Will You Still Owe Taxes on Social Security? New Deduction Helps Retirees—But If You’re Still Working, There’s a Catch

As a retiree, Social Security benefits can make up a large portion of your income, and taxes can cut into that. A new deduction for older adults could offer some tax relief—but only if your total income stays below certain thresholds.

How Social Security Benefits Are Taxed

First, let’s go over how Social Security benefits are taxed in the first place. 

A portion of your Social Security benefits may be taxable, depending on how you file your taxes and your “combined income,” which is the sum of your adjusted gross income (AGI), tax-exempt interest income, and one-half of your annual Social Security benefits.

Here’s a breakdown:

Up to 50% of your benefits may be taxable if your combined income is as follows:

• $25,000 to $34,000 (single, head of household, qualifying widow(er), or married filing separately if you did not live with your spouse during the year)
• $32,000 to $44,000 (married filing jointly)

Up to 85% of your benefits may be taxable if your combined income is as follows:

• More than $34,000 (single, head of household, qualifying widow(er), or married filing separately if you did not live with your spouse during the year)
• More than $44,000 (married filing jointly)

Special case: If you’re married, filing separately, and lived with your spouse at any time during the year, then up to 85% of your benefits are taxable regardless of income.

What the New Senior Deduction Changes

Passed into law as part of the One Big Beautiful Bill Act (OBBBA), the new so-called senior deduction can lower your annual taxable income—which may include a portion of your Social Security benefits as described above—by up to $6,000 (or up to $12,000 for married couples when both qualify).

To qualify for the senior deduction, you must be 65 or older by the last day of the tax year. Income limits also apply: The deduction begins to phase out if your modified adjusted gross income (MAGI) exceeds $75,000 (single) or $150,000 (married filing jointly), at a rate of 6% of the amount over the limit.

For example, if you are 65 or older and earn $85,000 as a single filer, your income would be over the $75,000 limit by $10,000. At a 6% phaseout rate, your senior deduction would be reduced by $600 ($10,000 × 6%), leaving you with a senior deduction of $5,400 ($6,000 – $600).

If your income is more than $175,000 (single) or $250,000 (joint), the deduction is fully phased out.

Keep in mind that the senior deduction is available whether you take the standard deduction or itemize your deductions. It also supplements a separate, preexisting senior deduction of $2,000 for single filers and $1,600 per qualifying individual for married filers, which is only available for taxpayers who use the standard deduction.

The “Catch” If You’re Still Working

If you’re still working, your senior deduction may be reduced or not apply at all.

Specifically, suppose your job raises your modified adjusted gross income (MAGI) above $75,000 and you file taxes as an individual or beyond $150,000 jointly as a married couple. In that case, you won’t get the full $6,000 deduction. If your job increases your MAGI to over $175,000 filing single or over $250,000 joint, you won’t benefit from the senior deduction at all.

That said, it’s not just wages and Social Security benefits that contribute to MAGI. It also includes tips, interest, dividends, capital gains, business income, and other forms of taxable income that can push you past the income thresholds.

The Earnings Test Before Full Retirement Age (FRA)

Besides reducing the new senior deduction, working while collecting Social Security benefits before your full retirement age (66 or 67, depending on your birth year) can also temporarily reduce your benefits:

• Before FRA: $1 is withheld from your benefits for every $2 you earn above the annual earnings limit ($23,400 in 2025).
• In the year you reach FRA: $1 is withheld for every $3 you earn above a higher limit ($62,160 in 2025) until the month you reach your FRA.

Starting the month you reach your full retirement age, working will no longer reduce your Social Security benefits. However, it will still count toward possibly reducing the senior deduction and creating taxes on your Social Security benefits. 

To test the size of your Social Security benefit, enter your birthday and estimated earnings into the Social Security Administration’s Retirement Earnings Test Calculator.

Tips for Taking Advantage of the New Senior Deduction

To get the most out of the new senior deduction, here are some ideas:

1. Know your MAGI

First, determine your MAGI by following IRS guidelines. “If your income is near the phaseout threshold, small changes could affect the total deduction,” Finn Price, a wealth advisor with the Railroad Investment Group, told Investopedia. This is where planning can really make a difference, much more so than if you’re way above or way below the MAGI limits.

2. Stay Below the Income Thresholds

To keep your MAGI below the threshold at which the senior deduction starts phasing out ($75,000 or $150,000, depending on how you file), be strategic. 

“This is only a temporary deduction,” Price said. “If possible, shift income to take full advantage of the deduction, or defer income into a later tax year after the senior deduction is gone.” In other words, try to delay income to 2029 or later, when the new deduction may no longer exist.

According to Todd J. Pouliot, president of wealth management firm Gateway Financial, there are several ways to do this:

Keep in mind, however, that “these factors only concern the OBBBA and do not reflect an overall financial and tax planning strategy where paying lower taxes now could be disadvantageous compared with paying lower taxes throughout your lifetime,” Pouliot said.

Price agreed: “Everyone’s tax situation is different, so always make sure you check with your tax advisor,” he said. An alternative approach could still make more sense for your situation, even if it means forgoing the new senior deduction.

3. Make Sure To Claim the Deduction

If you’re eligible for the new senior deduction, you’ll need to actively claim it when filing your tax return. “This deduction isn’t automatic,” Pouliot said. If you use tax software, it should alert you about the new deduction. So should a human tax professional. Feel free to ask them that everything is being handled properly since it’s a new benefit for 2025.

If you file a paper return yourself, you would check a box on your Form 1040 or Form 1040-SR, indicating that you are 65 or older. The IRS will then apply the deduction based on what you qualify for.

The Bottom Line

You may still owe taxes on Social Security (up to 85%), but a new 2025–2028 “senior deduction” can cut your bill by up to $6,000 ($12,000 for couples) if you meet the income requirements. If you’re still working, a higher income can shrink the deduction and, before FRA, temporarily reduce your benefits. Knowing all this, with a bit of planning and the new deduction, you can keep more of your Social Security checks.