Nothing causes more apprehension for taxpayers than temporary changes to tax rates. That’s what we got in 2017…a temporary change to tax rates that was supposed to revert to pre-2017 levels at the end of 2025. It makes tax planning very difficult, you know?
The OBBBA provided some certainty in the tax rates by making the current tax rates permanent. This means that they won’t revert to higher levels at the end of this year as planned.
Even though the tax rates are permanent, they’re subject to inflation adjustments. So, there could be minor changes to the bracket amounts in future years based on those inflation adjustments.
I won’t present all the various tax rates and brackets here for Single, Married Filing Jointly, Married Filing Separately, and Head of Household filers, but I’m happy to provide targeted info if you would like to see it. Suffice it to say that the tax rates you’ve seen since 2017/2018 will remain in place for the foreseeable future.
Now, onto something brand new! The Senior Deduction!
First off, if you heard that there was no tax on Social Security benefits, that was WRONG. This deduction is not tied to Social Security benefits in any way. It is only tied to age and income.
The OBBBA introduced a new deduction for seniors equal to $6,000 per qualified individual (taxpayer or spouse) who is 65 or older at the close of the taxable year. The deduction is allowed starting in 2025 but sunsets at the end of 2028. It’s not permanent, in other words. I don’t envy Congress trying to take this one back in three years.
Are there income phaseouts? Of course, there are! The deduction is reduced when a single taxpayer’s modified adjusted gross income exceeds $75,000 (or $150,000 for joint filers).
The maximum deduction, subject to those pesky income phaseouts, is $12,000 for a married couple filing a joint return if they both qualify. So, this could be a nice deduction for those who meet the requirements. The income is a very important element to consider, however.
As always, we will build this new tax planning opportunity into our mid-year, Q3, and Q4 tax planning exercise with you. We will also be learning more about this new deduction, so we’ll keep you updated along the way!
Please remember that these tax law changes are brand new, and clarification is coming over the next few months. We are providing this guidance based on our understanding of the law as it is written, but the facts could change as we learn more. Please do not make changes to your income or tax position solely based on this blog post, as it is not considered to be tax planning advice. Make sure to consult your tax professional if you have specific questions about your situation.