Enhanced Senior Deduction: Making the “One Big Beautiful Bill Act” Work For Your Clients

Strategic Use of a Multi-Year Guaranteed Annuity (MYGA) Can Reduce Taxes on Social Security Benefits

Key Points:

• Under the “One Big Beautiful Bill Act” (OBBBA), seniors 65 and over can claim an enhanced senior deduction of $6,000 per individual ($12,000 total for a married couple if both spouses qualify).
• This new deduction is in addition to the standard deduction available for seniors under current law and is available only for tax years 2025 – 2028.
• The deduction phases out for taxpayers with a modified adjusted gross income over $75,000 ($150,000 for joint filers).
• Using a MYGA as part of an overall retirement strategy can reduce taxable income, helping seniors qualify for the full deduction and potentially lower Social Security taxes.

OBBBA New Enhanced Senior Deduction Explained

The "One Big Beautiful Bill Act” was signed into law as Public Law No. 119-21 in 2025. The law introduced a new deduction, Internal Revenue Code (IRC) Section 151(d)(5(C), for seniors. This new deduction is available for tax years 2025 (filing in 2026) through 2028.

This enhanced senior deduction is $6,000 for a qualified senior age 65 or older filing single, or $12,000 for married couples filing jointly if both spouses are qualified seniors.

The deduction begins to phase out for those with a modified adjusted gross income (MAGI)¹ of $75,000 or more for single filers and $150,000 or more for joint filers, and is fully phased out at $175,000 and $250,000, respectively. The reduction is $60 for each $1,000 over the threshold.

Taxpayers can claim either the standard deduction or itemized deductions. Taxpayers age 65 or older may claim the existing additional standard deduction, as well as the new enhanced senior deduction—meaning these amounts are added on top of their regular deduction, regardless of how they file.

For reference, the standard deduction is up to $15,750 in 2025 and $16,100 in 2026 for single filers. The chart below breaks down the three separate senior deductions.

Total Senior Tax Deduction Amounts with the New OBBBA Deduction

How a MYGA Helps Maximize the Enhanced Senior Deduction

Seniors over the age 65+ can leverage a MYGA to manage taxable income, potentially unlocking the OBBBA IRC Section 151 enhanced senior deduction.

If your client has funds they don’t immediately need, allocating a portion to a MYGA can help reduce current taxable income so that the enhanced senior deduction eligibility can be met and maximized.

Key MYGA features include:

• Guaranteed interest rate: Provides a fixed interest rate for the selected term, supporting predictable growth.
• Tax-deferred² growth: Earnings grow tax-deferred until withdrawal.
• Flexible term lengths: Options typically range from 2 to 10 years, depending on the product.
• Low Risk: Generally considered a lower-risk option due to guaranteed interest rates, although early withdrawals may incur penalties and surrender charges.

Purchasing a MYGA can help clients manage their modified adjusted gross income (MAGI) to stay within the limits for the new enhanced senior deduction, primarily through tax-deferred growth. In some cases, shifting taxable assets into a MYGA can delay interest income, helping keep their MAGI below the $75,000/$150,000 phaseout thresholds.

Tying it Together: OBBBA Senior Deduction, Social Security Taxation, and a MYGA Strategy

The OBBBA enhanced senior deduction does not eliminate federal taxation of Social Security benefits, but it can reduce taxable income like any other deduction. Lower taxable income can, in turn, reduce taxation of Social Security benefits.

Clients should consult with a licensed tax professional regarding their situation, but in general, the IRS advises the following: To determine whether their Social Security benefits are taxable, taxpayers should take half of the Social Security benefits they collected during the year and add them to their other income. Other income may include pensions, wages, interest, dividends, and capital gains.

• If your client is a single filer and their total exceeds $25,000, part of their Social Security benefits may be taxable. If their combined income is between $25,000 and $34,000, then 50% of the benefits may be taxable. If they have more than $34,000 of income, then up to 85% of benefits may be taxable.
• If your client is married, filing jointly with a combined income of $32,000 to $44,000 than 50% of the benefits may be taxable. If the combined income is greater than $44,000, then 85% of the benefits may be taxable.

As a result, this temporary enhanced senior deduction of up to $6,000 or $12,000 (joint filers both 65 and older) can help reduce taxation of Social Security benefits by reducing the income used when calculating tax on the benefits.

Using a MYGA to help reduce overall taxable income can help maximize use of the OBBBA enhanced senior deduction. Lowering taxable income can, in turn, lower the amount of taxation of Social Security benefits.

Even without the OBBBA enhanced senior deduction, a MYGA can be a good tool for reducing taxes on Social Security benefits by minimizing annual gross income.

Key Takeaway:

Strategically integrating a MYGA into income planning can create a dual benefit: helping clients qualify for the full enhanced senior deduction while also reducing taxation of Social Security benefits.

1. Modified Adjusted Gross Income (MAGI) is a measure of income used to determine eligibility for some tax benefits, including the enhanced senior deduction. It is based on adjusted gross income (AGI) with certain adjustments, such as the inclusion of some otherwise non-taxable income (for example, tax-exempt interest).

2. This annuity is tax-deferred, which means the contract owner doesn’t pay taxes on interest earned until withdrawals are taken.

This material is for informational or educational purposes only and not intended to provide legal, tax or investment advice. The example is hypothetical and does not represent the results of any specific individual or account. Actual results will vary based on individual circumstances, tax laws, and other factors. Individual results will vary, and clients should consult a tax professional.

Information related to tax or estate planning is not intended as tax or legal advice.

Individuals should consult with a qualified tax professional, CPA, financial advisor, or attorney to evaluate how a senior deduction fits their specific financial situation. All investing involves risk, including possible loss of principal.

Axonic Insurance refers to a group of affiliated legal entities organized under Axonic Insurance Holdings Inc. that collectively specialize in designing, distributing, and servicing annuity and other investment products for individuals and institutions worldwide. Axonic Insurance Services LLC ("Axonic"), an insurance producer licensed in all fifty states and the District of Columbia, #3003019286 in Arkansas, and #6013523 in California, acts as a business process outsourcer, including for the US-issued annuities underwritten by its non-affiliated carrier, AmFirst Insurance Company (NAIC #6025), an Oklahoma domiciled life insurance company with a home office in Oklahoma City, Oklahoma ("AmFirst"). AmFirst operates as AmFirst Life Insurance Company in California. AmFirst is licensed in 47 states, the District of Columbia, Puerto Rico, and the British Virgin Islands. Axonic Services LLC, a Puerto Rico limited liability company for profit, services the non US-issued annuities underwritten by its affiliated underwriter, Axonic Insurance Company SPC, a Class B(iii) insurer in the Cayman Islands licensed under the Cayman Islands Insurance Act, 2010 (as amended), as well as its non-affiliated carrier, AmFirst Life Insurance Company I.I., a corporation licensed as a Class 5 International Insurer and Segregated Assets Plan Company under Chapter 61 of the Insurance Code of Puerto Rico. Axonic has ownership interests in segregated accounts of ALIC, which provide reinsurance coverage to AmFirst and other third-party insurers.

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