One Big Beautiful Bill (OBBB) Act of 2025 Clarifying the New $6,000 Senior Deduction—Client Q&A Example

Hi Everyone,

I’ve received several questions from clients regarding our recent blog post on the new One Big Beautiful Bill (OBBB) Act of 2025. Many of you asked for clarification on exactly how the new $6,000 “Senior Above-the-Line” deduction works, specifically regarding which income sources it applies to and its effect on Social Security taxation.

To help everyone quickly understand, here’s a clear example using a common scenario:

Client Question (Example):
Mary: “I have Social Security income, dividends, and an IRA distribution. Does the new $6,000 senior deduction apply to all my income sources or just some?”

Answer:
The new $6,000 senior deduction applies ONLY to:

• Taxable Social Security benefits
• Earned income (wages or self-employment income)

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It does NOT apply to:

• Required Minimum Distributions (RMDs)
• Pensions or annuities
• Dividends, interest, or capital gains

However, all these income sources still count toward the Adjusted Gross Income (AGI) limits, determining if you qualify for the deduction.

Important: This deduction does NOT affect provisional income, which determines how much of your Social Security benefit is taxable. Provisional income includes your Adjusted Gross Income, tax-exempt interest, and half your annual Social Security benefits.

Real-Life Example—Simplified

Scenario: Single filer Mary, age 72

• Social Security Benefits: $26,667 (taxable portion: $20,000)
• Part-time job wages: $10,000
• RMD from IRA: $30,000
• Qualified dividends: $5,000

               .

Step-by-Step Calculation:      

1. Calculate Provisional Income (determines Social Security taxation):
   • $30,000 RMD + $5,000 dividends + $10,000 wages + $13,333 (50% of SS) = $58,333 Provisional Income
     Mary is above the $34,000 threshold, making up to 85% of her Social Security benefits taxable.
2. Calculate AGI Before Deduction:
   • $20,000 taxable Social Security
   • $10,000 wages
   • $30,000 RMD
   • $5,000 dividends
     AGI Total: $65,000 (below $75,000 limit—fully eligible)
3. Apply the $6,000 Deduction:
   • Deduction applies only to Social Security + wages ($20,000 + $10,000 = $30,000)
   • $30,000 – $6,000 = $24,000 taxable now from these sources

Result:

• Mary saves approximately $1,320 in taxes (assuming a 22% marginal tax rate).

.

Married-Couple Example:

Scenario: Married couple, both age 70

• Social Security: $35,000 (taxable: $29,750)
• Earned income (consulting): $25,000
• Combined RMDs: $40,000
• Dividends: $10,000

.

Calculation:

• AGI Before Deduction: $29,750 + $25,000 + $40,000 + $10,000 = $104,750 (below $150,000 limit—fully eligible)
• Deduction ($6,000 each): total $12,000 reduces taxable Social Security + wages ($54,750 – $12,000 = $42,750 taxable now)
• Tax Savings: Approximately $2,640 at a 22% marginal rate.

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Quick Q&A Recap:

• Does the deduction lower provisional income? No, provisional income calculation remains unchanged.
• If retired without wages, do I lose the deduction? No, but it can only offset taxable Social Security.
• Can spouses split deduction freely? No, each spouse claims their own $6,000 deduction against their own income.
• Do Roth conversions affect deduction? Yes, large conversions raise AGI, potentially reducing your deduction.
• State taxes affected? Possibly; check local rules.

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Proactive Planning Checklist:

• Forecast your AGI for 2025–2028 considering RMDs, Roth conversions, and capital gains.
• Utilize Qualified Charitable Distributions (QCDs) to lower your AGI.
• Spread large asset sales to stay within phase-out limits.
• Review your Social Security withholding to avoid overpaying.
• Remember, this provision sunsets after 2028 unless renewed.

“The best preparation for tomorrow is doing your best today.” – H. Jackson Brown Jr.

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At Advanced Wealth Management, our goal is to empower you with clear, actionable knowledge. If you have additional questions or need personalized guidance, please reach out to our Boutique Family Office™ team.

Warm regards,

Tony Gomes, MBA
CEO and Founder
Advanced Wealth Management

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Thank you for your continued trust and engagement.

Tony Gomes, Author, MBA
CEO and Founder
Advanced Wealth Management

Content Disclosure: The information here is general and educational. It is not a substitute for professional advice and does not constitute a recommendation. Forecasts and opinions are subject to change.