Working Past 65? The New $6,000 Senior Tax Deduction Has a Phase-Out You’re About to Walk Into.

The One Big Beautiful Bill Act contained some good news for seniors when it was signed into law by the Trump Administration. Those over 65 would be eligible for a new $6,000 tax deduction. This deduction is aimed at fulfilling President Trump’s promise to eliminate taxes on Social Security. For many retirees, it brings their taxable income to below the threshold where tax kicks in on Social Security.

However, not all retirees benefit equally from the deduction, though — and some do not benefit at all. Specifically, if you are working after the age of 65 when the deduction becomes available to you, it may not help you. Here’s why. 

The new $6,000 senior deduction has strict income limits

When the new $6,000 deduction was signed into law, it came with some restrictions on eligibility. First, you had to be 65 or over. And second, your modified adjusted gross income had to be below a specific threshold. That threshold is $75,000 for single tax filers or $150,000 for joint tax filers.

Once your income exceeds the threshold, the deduction begins to phase out. Specifically, it reduces by 6 cents on every dollar of MAGI over $75,000 for singles or $150,000 for joint filers. So, for example, a married couple with both spouses older than 65 would be eligible for a $12,000 deduction. But if their MAGI is $178,000, they’re $28,000 above the point where the phase-out begins. This means their deduction would be reduced by $1,680 ($0.06 x $28,000), and they’d be able to take just $10,320 ($12,000 combined deduction – $1,680) off their taxable income. 

If you are working in retirement, then there’s a good chance you could find yourself with income above these limits, and you could end up losing part of your deduction. And if you’re doing well at work, you could lose all of it. Once your income hits $175,000 as a single filer or $250,000 as a married joint filer, you lose the entire $6K and get no benefit at all from the new tax break.

It’s not just workers who lose out 

Workers are not the only ones who could run into the income limits and find their deductions phased out.  Anyone who has a large income in retirement could lose the ability to claim the deduction once their income goes above the allowable amount. This includes people taking required minimum distributions (RMDs) that put them over the threshold, as well as seniors who get income from taxable brokerage accounts or real estate investments. 

However, if you have a Roth IRA or Roth 401(k), the tax-free distributions you take from this account are not going to count towards the $75K or $150K limit. 

How can you lower your MAGI?

So, how can you reduce your MAGI? Using Roths instead of traditional accounts is one approach, as is limiting the amount you earn from your job — although it may not be worth capping your income if you’re saving and investing for your future. 

A financial advisor can also help you to explore other approaches to bringing down your income and qualifying for the deduction, including tax-loss harvesting for investments.  It’s worth working with one to explore your options, as a $6K deduction isn’t something you should just pass up if it’s possible for you to find a way to claim it.