit most, as they can qualify for the full deduction without hitting phase-out limits.
• Low-income retirees with a MAGI below $18,500 for single and $36,000 for joint filers may see little or no change, as their tax liability is already minimal or zero.
• High-income retirees with a MAGI above $175,000 for single and $250,000 for joint filers could receive partial or no benefit due to income phase-outs.,

The Five-Year Financial Outlook

Year 1 (2025 Tax Year)

Retirees aged 65 and over who file in 2025 will use the expanded deductions, potentially lowering their taxable income enough to reduce or eliminate federal taxes on Social Security.  Tax returns filed in 2026 will reflect the changes.

Years 2–4

Assuming stable income, deductions remain in place, adjusted for inflation. Retirees should monitor income sources, such as Required Minimum Distributions (RMDs) or capital gains, to avoid phase-out zones for the senior bonus.

Year 5 (2029 and Beyond)

The Senior Bonus deduction expires at the end of 2028. Unless Congress extends or replaces it, retirees will revert to smaller standard deductions and lose the $6,000 bonus. This could lead to higher tax bills in 2029.

Planning Insights for Retirees

The OBBBA offers short-term tax relief for retirees, but it also introduces complexity and a limited timeframe for action.  Strategic tax planning can help retirees maximize their benefits with fewer tax obligations. Consult a financial advisor about tax-saving tips such as:

• Harvest gains early: Take income or capital gains during years when deductions are highest (2025-2028) to reduce long-term tax liability.
• Manage MAGI carefully: Consider delaying or reducing Roth conversions and evaluating whether to draw income from an IRA, taxable account, or a combination of both for greater tax efficiency. Thoughtful planning around withdrawals and conversions can significantly enhance long-term tax outcomes. In some cases, a Roth conversion may offer more value in the long run than preserving the temporary Senior Bonus deduction. This highlights the importance of thorough and proactive tax planning. 
• Align cash flow: Lower taxes could free up income for investing in tax-efficient vehicles or other retirement goals.

Why Sound Financial Advice Matters Now

Tax legislation within the OBBBA underscores the importance of a proactive approach to retirement planning.  While the expanded provisions offer immediate benefits, some are temporary, income-dependent, and subject to change.  A financial advisor can help retirees:

• Optimize income streams and withdrawal timing to maximize deductions.
• Navigate MAGI thresholds and deduction phase-outs.
• Model tax scenarios across multiple years to avoid costly surprises.

Tax policy will continue to shift. Even well-informed retirees may struggle to keep up with the nuances.  An SHP Financial team member can review your current tax liability, present different income scenarios, and build a plan that evolves with legislation changes to reach your long-term goals. Contact an SHP Financial advisor today for a complimentary financial review and discover how proactive planning can help you keep more of what you have earned.