Proposed Legislation Could Bring Deeper Tax Cuts to Seniors

First Citizens Wealth INTEL: Insights and News—Taxation, Election & Legislation

Each month, we'll provide time-sensitive updates on tax, election and legislative developments that may affect you.

Two new bills introduced in Congress—the Bonus Tax Relief for America's Seniors Act and the Tax Relief Unleashed for Seniors by Trump, or TRUST, Act—aim to bring meaningful tax relief to millions of older Americans. If passed into law, these bills will bring substantial changes to how Social Security and retirement income is taxed for the first time in 40 years.

Who is impacted

Since the 1980s, the tax rules surrounding Social Security benefits and retirement income have remained mostly unchanged. But during this time, the income levels of retirees have steadily kept pace with inflation, pushing many seniors above outdated thresholds and subjecting their retirement income to federal taxes.

When the original thresholds were established by Congress in 1984, fewer than 10% of Social Security recipients paid federal income tax on their benefits. Today, the number is closer to 50%. If passed, the new legislation would significantly lower the tax burden on seniors.

The proposed bills would benefit those aged 65 and older—an estimated 56 million Americans, according to US Census data—as well as those nearing retirement. While most people in this age group stand to benefit, the proposed changes would be especially meaningful for those receiving between $25,000 and $76,000 each year from retirement income and Social Security benefits.

According to Congresswoman Nicole Malliotakis, who introduced both bills, a married couple earning $85,000 annually could see their federal tax bill reduced by as much as $2,100 under these plans.

What is being proposed?

The two acts each propose a different way to reduce taxes for seniors. The Bonus Tax Relief for America's Seniors Act offers a significant increase to the additional bonus deduction for seniors aged 65 and over. This bipartisan bill would raise the additional deduction from $1,950 to $5,000 for single filers, and from $3,100 to $10,000 for married couples filing jointly. The act also includes an inflation adjustment, meaning the deduction would continue to rise over time to keep up with the cost of living.

The TRUST Act would increase the tax-exempt income threshold for seniors receiving Social Security benefits. Under current law, individuals with incomes above $25,000 and married couples above $32,000 must pay taxes on up to 85% of their Social Security benefits. The TRUST Act would double those thresholds and index them for inflation going forward. This change would reduce or even eliminate the tax burden on Social Security benefits for millions of retirees.

When would the changes apply?

If passed, both laws would take effect beginning with the 2026 tax year. Inflation indexing would begin the following tax year.

What action is required–and when

These proposals are part of a wider effort to extend and expand the 2017 Tax Cuts and Jobs Act, which is set to expire at the end of 2025. At this time, it remains unclear if the Bonus Tax Relief for America's Seniors Act and the TRUST Act will pass into law and how long the process might take. Because the Social Security trust fund is already on pace to be depleted by 2035, some fear that ending taxes on benefits would accelerate that timeline. The outcome of these bills will ultimately depend on upcoming budget negotiations.

While no action is required just yet, seniors and those approaching retirement should be aware of these proposed changes and how they might impact their long-term financial planning.

Who should you talk to now

Your First Citizens Wealth consultant can help you better understand how your income sources—including Social Security, pensions and retirement accounts—may be impacted by these and other potential tax changes.

You may also access the IRS website for more detailed information on the current rules around Social Security benefits taxation.