Susan Birkner - Birkner LLC

Enacted under the
One Big Beautiful Bill Acton July 4, 2025, several new federal tax deductions are available starting with the 2025 tax year (returns filed in 2026) through 2028.
1. Overtime and Tip Deductions
Commonly known as "No Tax on Overtime" and "No Tax on Tips," these are federal income tax deductions for eligible workers. Notably, these deductions do not apply to payroll taxes(Social Security and Medicare), which must still be paid in full.
Overtime Deduction:
Maximum Amount: Up to $12,500 per individual or $25,000 for married couples filing jointly.
Qualified Pay: Only applies to the "overtime premium" portion of pay (e.g., the "half" in time-and-a-half) required by the Fair Labor Standards Act (FLSA).
Phase-Out: Gradually reduces for single filers with a Modified Adjusted Gross Income (MAGI) over $150,000 and married couples over $300,000. It fully disappears at $275,000 and $550,000, respectively.
Tip Deduction:
Maximum Amount: Up to $25,000 per year.
Qualified Tips: Includes voluntary cash or charged tips received in occupations traditionally identified as tipped industries.
Phase-Out: Follows the same income limits as overtime—starting at $150,000(single) or $300,000 (joint) MAGI.
2. Senior Bonus Deduction
For taxpayers age 65 and older, a new "Enhanced Deduction for Seniors"(sometimes called the "senior bonus deduction") provides additional relief.
Maximum Amount: An additional $6,000per qualifying individual (up to $12,000 for married couples if both are 65+).
Availability: This deduction is "stackable"; it is taken in addition to the standard deduction and the existing age-based standard deduction.
Income Limits:
Single Filers: Phases out starting at $75,000 MAGI and is fully eliminated at $175,000.
Married Filing Jointly: Phases out starting at $150,000 MAGI and is fully eliminated at $250,000.
Filing Status: You can claim it whether you itemize or take the standard deduction, but it is not available to married couples filing separately.
Note for 2026 Filings: For tax year 2025, the IRS has provided transition relief, allowing workers to claim these deductions based on their own records if their W-2 forms do not yet separately list overtime or tips. Form reporting requirements will be more strictly enforced for the 2026 tax year.