Not sure what “modified adjusted gross income (MAGI)” is or how to determine whether yours qualifies you for newly available tax deductions and credits?

Many of the new OBBBA tax benefits that are available beginning in 2025 or 2026 use MAGI to determine eligibility.

In part 1 of this 2-part blog, we explain what MAGI is and how to calculate yours.

Now, in part 2, we explain the different MAGI thresholds for the following new deductions and credits under the One Big Beautiful Bill Act (OBBBA), so you can calculate your own potential tax savings:

  • An additional $6,000 tax deduction for qualified seniors
  • An increase to the maximum deduction you can claim for state and local tax payments (a.k.a., the SALT cap)
  • A new tax deduction for overtime pay
  • A new tax deduction for tip income
  • A new deduction for interest paid on new car loans
  • An increased child tax credit

This post focuses on MAGI eligibility for specific OBBBA benefits, but you can also employ broader tax planning strategies around the OBBBA tax law changes to reduce your tax burden in more substantial ways. As an example, see our post on tax planning around the timing of your charitable contributions.

Keep in mind: Each benefit covered below has additional criteria (other than MAGI) that are not covered here, such as age or job-related qualifications, or stipulations on the types of expenses that count toward a credit.

OBBBA benefit: An additional deduction of up to $6,000 is available for qualified seniors.

What is the benefit?

Effective in 2025 through 2028, certain taxpayers aged 65 and older will be able to receive an additional $6,000 deduction each, in addition to the current $1,600 additional standard deduction for seniors.

What are the MAGI requirements?

If you otherwise meet the standards to qualify for the benefit:

  • To be fully eligible, your MAGI must be below $75,000 (or $150,000, if married filing jointly).
  • To be partially eligible, your MAGI must be below $175,000 (or $250,000, if married filing jointly).
  • If your MAGI exceeds these amounts, you are not eligible for the increased deduction amount, but you can still claim the regular deduction of $1,600 each.

For those who are partially eligible, the phase-out rate for this benefit is 6%. That means that for each dollar that your MAGI exceeds the full-eligibility threshold, you must subtract $0.06 from the maximum allowable deduction.

For example, if you file single, and your MAGI is $105,000, then your MAGI exceeds the $75,000 threshold by $30,000. Your maximum additional deduction of $6,000 must therefore be reduced by $30,000 x 6%, or $1,800. So, your additional senior deduction would be $4,200 (i.e., $6,000 – $1,800).

OBBBA benefit: The maximum itemized deduction you can take for state and local tax payments (SALT cap) increases from $10,000 to $40,000.

What is the benefit?

Beginning in 2025, if you claim itemized deductions (rather than the standard deduction) on your tax return, you will be eligible to deduct up to $40,000 of your state and local taxes paid, rather than up to $10,000, as an itemized deduction. The exception is for married couples who file separate returns, in which case the maximum increases to $20,000, from $5,000.

Starting in 2026, these amounts will increase by 1% annually through 2029, after which time, they will revert in 2030 to their original $10,000 (or $5,000) levels.

What are the MAGI requirements?

  • To be fully eligible, your MAGI must be below $500,000 (or $250,000, if married filing separately).
  • To be partially eligible, your MAGI must be below $600,000 (or $300,000, if married filing separately).
  • If your MAGI exceeds these amounts, you are not eligible for the increased deduction amount, but you can still claim a deduction up to the prior maximum amount of $10,000 for joint filers or $5,000 for other filers.

For those who are partially eligible, the phase-out rate for this benefit is 30%. That means that for each dollar that your MAGI exceeds the full-eligibility threshold, you must subtract $0.30 from the maximum allowable deduction (or $0.15, if married filing separately).

For example, if you file jointly with your spouse, and your joint MAGI is $545,000, then your MAGI exceeds the $500,000 threshold by $45,000, and your maximum deduction of $40,000 must be reduced by $45,000 x 30%, or $13,500. So, you would be able to deduct up to $26,500 (i.e., $40,000 – $13,500) of state and local taxes.

Note: Since this benefit is effective beginning in 2025, there are some great tax planning opportunities available, especially around timing of making charitable contributions.

OBBBA benefit: Certain types of workers can deduct some or all of their overtime pay.

What is the benefit?

Effective in 2025 through 2028, certain types of workers can deduct up to $12,500 of overtime pay per year ($25,000 for joint filers).

What are the MAGI requirements?

If you otherwise meet the standards to qualify for the benefit:

  • To be fully eligible, your MAGI must be below $150,000 (or $300,000, if married filing jointly).
  • To be partially eligible, your MAGI must be below $275,000 (or $550,000, if married filing jointly).
  • If your MAGI exceeds these amounts, no deduction is available.

For those who are partially eligible, for every $1,000 your MAGI exceeds the income threshold, your available deduction is reduced by $100.

For example, if you file single, and your MAGI is $200,000, then your MAGI exceeds the $150,000 threshold by $50,000. Your maximum overtime deduction of $12,500 must therefore be reduced by $5,000 (i.e., $50,000/$1,000 = 50 x $100 = $5,000). So, your tax deduction for overtime pay would be $7,500 (i.e., $12,500 – $5,000).

