09/04/2025
I know there are a lot of false media being projected saying there is no tax an tips, and overtime and not tax on social security. This leads people to believe this is a blanket deduction but it is not. There is only a partial deduction for these items and only if your income is below a certain amount. DO NOT BE FOOLED BY POLITICAL ADS! Here is the real information. Consult with your tax preparer before changing withholding.
Social Security
• Additional Senior personal exemption deduction of $6,000 per spouse age 65+(only available for 2025 through 2028 taxable years).
• This will be a below the line deduction so it will not lower your income for reduction of Medicare premiums.
• If you file married filing separate you are not eligible for the deduction.
• Individual tax identification numbers (ITINs) cannot be accepted for this deduction. It also has income limits.
• Phaseout range, if you are above the upper amounts below you will not get this deduction.
Single Income & Head of Household (HOH) Income $75,000–$175,000
Married Filing Joint(MFJ) and Qualifying Surviving Spouse (QSS) (one spouse age 65-plus) Income 150,000–$250,000
Married Filing Joint(MFJ) and Qualifying Surviving Spouse (QSS) (both spouses age 65-plus) Income $150,000–$350,000
“No tax” on tips deduction ---This does not apply to all tips.
• Some workers who earn tips will be able to deduct up to $25,000 in tips from their taxable income, for the 2025 through 2028 taxable years. You cannot take a deduction for more than you receive. Expected to be a below the line deduction.
• The occupation listed must be one of the occupations that the Secretary of Treasury identified as one that “traditionally and customarily received tips.” Secretary of the Treasury will provide a list of professions that qualify, this has yet to be released.
• Qualified tips are cash and credit card tips, property is excluded.
• Individual tax identification numbers (ITINs) cannot be accepted for this deduction.
• Must be reported on information returns such as a W-2, 1099-K, or 1099-NEC reported by the employer or on a Form 4137, reported by employee.
• Cannot file as married filing separate.
• Must be voluntary and in an amount determined by the payor. The amount cannot be a service charge such as when they add 20% to a bill for a party of 8. Those are not considered voluntary.
• Not all businesses will qualify; your employer will let you know if you are not eligible.
• The amount allowed as a deduction is reduced, but not below $0, by $100 for each $1,000 that the taxpayer’s modified adjusted gross income (MAGI) exceeds $150,000 ($300,000 on a joint return).
• Meet any other requirements as established by the Secretary of Treasury in regulations or guidance.
“No tax” on overtime deduction-- This does not apply to all overtime
• Some workers who earn overtime will be able to deduct up to $12,500 ($25,000 MFJ), for the 2025 through 2028 tax years. Expected to be a below the line deduction. You cannot take a deduction for more than you receive.
• Qualified overtime compensation is the amount paid to an individual that exceeds the regular rate. Therefore, for the purposes of the deduction only payments above the regular wage rate are qualified.
• Any tips received are not eligible for the overtime deduction. Cannot file as married filing separate.
• Overtime compensation must be reported to the taxpayer on Form W-2 or Form 1099-NEC.
• Individual tax identification numbers (ITINs) cannot be accepted for this deduction.
• Deduction is reduced, but not below $0, by $100 for each $1,000 that the taxpayer’s modified adjusted gross income (MAGI) exceeds $150,000 ($300,000 on a joint return)
Example Overtime deductions
Saul is an overtime-eligible employee who makes $18 per hour. He is single and has a MAGI of $53,500. During tax year 2025, he worked 27 overtime hours at $27 per hour, earning $729 in overtime pay. Since Saul’s MAGI is under $150,000, his overtime deduction is $243, which is 27 hours times the $9 hour differential.
