How MAGI, SSDI, SSI, and Foreign Income impact your Senior Bonus Deduction
The brand-new Senior Bonus Deduction gives Americans aged 65+ an extra tax break starting with 2025 returns. Yet the full benefit disappears quickly if your modified adjusted gross income (MAGI) climbs above the phase-out range.
Below, you’ll see how Social Security retirement and disability payments (SSDI), Supplemental Security Income (SSI), and foreign earnings all feed into MAGI – and ultimately determine how much of the bonus you can actually claim.
MAGI: the number that makes or breaks your deduction
Eighty-five percent of the One Big Beautiful Bill’s shiny new deductions – from the $40,000 SALT break to the $6,000 Senior Bonus – switch on or off depending on one figure: Modified Adjusted Gross Income (MAGI).
Think of MAGI as the IRS taking the AGI on line 11 of your Form 1040 and adding back any income you tried to shelter behind exclusions and special deductions.
- Start with AGI. It’s the subtotal of all taxable income after standard adjustments, shown on Form 1040 line 11.
- Add-backs create MAGI. The IRS tacks on tax-exempt interest, excluded foreign earnings, IRA and student-loan deductions, and a handful of other above-the-line items.
- One size doesn’t fit all. Each credit or deduction tweaks the add-back list, so MAGI for a Roth IRA isn’t identical to MAGI for the Senior Bonus – always follow the worksheet for the benefit you want.
- Why MAGI matters. Most OBBB perks phase out once MAGI crosses their thresholds; the lone newcomer that ignores MAGI is the permanent above-line charitable deduction of $1,000 single or $2,000 joint.
What counts toward your MAGI bonus
Social Security Disability Insurance (SSDI)
SSDI pays workers who became disabled after paying into Social Security, so every payment – taxable or not – feeds straight back into MAGI. That means any SSDI check can nudge you above the bonus phase-out line.
| SSDI element | Counted in MAGI? | Impact on your bonus |
|---|---|---|
| Taxable portion (up to 85%) | Yes | Raises MAGI dollar-for-dollar |
| Non-taxable portion | Yes – added back | Can tip you over the limit |
Supplemental Security Income (SSI)
SSI is a separate safety-net program for low-income seniors, blind adults, and people with severe disabilities who lack a substantial work record. Funded by general taxes – not payroll taxes – it never enters the MAGI formula.
Your SSI benefits therefore leave your bonus eligibility untouched. Just list them separately so the IRS can confirm the exclusion.
Other untaxed disability payments
MAGI treats these untaxed disability payments such as private policies, VA disability, workers’ comp offset, etc., by adding back, just like other untaxed income. Even if the payment is tax-free, it still expands MAGI and may shrink or erase the bonus.
MAGI is built for the Senior Bonus Deduction
Modified adjusted gross income is simply your AGI plus three common add-back items:
- Untaxed foreign income – the portion of wages you excluded with the foreign earned income exclusion or housing exclusion.
- Non-taxable Social Security benefits – anything you received under retirement, survivor, or disability programs that was not taxed.
- Tax-exempt interest – generally interest from municipal bonds.
Because Congress wants the Senior Bonus to phase out as overall resources rise, these untaxed streams are pulled back into the calculation – even though they escaped regular income tax.
Bottom line:
- Untaxable SSDI and any other untaxed disability income raise your MAGI and may reduce – or eliminate – your Senior Bonus deduction.
- SSI is a true exception: it stays outside the MAGI formula, preserving your eligibility no matter how large the benefit.
Foreign earnings – and your MAGI
Living abroad can shrink the new senior bonus because the foreign-earned income you exclude under Internal Revenue Code Section 911 comes back when modified adjusted gross income (MAGI) is computed.
Here’s why it matters: the exclusion lowers your tax bill today, but it is added back for every benefit that keys off MAGI – including the $6,000 (single) / $12,000 (joint) senior bonus that starts in 2025.
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Who qualifies for the exclusion?
– US citizens or resident aliens who pass either the bona fide resident test or the 330-day physical presence test abroad. - How much you can exclude: For tax year 2025, the ceiling rises to $130,000 per person (indexed each year).
- Why the add-back exists: Congress wants MAGI to reflect your total economic resources, so any foreign wages you removed on Form 2555 go back in – just like tax-exempt interest and untaxed Social Security.
- Senior bonus thresholds: Full deduction if MAGI is $75,000 single / $150,000 joint; phased out at 6 cents per dollar above those lines and gone by $175,000 / $250,000.
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Bottom-line impact on expats
– Excluding salary may save regular income tax, but can still lift MAGI enough to erode or erase the senior bonus – and any other MAGI-based breaks.
NOTE! The foreign earned income exclusion is priceless for cutting immediate tax, yet it can quietly raise MAGI and shrink the very deductions seniors abroad hope to claim. Plan ahead.
Case study – when expat income eats your bonus
A 65-year-old single filer living in Spain reports:
| Item | Amount |
|---|---|
| Adjusted gross income after FEIE | $60,000 |
| Foreign earned income excluded (Form 2555) | $30,000 |
| MAGI ($60,000 + $30,000) | $90,000 |
- MAGI exceeds the $75,000 threshold by $15,000.
- The senior bonus shrinks by 6 cents × $15,000 = $900.
- Resulting deduction: $6,000 – $900 = $5,100.
Even though her AGI looked modest, the add-back pushed MAGI high enough to shave 15% off the bonus – a cautionary tale for every retiree earning wages overseas.
Foreign Tax Credit – still MAGI neutral
The Foreign Tax Credit (FTC) shaves dollars off your US tax bill after your adjusted gross income is set, so it never enters the modified adjusted gross income formula that governs the Senior Bonus deduction.
Even a six-figure credit claimed on Form 1116 leaves MAGI untouched, because MAGI only adds back excluded income items such as foreign earned wages or nontaxable Social Security – not tax credits.
As a result, seniors abroad can max out the FTC without shrinking the $6,000/$12,000 bonus; phase-out hinges on income levels, not how much foreign tax you offset.
The bottom line: use the FTC freely for double-tax relief, confident it will not threaten your eligibility for the new deduction.
Max your savings – chat with TFX today
The Senior Bonus hinges on MAGI, so every SSDI check, SSI exclusion, and foreign-earned dollar you add back can make or break the deduction. Cross the $75,000 / $150,000 lines and the bonus melts away six cents per dollar.
Taxes for Expats specialises in US expat tax – so we can model your MAGI fast, blend FEIE, credits, and the new rules, and rescue every dollar you deserve. Book a free consultation now and let our CPAs turn the One Big Beautiful Bill into real savings on your next US return.
FAQ
The deduction kicks in for the 2025 tax year (returns filed in 2026), so nothing changes on your 2024 return.
No SSI is expressly carved out of MAGI, so those payments never jeopardize the Senior Bonus.
The break is real but only fully available to seniors whose MAGI stays below $75,000 single or $150,000 joint, making it a meaningful but targeted perk rather than a giveaway.
Under the One Big Beautiful Bill, the deduction sunsets for tax years after 2028 unless Congress votes to renew it.
For joint filers, the full $12,000 bonus begins shrinking once MAGI tops $150,000 and disappears entirely at $250,000, as shown in our joint-filer case study.
The Senior Bonus is an above-the-line deduction, so you can claim it whether you take the standard deduction or itemize.
Yes, qualified Roth IRA withdrawals are excluded from MAGI, so moving taxable income into Roth distributions can keep you below the phase-out threshold.
Provisional income governs how much of your Social Security is taxable, whereas only MAGI (with its specific add-backs) decides your Senior Bonus eligibility.