OBBBA benefit: Certain types of workers can deduct some or all of their tip income.

What is the benefit?

Effective in 2025 through 2028, certain types of workers can deduct up to $25,000 of tip income per year. Per the proposed regulations released on Sept. 26, 2025, this is the maximum allowable deduction regardless of filing status, so married individuals would be allowed a total maximum deduction of $25,000, not $25,000 per spouse.

Reminder: There are many other requirements and limits for claiming this deduction. In this post, we only address the MAGI requirement.

What are the MAGI requirements?

If you otherwise meet the standards to qualify for the benefit:

  • To be fully eligible, your MAGI must be below $150,000 (or $300,000, if married filing jointly).
  • To be partially eligible, your MAGI must be below $400,000 (or $550,000, if married filing jointly).
  • If your MAGI exceeds these amounts, no deduction is available.

For those who are partially eligible, for every $1,000 your MAGI exceeds the income threshold, your available deduction is reduced by $100.

For example, if you file jointly, and your MAGI is $500,000, then your MAGI exceeds the $300,000 threshold by $200,000. Your maximum deduction of $25,000 must therefore be reduced by $20,000 (i.e., $200,000/$1,000 = 200 x $100 = $20,000). So, your tax deduction for tip income would be $5,000 (i.e., $25,000 – $20,000).

OBBBA benefit: If you buy a qualified vehicle, you may be able to deduct up to $10,000 of interest paid on your car loan.

What is the benefit?

Effective in 2025 through 2028, if you buy a qualified vehicle for personal use and take out a new loan to do so, you may be able to deduct up to $10,000 of interest on the loan.

What are the MAGI requirements?

If you otherwise meet the standards to qualify for the benefit:

  • To be fully eligible, your MAGI must be below $100,000 (or $200,000, if married filing jointly).
  • To be partially eligible, your MAGI must be below $150,000 (or $250,000, if married filing jointly).
  • If your MAGI exceeds these amounts, no deduction is available.

For those who are partially eligible, for every $1,000 your MAGI exceeds the income threshold, your available deduction is reduced by $200.

For example, if you file jointly, and your MAGI is $220,000, then your MAGI exceeds the $200,000 threshold by $20,000. Your maximum deduction of $10,000 must therefore be reduced by $2,000 (i.e., $20,000/$1,000 = 20 x $100 = $2,000). So, your tax deduction for car loan interest would be $8,000 (i.e., $10,000 – $2,000).

OBBBA benefit: The $2,200 child tax credit (indexed for inflation) is made permanent.

What is the benefit?

For 2025, the child tax credit will increase to $2,200 per child under age 17, and it will be indexed for inflation beginning in 2026. Before OBBBA passed, the child tax credit was set to revert to pre-2017 levels at the end of 2025. Instead, the OBBBA adjusted the 2025 amount by $200, made it permanent, and stipulated annual inflation increases beginning in 2026.

In addition, OBBBA set the refundable part of the credit at $1,700, indexed for inflation. This means that if the credit is more than the tax you owe, you can get back up to $1,700 as a refund.

What are the MAGI requirements?

If you otherwise meet the standards to qualify for the benefit:

  • To be fully eligible, your MAGI must be below $200,000 for taxpayers filing single or head of household (or $400,000, if married filing jointly).
  • To be partially eligible, your MAGI depends on the number of qualifying children you have. Each eligible child adds $44,000 of phase-out range to the original MAGI threshold.
  • If your MAGI exceeds these amounts, no deduction is available.

For those who are partially eligible, for every $1,000 (or fraction thereof) that your MAGI exceeds the income threshold, your available credit is reduced by $50.

For example, if you file jointly, and your joint MAGI is $440,000, then your MAGI exceeds the $400,000 threshold by $40,000. If you have two qualifying children, your maximum credit of $4,400 must therefore be reduced by $2,000 (i.e., $40,000/$1,000 = 40 x $50 = $2,000). So, your child tax credit would be $2,400 (i.e., $4,400 – $2,000).

If you qualify, how do you claim the new OBBBA tax deductions and credits on your tax return?

Since some of the new benefits did not previously exist, the IRS created an new form, Schedule 1-A, to enable taxpayers to take advantage of the OBBBA provisions. The form has yet to be finalized, but it gives a good indication of what you’ll need to do to claim the OBBBA deductions. Check out our blog post on Schedule 1-A to get an overview of the form and its contents.

 

Since 1983, The Wolf Group has been helping clients take advantage of new tax opportunities in order to minimize their overall tax liability. We also seek to educate clients on new developments so they can assess how changes in tax laws will affect them. If you have questions related to your specific situation—or about tax-planning strategies you can employ based on your MAGI—feel free to contact us.

Pursuant to Circular 230, promulgated by the Internal Revenue Service, any US tax advice contained in the body of this writing is not intended or written to be used, and cannot and should not be used, by any recipients as specific tax advice related to their facts and circumstances. Taxpayers should consult their local tax professional and/or attorney to obtain specific tax advice related to their facts and circumstances.