How Could the One Big Beautiful Bill Impact Taxes for Retirees?

The One Big Beautiful Bill (OBBB) includes several tax changes that directly affect retirees, especially how their Social Security is taxed, how much of their income is shielded by deductions, and how much they can deduct in state and local taxes (SALT). While some speculate that tax deductions could cause further deficit and Social Security Trust fund issues in the future, here’s what you should know today.

Q: What’s this new $6,000 “senior deduction”?

The Senate version of the bill includes a new $6,000 above-the-line deduction for taxpayers age 65 and older (or $12,000 for couples filing jointly, if both spouses qualify). This deduction is in addition to the standard deduction and is meant to reduce or eliminate taxes on Social Security benefits for many retirees.¹

Case Study – Before vs. After
Before: A 68-year-old retiree with $35,000 in Social Security and $15,000 in IRA income paid taxes on a portion of their Social Security benefits, pushing their taxable income over the limit for zero tax liability.
After: With the new $6,000 deduction, their taxable income is reduced, which may potentially affect their Social Security taxes.

Q: How does the bill change the standard deduction?

The OBBB makes permanent the expanded standard deductions from the 2017 tax law, which are now $15,750 for individuals and $31,500 for joint filers in 2025 (adjusted annually).¹ Retirees benefit by being able to exclude more income from taxation without itemizing.

Case Study – Before vs. After
Before: A married couple with $55,000 in combined income (pension, Social Security, and investments) had $20,000 in itemized deductions, making it worth filing Schedule A.
After: With the standard deduction permanently raised to $31,500 plus a $12,000 senior deduction (if both are over 65), they can deduct $43,500 without itemizing, reducing complexity and saving money.

Q: What about changes to the SALT deduction?

The final version of the One Big Beautiful Bill temporarily raises the SALT (state and local tax) deduction cap to $40,000, and increases incrementally through 2029, before reverting back to $10,000.² This change could benefit retirees in high-tax states, but only if they itemize deductions. Since you can’t take the standard deduction and claim SALT, this primarily helps higher-income households with larger itemized deductions.

Case Study – Before vs. After
Before: A retiree paying $16,000 in combined property and income taxes could only deduct $10,000 under the old cap, leaving $6,000 on the table.
After: With the cap increased to $40,000, they can deduct the full $16,000—if they itemize—lowering their taxable income and overall tax burden.³

The Bottom Line

The One Big Beautiful Bill introduces meaningful changes to how retirees are taxed, especially when it comes to Social Security and deductions, and itemization. While many retirees may see relief through the new senior deduction and simplified filing, others—particularly in high-tax states—may feel squeezed by the unchanged SALT cap. Understanding how these changes apply to your specific situation is key to making the most of your retirement income. If you’re not sure where you stand, now is the time to review your plan.