What the New Tax Law Means for Social Security, Medicare and Your Finances

Bridget Wall is an attorney in Sophisticated Planning Strategies at Northwestern Mutual.

The legislation commonly referred to as the One Big Beautiful Bill Act (OBBBA) has many provisions relevant to retirees, ranging from increased deductions to new estate tax exemption limits and changes in Medicare rules.

Some of these changes involve extending tax provisions of the Tax Cuts and Jobs Act (TCJA) that were set to expire at the end of 2025, making them “permanent.” It pays to read the fine print, though: When it comes to tax laws, permanent just means there is no expiration date—it’s possible that lawmakers could change the rules in the future.

Here’s a look at the changes that are most relevant for older adults and their loved ones.

Some older adults will receive a bonus deduction through 2028

You might have heard that the OBBBA ends federal taxes on Social Security income. While it’s not that literal, it does include a provision that helps ensure most seniors who receive Social Security will not have to pay federal tax on their benefits.

It achieves this in a couple of ways. First, the new legislation makes permanent the higher standard deduction introduced in the TCJA. The standard deduction for 2025 will be $15,750 (single or married filing separately), $23,625 (head of household) and $31,500 (married and filing jointly), and these figures will continue to be adjusted for inflation going forward.

While the standard deduction expansion applies to tax filers of all ages, the OBBBA also creates a $6,000 bonus deduction for tax years 2025 through 2028 that seniors can claim in addition to an existing deduction for filers over age 65. Unlike the standard deduction, the bonus deduction is even available to those who itemize.

The new bonus deduction begins to phase out for single filers with $75,000 or more in modified adjusted gross income (MAGI). For married couples filing jointly, the phaseout begins at $150,000 in MAGI.

Let’s take a look at how this would work in tax year 2025.

A single filer, age 65 or older with less than $75,000 in MAGI, could claim:

• $15,750 standard deduction + $1,600 existing over-65 deduction + $6,000 bonus senior deduction = a total deduction of $23,350.

A married couple filing jointly, both age 65 or older with less than $150,000 in combined MAGI, could claim:

• $31,500 standard deduction + $3,200 existing over-65 deduction + $12,000 bonus senior deduction = a total deduction of $46,700.

As you consider how these changes might affect your tax picture, bear in mind that some states tax Social Security benefits, and the OBBBA doesn’t change that.

Estate planning and gifting possibilities expand

While the OBBBA creates more certainty around the tax environment for seniors with substantial wealth, it’s important to note that some of the following provisions have been controversial in Congress. Until lawmakers decide otherwise, however, the following guidelines that may apply to your estate planning are in effect:

• The OBBBA increases the lifetime estate and gift tax exemption to $15 million for individuals and $30 million for married couples filing jointly beginning in 2026. Had the TCJA provisions remained in force, the exemptions would have been cut to roughly half of today’s exemption of $13.99 million per person and $27.98 million for married couples filing jointly. These exemptions are set to be indexed to inflation starting in 2027.
• Newly created “Trump Accounts” allow grandparents (along with parents, other family members and friends) to contribute up to $5,000 per year to an account for an individual child.
• Grandparents who want to help fund a grandchild’s education may be interested to learn that families can now use 529 plan education-savings accounts to pay for homeschooling supplies, some tech expenses, test fees and other costs in addition to tuition. In addition, 529 funds can also now be used for qualified training and credentialing costs for welders, plumbers, electricians, accountants, nurses, real estate agents and others.

Medicare changes may have limited immediate impact on most enrollees

The OBBBA makes several changes to Medicare, but they won’t affect all enrollees—at least not immediately. The legislation restricts Medicare eligibility to U.S. citizens, green card holders and a few other specific groups. Other legal immigrants who worked in the U.S. and paid into Medicare through payroll taxes will no longer be eligible for the coverage.

Other changes to Medicare may put greater financial strain on the program and could reduce Medicare revenue to rural hospitals. This dynamic may make health care harder to access, depending on where you live.

No change to RMDs

The OBBBA makes no changes to required minimum distributions (RMDs), but as mentioned above, the act did permanently extend lower tax rates from the TCJA, which could affect your RMD strategy. Current rules requiring seniors age 73 or older to make regular withdrawals from traditional IRAs and defined contribution employer-sponsored retirement plans such as 401(k)s and 403(b)s remain in place.

How does the OBBBA affect your financial planning?

The OBBBA makes a number of changes that may affect people differently. Your Northwestern Mutual advisor can guide you through a comprehensive review of your situation to help you take advantage of new opportunities and prepare for potential challenges.

Tax disclosure:

This article is not intended as legal or tax advice. Northwestern Mutual and its financial representatives do not give legal or tax advice. Taxpayers should seek advice regarding their particular circumstances from an independent legal, accounting or tax adviser.