2. Social Security Taxes and the “Senior Bonus” Deduction Phase-Out

When the 2025 Trump/GOP tax and spending bill was passed, many retirees believed federal taxes on Social Security benefits were being eliminated. That didn’t happen.

Instead, lawmakers introduced a temporary tax break known as the “senior bonus deduction.” While helpful, it comes with strict income limits that could catch retirees off guard.

What is the senior bonus deduction?

The senior bonus deduction allows eligible retirees to reduce the income subject to Social Security taxes by up to:

• $6,000 per individual

The goal was to lower or offset Social Security benefit taxation — but not everyone qualifies.

Income limits you need to know

The deduction begins to phase out when modified adjusted gross income (MAGI) exceeds:

• $75,000 for single filers
• $150,000 for married couples filing jointly

Once you cross these thresholds, the deduction shrinks — and eventually disappears.

Why this is a major retirement tax trap

Many retirees assume Social Security taxes will drop automatically. But if your income is just slightly above the phase-out limits, you could lose the entire deduction and face:

• Higher federal income taxes
• Up to 85% of Social Security benefits taxed
• Increased Medicare premiums due to higher income

Even a modest IRA withdrawal or Roth conversion can push you over the limit.