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CNBC
10 hours ago
- Business
- CNBC
Senate version of 'big beautiful' bill calls for $6,000 senior 'bonus'
The Senate version of the One Big Beautiful Bill Act includes a temporary enhanced deduction for seniors ages 65 and up. The House of Representatives also proposed such a tax break in its text, calling it a "bonus." Notably, the Senate is calling for a deduction of up to $6,000 per qualifying individual. The House included a $4,000 deduction. The senior "bonus" is in lieu of the elimination of taxes on Social Security benefits that President Donald Trump pitched on the campaign trail. The Republicans' tax bill is being done through reconciliation, a process that generally prohibits changes to Social Security. The White House has said the proposed deduction is a "historic tax break" for seniors. The full deduction amount would be available to individuals with up to $75,000 in modified adjusted gross income, and $150,000 if married and filing jointly. More from Personal Finance:'SALT' deduction in limbo as Senate Republicans unveil tax planHow Senate GOP 'no tax on tips' proposal differs from House plan Senate tax bill includes $1,000 baby bonus in 'Trump accounts' Notably, the Senate version calls for a faster 6% phase-out rate for incomes above those thresholds, compared to the House version's 4% phase-out rate, according to Alex Durante, senior economist at the Tax Foundation. The faster phase-out means the full $6,000 benefit is lost more quickly, said Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center. For people who would be eligible for the full proposed senior deduction, the Senate's $6,000 version is more generous, he said. "It really depends on where you are on the income distribution," Gleckman said, with middle-income taxpayers poised to benefit most. In the House version, the proposed senior deduction would be available to taxpayers whether they take the standard deduction or itemize their tax returns. There are not many taxpayers in the income ranges for the deduction who itemize their returns, Gleckman said. To qualify for the break, all individual taxpayers and spouses, if filing jointly, would need to have Social Security numbers. The temporary senior deduction would be in place for tax years 2025 through 2028. The House of Representatives passed its version of the One Big Beautiful Bill Act on May 22. Both chambers will have to agree on the changes before it is sent to Trump's to sign. "I think it's pretty clear, since this was in both bills, that there's going to be a version of a senior deduction," Durante said. Eliminating taxes on Social Security benefits would have been a more expensive provision, he said. Tax-free Social Security benefits would have benefited higher-income people most, according to Gleckman. Currently, Social Security benefits are taxed based on a formula known as combined income — the sum of adjusted gross income, nontaxable interest and half of Social Security benefits. Up to 85% of Social Security benefits are taxed for single taxpayers with combined income above $34,000 and joint filers with more than $44,000. Meanwhile, up to 50% of benefits are taxed for individuals with $25,000 to $34,000 in combined income and for couples with between $32,000 and $44,000. In contrast, the proposed senior "bonus" would not benefit high-income taxpayers and instead focuses on middle-income taxpayers with incomes less than $75,000 if single or $150,000 if married. "It's better because it helps the people who need the help more," Gleckman said.
Business Mayor
16-05-2025
- Business
- Business Mayor
How House GOP bill's $4,000 senior 'bonus' compares to eliminating tax on Social Security benefits
The U.S. Capitol is seen on Capitol Hill in Washington, D.C., U.S., May 7, 2025. Nathan Howard | Reuters House Republicans' 'one, big, beautiful' tax bill includes a new temporary $4,000 deduction for older adults. The change, called a 'bonus' in the legislation, is aimed at helping retirees keep more money in their pockets and provides an alternative to the idea of eliminating taxes on Social Security benefits, which President Donald Trump and other lawmakers have touted. The bill provides a 'historic tax break' to seniors receiving Social Security, 'fulfilling President Trump's campaign promise to deliver much-needed tax relief to our seniors,' White House Assistant Press Secretary Elizabeth Huston said via email. The proposal calls for an additional $4,000 deduction to be available to adults ages 65 and over, whether they take the standard deduction or itemize their returns. The temporary provision would apply to tax years 2025 through 2028. The deduction would start to phase out for single filers with more than $75,000 in modified adjusted gross income, and for married couples who file jointly with more than $150,000. More from Personal Finance: House Republican bill calls for bigger child tax credit Medicaid work requirements kick hardworking people off health coverage: Senator House Republicans advance Trump's tax bill — but 'SALT' deduction still undecided As a tax deduction, it would reduce the amount of seniors' income that is subject to levies and therefore reduce the taxes they may owe. Notably, it is not as generous as a tax credit, which reduces income tax liability dollar for dollar. Read More The Fed Has Been Raising Rates, But What's Next? A median income retiree who brings in up to about $50,000 annually may see their taxes cut by a little less than $500 per year with this change, noted Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center. 'It's not nothing, but it's also not life changing,' Gleckman said. New deduction vs. eliminating taxes on benefits The $4,000 senior 'bonus' deduction would help lower-income people and would not help higher-income individuals who are above the phase outs, Gleckman said. In contrast, the proposal to eliminate taxes on Social Security benefits would have been a 'big windfall' for high-income taxpayers, he said. 'If you feel like you need to provide an extra benefit to retirees, this is clearly a better way to do it than the original Social Security proposal that Trump had,' Gleckman said. Social Security benefits are taxed based on a unique tax rate applied to combined income — or the sum of adjusted gross income, nontaxable interest and half of Social Security benefits. Beneficiaries may have up to 85% of their benefits subject to taxes if they have more than $34,000 in combined income individually, or more than $44,000 if they are married and file jointly. Up to 50% of their benefits may be taxed if their combined income is between $25,000 and $34,000 for individual taxpayers, or between $32,000 and $44,000 for married couples. Beneficiaries with combined income below those thresholds may pay no tax on benefits. Therefore, a policy to eliminate taxes on benefits would not help them financially. The proposed $4,000 tax deduction for seniors may help some retirees who are on the hook to pay taxes on their Social Security benefit income offset those levies, according to Garrett Watson, director of policy analysis at the Tax Foundation. However, the impact of that change would vary by individual situation, he said. For some individuals who pay up to an 85% tax rate on their benefit income, 'that $4,000 deduction can make a difference,' Watson said. 'Bonus' would be less costly to implement The Senate is prohibited from including changes to Social Security, including the proposal to eliminate taxes on benefits, in reconciliation bills like the tax package now up for consideration. Notably, the proposed $4,000 deduction for seniors would be less expensive. If that change were made permanent, it would cost around $200 billion over 10 years, Watson said. In contrast, eliminating taxes on Social Security benefits would cost more than $1 trillion over a decade, he said. 'It's actually probably less than 20% of the size of the tax cut that was initially pitched during the campaign,' Watson said. Moreover, the cost for the $4,000 deduction would come out of general revenue for income tax, which means it would not directly take money from Social Security's trust funds, which already face a funding shortfall.
