Key Points

• President Donald Trump signed his landmark legislation, the "Big, Beautiful Bill," into law on July 4.

• The bill includes a temporary new senior tax deduction intended for retirees that pay Social Security taxes.

• Not all Social Security recipients would be eligible for the deduction, but millions will be.

• The $23,760 Social Security bonus most retirees completely overlook ›

President Donald Trump signed his landmark "Big, Beautiful Bill" into law on July 4. The legislation is a large budget reconciliation that implements trillions in tax cuts and allocates more funds for border security, along with many other provisions.

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While the bill does not outright eliminate Social Security taxes, as Trump had previously promised, it will indirectly eliminate them for the large majority of Social Security retirees. In fact, over 14 million retirees are about to see lower Social Security taxes under the bill that will materially boost their purchasing power.

Increasing the senior tax deduction

Legislation can be confusing, and this is going to be one of those times. For several months, President Trump has discussed the idea of outright slashing taxes on Social Security benefits to give more money back to retirees. Many argue that Social Security benefits have lost purchasing power in the 21st century. However, cutting Social Security taxes outright would have significantly exacerbated financial strain that Social Security is already experiencing -- the Social Security trust funds are set to run dry by 2034.

What's more, Republicans are using the budget reconciliation to speed up the legislative process for the "Big, Beautiful Bill." Under this legislative process, lawmakers aren't allowed to pass provisions that would impact the Social Security trust funds. So, Trump and the Republicans essentially used a workaround by increasing senior tax deductions.

Image source: Getty Images.

To be clear, these deductions impact all seniors, regardless of whether they receive Social Security benefits. However, it's specifically aimed at those that currently pay Social Security taxes.

The House initially passed a $4,000 bonus senior deduction for single seniors and $8,000 for married seniors. But the Senate increased that to $6,000 and $12,000, respectively, which is what went into the final version of the bill. The bonus deduction is only temporary and will expire in 2028. .

According to the White House, which cites data from the U.S. Treasury Department, under the existing tax code, 37.2 million U.S. citizens over 65 claim Social Security benefits and qualify for enough exemptions and deductions that exceed their taxable Social Security income. That is equivalent to 64% of Social Security recipients age 65 and over. With the $6,000 bonus senior tax deduction, the White House expects this number to jump to 51.4 million beneficiaries, or 88% of Social Security recipients age 65 and over.

Retirees that claim Social Security between the ages of 62 to 64 will not benefit from this deduction, and many recipients with the lowest incomes already don't pay Social Security taxes. Single filers would only qualify for the maximum $6,000 if they make no more than $75,000 per year, while joint filers can make up to $150,000. The deductions would be phased out once single filers make $175,000 and joint filers make $250,000.

How much in savings will the deductions provide?

People should also keep in mind that deductions don't eliminate taxes. Rather, they lower the income that will get taxed, resulting in a lower overall tax bill. According to The Wall Street Journal, a married couple that makes $100,000 per year would realize roughly $1,600 in savings from the $6,000 deduction.

This is certainly significant, considering the average monthly Social Security check for retirees in May was about $1,950, or $23,400 annually. The $1,600 in savings is equivalent to nearly 7% of the average annual benefit this year, and is much higher than the typical Social Security annual cost-of-living-adjustment (COLA).

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