Qualified Tips Deduction (§224)

• Annual Deduction Cap: $25,000
• Eligible Income: Cash tips reported on required statements or Form 4137
• Occupation Restriction: Only listed occupations qualify where tipping is customary.
• MAGI Phase-Out Threshold:
  • $150,000 (Single)
  • $300,000 (Married Filing Jointly)
• Phase-Out Rate: $100 reduction per $1,000 (or fraction) above threshold
• Filing Requirement: Married taxpayers must file jointly to claim up to MFJ cap.

Example:

• MAGI: $165,000 (Single)
• Phase-Out: $1,500
• $20,000 tips → $18,500 deductible

 

Qualified Overtime Deduction (§225)

• Annual Cap:
  • $12,500 (Single)
  • $25,000 (Married Filing Jointly)
• Eligible Income: FLSA-required overtime premium portion (“half” portion of time and a half)
• MAGI Phase-Out Threshold:
  • $150,000 (Single)
  • $300,000 (Joint)
• Phase-Out Rate: $100 per $1,000 above threshold
• Filing Requirement: Married taxpayers must file jointly to claim up to MFJ cap.

Example:

• Joint MAGI: $325,000
• Phase-Out: $2,500
• $25,000 cap − $2,500 = $22,500 deduction

 

Senior Deduction (§151(d)(5)(C))

• Deduction Amount: $6,000 per qualified individual
• Age Requirement: Must attain age 65 by year-end
• Expiration: Tax years before January 1, 2029
• MAGI Phase-Out Threshold:
  • $75,000 (Single)
  • $150,000 (Joint)
• Phase-Out Rate: 6% of MAGI above threshold
• Filing Requirement: Married taxpayers must file jointly to claim up to MFJ cap

Example:

• MAGI: $95,000 (Single)
• Reduction: $1,200
• Allowable Deduction: $4,800

 

Standard Deduction 

• 2025 Fixed Amounts:
  • Single / MFS: $15,750
  • Head of Household: $23,625
  • MFJ / Surviving Spouse: $31,500
• Inflation Indexing: Applies for tax years after 2025

 

Adoption Credit (§23)

• Refundable Portion: Up to $5,000
• Inflation Indexing: Applies for years after 2025
• Other Limits: Existing adoption credit rules and phaseouts continue to apply

 

Trump Accounts

• Annual Contribution Limit: $5,000
• Inflation Indexing: Applies after 2027
• Age Limit: Contributions allowed only before beneficiary turns 18
• Sub-Caps: $2,500 limitation applies to certain statutory components
• Reporting and Investment Rules: Governed by statute
• Tax Deferred-IRA-like treatment – rules still forming

Tips and Overtime Reporting (Cross-Reference)

• Recipient Statements: Must separately state cash tips and recipient occupation
• Overtime Reporting: Similar separate reporting required for qualified overtime amounts
• Transition Relief: Available per IRS guidance

 

Calculation Reference (Formula Summary)

• Tips & Overtime Phase-Outs:
  • Apply dollar cap first
  • Reduction = $100 × ceiling((MAGI − threshold) ÷ $1,000)
• Senior Deduction Phase-Out:
  • Reduction = 6% × (MAGI − threshold)