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OBBBA TAX DEDUCTIONS CALCULATOR

Prosperics' OBBBA Tax Deductions Calculator is a free estimator of federal tax savings from the One Big Beautiful Bill Act's temporary 2025–2028 provisions — No Tax on Tips, No Tax on Overtime and the Senior Bonus deduction — including the MAGI phase-outs and how pre-tax contributions can keep you under them.

Maximize Pre-Tax Contributions

Every dollar you put into a 401(k), traditional IRA, or HSA reduces your MAGI dollar-for-dollar. This can keep you below the OBBBA phase-out thresholds, preserving your tips and overtime exclusions while building retirement savings.

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The One Big Beautiful Bill Act introduces a temporary exclusion of qualified tip income from federal gross income for tax years 2025 through 2028. Cash tips, credit card tips, and other gratuities reported to your employer may be excluded from taxable income. However, the exclusion phases out at higher income levels, so not all tip earners will receive the full benefit.

Key Takeaways

  • ✓Applies to tax years 2025-2028 only (temporary provision)
  • ✓Phase-out begins at $160,000 MAGI for single filers, $320,000 for joint
  • ✓Tips are still subject to FICA/payroll taxes even when excluded from income tax
  • ✓You must still report all tip income to your employer and on your tax return

Under the OBBBA, qualified overtime compensation — the pay received for hours worked beyond the standard 40-hour workweek — can be excluded from federal gross income. This provision targets hourly workers who regularly earn overtime and provides meaningful tax relief. Like the tips exclusion, it phases out at higher income levels.

Key Takeaways

  • ✓Covers overtime pay at time-and-a-half (or higher) rates beyond 40 hours/week
  • ✓Phase-out begins at $150,000 MAGI for single, $300,000 for joint filers
  • ✓Does not apply to salaried exempt employees who do not receive overtime pay
  • ✓Employers may need to update payroll systems to properly report excluded amounts

The OBBBA adds an extra $6,000 deduction for taxpayers aged 65 and older. This is on top of the existing senior additional standard deduction that already exists in the tax code. The bonus deduction phases out at relatively modest income levels, so it primarily benefits lower- and middle-income seniors.

Key Takeaways

  • ✓Additional $6,000 deduction for taxpayers age 65+ ($12,000 if both spouses qualify)
  • ✓Stacks on top of the existing senior additional standard deduction ($2,000 single, $1,600 married)
  • ✓Phase-out begins at $75,000 MAGI for single, $150,000 for joint filers
  • ✓Available for tax years 2025-2028 under the temporary provisions

Since all three OBBBA deductions phase out based on Modified Adjusted Gross Income, strategic income planning can maximize your tax savings. Pre-tax retirement contributions, health savings account contributions, and other above-the-line deductions directly reduce your MAGI, potentially keeping you below phase-out thresholds where you lose these valuable exclusions.

Key Takeaways

  • ✓Maximize 401(k) contributions to reduce MAGI (up to $23,500 in 2025, plus $7,500 catch-up if 50+)
  • ✓HSA contributions reduce MAGI while building a tax-free health care fund
  • ✓Traditional IRA contributions may be deductible and reduce MAGI
  • ✓Consider timing of income recognition (bonuses, capital gains) around phase-out thresholds

Facts last reviewed:

The One Big Beautiful Bill Act (OBBBA) introduces three temporary tax provisions for 2025-2028: exclusion of tip income from federal income tax, exclusion of overtime pay from federal income tax, and an additional $6,000 deduction for seniors aged 65+. All three provisions phase out at higher income levels based on your Modified Adjusted Gross Income.

Tips are excluded from federal income tax, but they are still subject to Social Security and Medicare (FICA) taxes. The exclusion also phases out as your MAGI rises above $160,000 (single) or $320,000 (married filing jointly). You must still report all tips to your employer and on your tax return.

Qualified overtime compensation is pay for hours worked beyond 40 in a workweek, typically at time-and-a-half rates. This applies to non-exempt hourly employees. Salaried employees exempt from overtime under the Fair Labor Standards Act do not receive overtime pay and cannot claim this exclusion.

A phase-out gradually reduces the benefit as your income rises above a threshold. For example, if the tips exclusion phases out between $160,000 and $200,000 MAGI, and your MAGI is $180,000, you can exclude 50% of your tips. Above $200,000, the exclusion is fully phased out (0% available).

Yes, if you have both tip income and overtime pay, you can claim both exclusions simultaneously. Each has its own phase-out range. Pre-tax deductions like 401(k) and HSA contributions reduce your MAGI and may help you stay below one or both phase-out thresholds.

No. The tips exclusion, overtime exclusion, and senior bonus deduction are temporary provisions effective for tax years 2025 through 2028 only. Congress would need to pass additional legislation to extend them beyond 2028.

Facts last reviewed:

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