A new senior tax break included in the One Big Beautiful Bill Act (OBBBA) could provide relief to hundreds of thousands of retirees across Kentucky.
The 2026 tax season officially began Jan. 26 and brings changes that may help taxpayers reduce what they owe on their 2025 taxes.
At the center of these updates is the “senior deduction,” a provision aimed at easing the financial burden for people living on fixed incomes. With the addition of this deduction, an estimated 800,000 Kentuckians are expected to avoid paying federal income tax on their Social Security benefits.
This change is especially meaningful for Kentucky homeowners on fixed incomes who are trying to remain in their homes as everyday living costs continue to rise.
What the senior deduction means for retirees nationwide
While the OBBBA has reshaped aspects of retirement taxation, Social Security benefits remain federally taxable.
Rather than exempting benefits outright, the law introduces a senior deduction of $6,000 for individuals and $12,000 for married couples beginning in 2025. This change allows 88% of seniors nationwide to owe no federal tax on their Social Security benefits, up from 64% under previous rules, as the deduction offsets taxable income.
“This amounts to the largest tax break in history for America’s seniors,” the White House said, adding that the policy helps retirees “save more of their money” after decades of work.
Total deductions available to seniors rise sharply under the new policy. Single seniors now receive a standard deduction of $15,750, plus $2,000 in existing senior deductions and the new $6,000 senior deduction, for a total of $23,750. Married seniors filing jointly qualify for combined deductions totaling $46,700.
Beyond tax changes, Kentuckians should also note the 2026 Cost-of-Living Adjustment. About 75 million Americans will receive a 2.8% increase in Social Security and SSI benefits. Social Security increases begin in January 2026, while SSI increases take effect Dec. 31, 2025.
Several threshold updates also apply for the 2026 season. The taxable maximum earnings rise to $184,500. Seniors who continue working while receiving benefits face an earnings limit of $24,480 if they are under full retirement age, with $1 withheld for every $2 earned above that amount. Those reaching full retirement age in 2026 have a higher limit of $65,160, with $1 withheld for every $3 earned above the limit until their birth month. No earnings limit applies to seniors who are at or above full retirement age for the entire year.
In Kentucky, the benefit adds up
Kentucky’s senior population is estimated at about 805,000, representing roughly 17.8% of the state’s 4.5 million residents. Federal projections suggest that around 800,000 Kentuckians will benefit from the new tax exemption on Social Security income.
In addition to senior tax relief, real wage growth in Kentucky is expected to increase, with inflation-adjusted income gains projected between $3,000 and $5,400. Take-home pay is also expected to rise by $6,600 to $9,200. These economic trends highlight the importance of the tax break in a state where affordability often shapes retirement decisions.
White House analysis also indicates Kentucky could see 3,800 new housing units built in designated Opportunity Zones. These developments may indirectly benefit older residents by expanding housing options for multigenerational families or easing housing costs through increased supply.
The limits of the deduction
Despite the projected savings, not all retirees will see a direct financial impact. The deduction only benefits seniors who owe federal income tax. Those living entirely on Social Security or modest pensions often already owe little or nothing, and the deduction does not generate refunds.
Middle-income retired homeowners who still pay federal taxes may benefit the most. The deduction begins to phase out at $75,000 for individuals and $150,000 for couples, with eligibility ending at $175,000 and $250,000, respectively.
The law also raises the SALT deduction cap from $10,000 to $40,000, a notable change for areas with rising property taxes. When combined with the senior deduction, this adjustment could help more retirees remain in their homes.
The senior deduction is temporary and currently funded through the 2028 tax year. Without further action from Congress, it could expire, making timing an important factor for long-term retirement planning.
Overall, the One Big Beautiful Bill Act delivers a mix of direct tax relief and broader economic incentives. While it will not affect every household equally, it could offer meaningful support for thousands of retired Kentuckians facing the rising costs of aging.
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