Brenda Quinn, EA •
The One Big Beautiful Bill Act (OBBBA) introduces three deductions which may affect both seniors and working taxpayers from 2025 through 2028.
The One Big Beautiful Bill Act (OBBBA) introduces three deductions which may affect both seniors and working taxpayers from 2025 through 2028.
➢ Enhanced Deduction for Seniors:
Beginning in 2025, seniors 65 or older with modified adjusted gross income (MAGI) below $75,000 (single filers) or $150,000 (joint filers), will be eligible for a $6,000 deduction on their federal tax return. There is a phaseout deduction for taxpayers whose income is above the thresholds. This provision is scheduled to remain in effect through 2028.
As a result of this deduction, the Social Security Administration sent out a press release stating that nearly 90% of Social Security beneficiaries will no longer pay Federal income taxes on their benefits. Please note that Social Security will continue to be taxed for seniors with moderate or high incomes.
➢ Tips Income Deduction and Overtime Income Deduction:
Starting in 2025, certain workers will be able to deduct tips and overtime pay as an “above-the-line” deduction on their tax return.
The U.S. Treasury will release a final list of the jobs eligible for these deductions.
Deduction Limits
Key Takeaways
What This Means for You
These provisions are temporary (2025 through 2028), but they could provide meaningful tax relief during those years. If you’re a senior, a service industry worker, or someone who frequently works overtime, keep an eye on how your employer reports your income and how the IRS applies these deductions.
For more information, follow us on LinkedIn to stay up-to-date on all of our content or give us a call at 603-224-2000.
Beginning in 2025, seniors 65 or older with modified adjusted gross income (MAGI) below $75,000 (single filers) or $150,000 (joint filers), will be eligible for a $6,000 deduction on their federal tax return. There is a phaseout deduction for taxpayers whose income is above the thresholds. This provision is scheduled to remain in effect through 2028.
As a result of this deduction, the Social Security Administration sent out a press release stating that nearly 90% of Social Security beneficiaries will no longer pay Federal income taxes on their benefits. Please note that Social Security will continue to be taxed for seniors with moderate or high incomes.
➢ Tips Income Deduction and Overtime Income Deduction:
Starting in 2025, certain workers will be able to deduct tips and overtime pay as an “above-the-line” deduction on their tax return.
- 2025: The current W-2 form will remain the same. Employers will need to provide employees with a separate statement showing qualified overtime and tip income.
- 2026: A revised W-2 draft has been published. As of now, it will include Box 14b (Treasury tipped occupation code) and Box 12 will include Code TT (qualified overtime) or TP (qualified tips).
The U.S. Treasury will release a final list of the jobs eligible for these deductions.
Deduction Limits
- Tips: Up to $25,000 may be deducted if your MAGI is $150,000 or less ($300,000 or less for joint filers).
- Overtime Pay: Up to $12,500 may be deducted if your MAGI is $150,000 or less ($300,000 or less for joint filers).
Key Takeaways
- Seniors (65+) get a new $6,000 deduction if their income is below certain levels.
- Workers who earn tips or overtime pay may claim new above-the-line deductions, reducing taxable income directly.
- Income thresholds and phaseouts mean higher-income taxpayers may see little or no benefit.
- Employers will play a big role in reporting these amounts correctly on W-2s and statements.
What This Means for You
These provisions are temporary (2025 through 2028), but they could provide meaningful tax relief during those years. If you’re a senior, a service industry worker, or someone who frequently works overtime, keep an eye on how your employer reports your income and how the IRS applies these deductions.
For more information, follow us on LinkedIn to stay up-to-date on all of our content or give us a call at 603-224-2000.
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