Last year, the federal government passed a wide-ranging tax bill whose length and complexity caused several important provisions to receive little attention in broader coverage. A handful of these changes are worth highlighting, as they may meaningfully affect planning decisions going forward.
One notable update is a new Social Security tax credit designed to reduce taxes on Social Security income for qualifying seniors. The provision establishes a $6,000 deduction for individuals age 65 and older and $12,000 for married couples filing jointly. The deduction is subject to a modified adjusted gross income (MAGI) phase-out, beginning at $75,000 for single filers and $150,000 for joint filers. The benefit is reduced by $0.06 for every dollar of income above these thresholds. Planning around this deduction will be incorporated into our annual tax reviews for clients in this age range.
Another significant change affects itemized deductions. Beginning in 2025, the state and local tax (SALT) deduction cap increased to $40,000, up from $10,000. However, this benefit is gradually phased out for taxpayers with income exceeding $500,000, making careful coordination with overall income levels especially important.
Charitable giving rules also tightened slightly. Starting this year, itemized charitable contributions are deductible only to the extent they exceed 0.5% of adjusted gross income. While this may not affect all donors, it is an important consideration for those making smaller or more sporadic gifts.
Finally, retirement account contribution limits increased again this year, continuing a familiar trend. One often-overlooked provision is the enhanced catch-up opportunity for individuals ages 60–63 who are still working. Eligible individuals in this group can contribute up to $35,750 to a 401(k) in 2026. For those age 50 and older, the maximum 401(k) contribution is $32,500. We will proactively reach out to clients who may benefit from these enhanced contribution opportunities.
As with most tax changes, the details are more nuanced than can be fully addressed in a newsletter. We will review how these provisions apply to your specific situation during your annual planning meeting.
Kumbie Mtunga