A New “Senior Bonus” Deduction Beginning with 2025 Returns
Beginning with 2025 tax returns, there is a new additional deduction for taxpayers age 65 and older. This “Senior Bonus” deduction is up to $6,000 per eligible taxpayer age 65+ ($12,000 if both spouses qualify), and is available whether standard or itemizing. This benefit begins to phase out at higher income levels (approximately $75,000 MAGI for single filers and $150,000 MAGI for joint filers), making it particularly valuable for middle-to-upper-income retirees who may otherwise see fewer deductions in retirement years.
Expanded SALT Deduction: A Win for High-Tax-State Homeowners
For those who itemize, especially those in states with higher income and property taxes, the temporary expansion of the SALT (state and local tax) deduction is one of the most impactful changes in years. The SALT cap has increased from $10,000 to $40,000 for 2025 and will increase annually through 2029. This includes both property taxes and state income taxes — potentially making itemizing deductions attractive again for many homeowners and retirees with significant local tax exposure.
However, new higher-income phase-outs now apply to the deduction (starting around $500K MAGI for MFJ).
Temporary Deductions That May Affect Cash-Flow Planning
Several temporary provisions running from 2025 through 2028 may also benefit select retirees and high-income earners — including new deductions tied to qualified auto loan interest on certain U.S.-assembled vehicles and expanded deductions for tip and overtime income. While not universally applicable, these provisions highlight the importance of reviewing annual deductions rather than relying on prior filing patterns.
Before You File
Review our article Tax Returns: What to Know BEFORE You Sign for an overview of common tax forms and their purpose.
One key recommendation from that article is to review your prior year’s tax return and compare the current year to prior year numbers to identify any large unexpected variances prior to filing your return. Make sure you understand any variances identified before you file.
2026 Updates
As a brief update on retirement savings: for 2026, employee deferrals to 401(k), 403(b), and similar plans increase to $24,500, with catch-up contributions for those age 50 and older rising to $8,000, while IRA contributions increase to $7,500 (plus a $1,100 catch-up). Additional catchup opportunity applies for people age 60-63. The standard deduction and federal tax brackets also increased with inflation this year.
IRMAA Thresholds
For retirees enrolled in Medicare Parts B and D, the Income-Related Monthly Adjustment Amount (IRMAA) can significantly increase your annual health care costs if your Modified Adjusted Gross Income (MAGI) from two years prior exceeds certain levels. For 2026, the base IRMAA bracket is:
Single filers: $109,000 or less
Married filing jointly: $218,000 or less
If your MAGI exceeds these thresholds on your 2024 tax return, higher IRMAA surcharges apply — and the surcharge rises in tiers as income increases. For example, Part B premiums can climb from the base amount of $202.90/month to as high as $689.90/month for the highest income tier, with Part D surcharges also adding significant cost. Even moving $1 above a bracket threshold can trigger a materially higher Medicare premium surcharge, making income planning crucial in and near retirement.
For high-income retirees who routinely manage IRA distributions, Roth conversions, or other sources of taxable income, understanding and planning around IRMAA brackets — particularly the $109,000 single / $218,000 joint MAGI base — can make a meaningful difference in projected Medicare costs.
Limits on Itemized Deduction Benefits for High Earners
Beginning in 2026, high-income taxpayers will face a cap on the tax benefit of itemized deductions — effectively limiting the deductible value to 35% for those in the top federal tax bracket (currently 37%). This change primarily impacts households with large itemized deductions from charitable contributions or mortgage interest, reinforcing the importance of charitable giving strategies such as bunching contributions, using donor-advised funds, or timing gifts in high-income years.
Additionally, charitable contributions now have an AGI floor of 0.5% that must be met before being eligible for deduction up to historical limits.
For standard deduction filers, there is now a $2,000 charitable deduction on cash gifts that can be claimed without itemizing *as always, restrictions apply.
The Bigger Picture for Retirees and Affluent Households
For higher-net-worth families and retirees, the most important takeaway from the 2026 tax environment isn’t just higher contribution limits — it’s the growing need for coordinated tax planning across many different deductions and costs.
From the new senior bonus deduction and expanded SALT cap to IRMAA thresholds that influence Medicare costs, careful planning can help you reduce tax liability and preserve retirement income in a higher-cost, more complex tax environment. These changes are often income-sensitive, temporary, and interact in complex ways — making proactive, year-by-year planning more and more valuable.
If you would like help with your annual tax planning, give our office a call.