For each of the four following temporary provisions for individuals, Modified Adjusted Gross Income (MAGI) is defined as Adjusted Gross Income (AGI) increased by any income from US citizens or residents living abroad, income from sources within Guam, American Samoa, or the Northern Mariana Islands, and income from sources within Puerto Rico.
NO TAX ON TIPS
For 2025, the IRS will provide transition relief for employers and taxpayers subject to these new reporting requirements.
Employers must report qualifying tips on Form W-2, Form 1099, or another specified form. Tipped workers must report monthly tip totals to their employer and maintain daily records. Self-employed individuals may deduct tips only up to the business’s net income. The law does not treat deducted tip income as Qualified Business Income. Married taxpayers filing separately and individuals working in or employed by a specified service trade or business (SSTB) may not claim the deduction.
The deduction phases out when Modified Adjusted Gross Income (MAGI) exceeds $150,000 for single filers or $300,000 for married filing jointly.
The IRS continues to release additional guidance on these reporting requirements. The rules are comprehensive and contain numerous qualification standards.
NO TAX ON OVERTIME
For 2025, the IRS will provide transition relief for employers and taxpayers subject to these reporting requirements.
Employers must report qualifying overtime pay on Form W-2, Form 1099, or another specified statement. To claim the deduction, taxpayers must have a Social Security number valid for work and file jointly if married.
The deduction phases out when Modified Adjusted Gross Income (MAGI) exceeds $150,000 for single filers or $300,000 for married filing jointly.
The IRS has begun issuing additional guidance. The requirements are detailed and include numerous specific conditions.
INCREASED SENIOR DEDUCTION
For 2025, the IRS will provide transition relief for taxpayers subject to the new reporting requirements.
The deduction phases out when Modified Adjusted Gross Income (MAGI) exceeds $75,000 for single filers or $150,000 for married filing jointly.
CAR LOAN INTEREST DEDUCTION
For 2025, the IRS will provide transition relief for taxpayers subject to the new reporting requirements.
Taxpayers may deduct up to $10,000 of qualified car loan interest on a qualified passenger vehicle purchased between 2025 and 2028. To qualify, the taxpayer must purchase the vehicle new. Used or leased vehicles do not qualify. The loan must be secured by a lien. The vehicle’s GVWR must be less than 14,000 pounds. Final assembly must occur in the United States.
Lenders will issue Form 1098 showing interest paid. Taxpayers must include the VIN on the tax return. Because this is a below-the-line deduction, both itemizing and non-itemizing taxpayers may claim it.
The deduction phases out when Modified Adjusted Gross Income (MAGI) exceeds $100,000 for single filers or $200,000 for married filing jointly.