The recently enacted One Big Beautiful Bill Act (hereinafter referred to as the “bill”) introduces significant changes to the tax code, many of which are especially relevant for retirees and those approaching retirement. Below, I outline a few of the most pertinent provisions of the new law and how they may impact your financial planning, tax strategy, charitable giving, and estate considerations.
Tax Rates and Brackets Made Permanent
The lower tax rates and wider income brackets established by the 2017 Tax Cuts and Jobs Act (TCJA) – originally set to expire at the end of this year – are now permanent under the bill. (Of course, “permanent” in legislative terms means provisions will remain in place unless changed by future laws; thus, for the sake of this article, the word should be read as “indefinitely”). The bill also increases the inflation adjustment by an extra year for 10 percent, 12 percent, and 22 percent brackets.
Increased Standard Deduction
The bill makes permanent the increased standard deduction that resulted from TCJA and annually adjusts it for inflation. Starting in 2025, the standard deduction is increased to $15,750 (from $15,000) for individual filers, and to $31,500 (from $30,000) for joint filers.
New Senior Bonus Deduction
While there was discussion during the 2024 presidential campaign about eliminating federal taxes on Social Security benefits, the bill instead introduces a new senior bonus deduction as an alternative approach, which effectively lowers overall taxable income. Starting in 2025 and available through 2028, individuals age 65 and older can claim an additional $6,000 deduction. For married couples filing jointly, each spouse age 65 or older may claim the deduction, for a total of up to $12,000.
The full deduction amount is available to those with modified adjusted gross income (MAGI) up to $75,000 (single filers) and $150,000 (joint filers). The deduction then phases out at a rate of 6% rate per dollar above those limits and completely phases out at $175,000 (single filers) and $250,000 (joint filers).
The bonus deduction can be claimed regardless of whether one itemizes or takes the standard deduction. Moreover, the bonus deduction is separate from the existing additional standard deduction for those age 65 and older, which, in 2025, is $2,000 for single filers and $1,600 per spouse for those married filing jointly.
Changes to Itemized Deductions
- Miscellaneous Itemized Deductions: The elimination of miscellaneous itemized deductions (such as investment expenses and tax preparation fees) is now permanent.
- Itemized Deductions Limitation: For taxpayers in the highest tax bracket, the value of itemized deductions is capped at a 35% tax benefit. This means that the value of any itemized deduction cannot reduce their tax liability by more than 35 cents for each dollar deducted. For example, if a taxpayer in the 37% tax bracket claims $10,000 in itemized deductions, the maximum tax savings from those deductions is limited to $3,500, not $3,700.
New Rules for Charitable Contributions
- 0.5% AGI Floor: For those who itemize, only charitable contributions exceeding 0.5% of adjusted gross income (AGI) are deductible.
- Above-the-Line Deduction: Taxpayers who do not itemize may now claim an above-the-line deduction for charitable contributions—$1,000 for single filers and $2,000 for joint filers.
- 60% AGI Limit: The 60% AGI limitation for cash gifts to certain charities is now permanent, allowing for larger deductible gifts in a single year.
Higher State and Local Tax (“SALT”) Deduction Cap
The SALT deduction cap has increased from $10,000 to $40,000 for 2025. The same amount applies to both single and joint filers. The $40,000 cap increases by 1% each year through 2029, after which it is scheduled to revert to $10,000 (in 2030). Taxpayers with modified adjusted gross income (MAGI) above $500,000 will see a phased reduction in the new cap; full phase out occurs once MAGI reaches $600,000, at which point taxpayers are subject to the prior $10,000 cap.
This change is obviously beneficial for those residing in states with higher property or income taxes (it should come as little surprise that lawmakers from New York, New Jersey, and California lobbied heavily for this provision).
Alternative Minimum Tax (AMT) Relief
The bill makes permanent the higher AMT exemption amounts introduced under previous legislation. As a result, fewer individuals—especially those with moderate to high investment income—will be subject to the AMT, reducing complexity and potential tax liability.
Changes to Affordable Care Act (ACA) Premium Tax Credits
- Expiration of Enhanced Premium Tax Credits: The temporary enhancements to premium tax credits, originally expanded under the American Rescue Plan Act, are set to expire at the end of 2025 and were not extended by the bill.
- Elimination of Repayment Caps: The bill removes the cap on the amount of excess premium tax credits that enrollees must repay if their actual income exceeds their estimated income for the year. All recipients must now repay the full amount of any excess credits, regardless of income.
- Stricter Eligibility and Verification: The bill requires annual, active re-verification of eligibility for premium tax credits. Automatic re-enrollment and provisional eligibility (which allowed coverage and subsidies while eligibility was being determined) are eliminated. Applicants must now provide updated information each year and cannot receive tax credits until eligibility is verified. These new verification requirements take effect in 2028.
Provisions Impacting Retirees with Self-Employment Income
- Permanent Qualified Business Income (QBI) Deduction:
- The bill makes the QBI deduction permanent, allowing eligible taxpayers, including retirees with self-employment income, to deduct up to 20% of qualified business income from pass-through entities (sole proprietorships, partnerships, S-corporations).Starting in 2026, the phase-in thresholds for deduction limitations increase to $75,000 for single filers and $150,000 for joint filers (up from $50,000 and $100,000, respectively), with annual inflation adjustments beginning in 2027.
- Moreover, a minimum deduction of $400 will be introduced for taxpayers with at least $1,000 in QBI who materially participate in the business.
- Higher 1099 Reporting Thresholds:
- For payments made after December 31, 2025, the threshold for issuing Forms 1099-NEC and 1099-MISC rises from $600 to $2,000 per payee, indexed for inflation starting in 2027. This can reduce the number of reporting requirements for retirees with self-employment income, simplifying compliance.
- Additionally, third-party payment platforms (such as Airbnb) will only need to issue a 1099-K if a recipient receives more than $20,000 and 200 transactions in a year, restoring the pre-2022 standard. This eases reporting for retirees using such platforms for supplemental income.
Estate and Gift Tax Exemption Increased
Starting in 2026, the federal estate and gift tax exemption has been permanently increased to $15 million per individual (or $30 million per married couple), with future indexing for inflation. This enhanced exemption provides greater flexibility for wealth transfer and estate planning, allowing larger amounts to be passed on to heirs free of federal estate tax.
In Sum
The One Big Beautiful Bill Act introduces both opportunities and complexities for retirees and those approaching retirement. As these legislative changes take effect, it is important to consider how they may influence your overall financial planning strategy, particularly with respect to tax implications. For guidance on how the new provisions may affect your individual tax situation, please consult a qualified tax professional. If you would like to explore how these changes may align with your broader retirement objectives, I am available to discuss your planning needs and help you navigate the evolving financial landscape.
Sources: Association of International Certified Professional Accountants, Bipartisan Policy Center, Tax Foundation, and U.S. Congress.
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