Recently, the Committee on Ways and Means released text for “One Big Beautiful Bill” of 2025.
You can read our analysis of the SALT deduction cap in the House tax bill here.
First, this is only a bill and not yet law. This article is for informational purposes, as it is highly likely it will change before becoming law. However, it does give an idea of what lawmakers are thinking and where they want tax laws to go.
| For more information on the OBBBA, visit our library of articles. |
Standard deduction under the Tax Cuts and Jobs Act (TCJA)
After computing income and certain deductions for adjusted gross income (AGI), a taxpayer is permitted another tax deduction on their return. This deduction amount is either a standard deduction or the cumulative itemized tax deductions permitted, whichever is greater.
The TCJA of 2017 roughly doubled the amount of the standard deduction. The act also eliminated or placed limits on itemized deductions. As a result, the number of tax returns claiming the standard deduction has boosted to more than 90%!
The standard deduction for 2025 is $15,000 for filing single returns or married filing separately (MFS).1 The standard deduction is $22,500 for head of household and $30,000 for married filing jointly (MFJ) or surviving spouse. Also, an additional standard deduction of $1,600 applies when a married taxpayer filing jointly is aged 65 or blind. The addition is $2,000 for filing single or head of household.
Example 1: Tommy and Sue are married filing jointly. Tommy is aged 67, Sue is aged 63, and neither is blind. The calculation of their standard deduction is: $30,000 + $1,600 for Tommy being ≥65 = $31,600.
Example 2: Xaden and Violet are married filing jointly. Both are aged 65 and Violet is legally blind. The calculation of their standard deduction is: $30,000 + $1,600 * 3 = $34,800.
Proposed standard deduction
The budget bill proposal permanently extends the higher standard deduction amounts that were introduced in the TCJA.
Additionally, there is a temporary increase of $1,000 for single filers or MFS, $1,500 for head of household, and $2,000 for MFJ. This temporary increase does not get an adjustment for inflation and ends after 2028.
| 2025 Proposed Standard Deduction (permanent) | Additional Standard Deduction (temporary) | |
| Married Filing Jointly | $32,000 | $1,600 |
| Single/Married Separately | $16,000 | $2,000 |
| Head of Household | $24,000 | $2,000 |
The proposal also provides a “bonus” tax deduction for all taxpayers aged 65 or older. The bonus deduction is $4,000 ($8,000 MFJ) for tax years 2025-2028, without adjustments for inflation. This amount begins phasing out by 4% once a modified AGI passes $150,000 for MFJ or $75,000 for all other filers. This additional tax deduction is permissible whether you’re taking the standard deduction or itemizing!
Example 3: Tim and Cindy are both aged 73, neither is blind, their AGI is $100,000, and they are claiming the standard deduction. Their deductions total $41,200 based on this calculation: $33,200 (standard deduction + 2 additional deductions) and $8,000 (bonus deduction).
Example 4: Todd and Laura are MFJ, Todd is aged 70 while Laura is aged 62. They have AGI of $100,000 and itemized deductions of $35,000. Their total deductions are $39,000 based on this calculation: $35,000 + $4,000. Since Laura isn’t age 65 yet, she will not qualify for the bonus deduction.
Example 5: Jason is single, aged 67, and has AGI of $100,000. His bonus deduction is $3,000 based on this calculation since his AGI is above the phase-out threshold: $4,000 – [$100,000 – $75,000] * 0.04).
Conclusion
We recommend consulting with tax professionals familiar with your overall financial situation to prepare for any tax changes, whether or not Congress acts to extend the higher standard deduction that came with the TCJA laws.
If you want to know more about how tax law changes could impact you, reach out to your Mercer Advisors wealth advisor. Not a Mercer Advisors client? We connect the dots of your financial life by unifying financial planning, investment management, tax, estate, insurance, and more. When you’re ready to amplify and simplify your financial life, let’s talk.
1 “IRS releases tax inflation adjustments for tax year 2025.” IRS, Oct. 22, 2024.
Mercer Advisors Inc. is a parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.
All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
