MAGI and Phase-Outs for the New Deductions: Overtime, Tips, Car Loan Interest and Seniors
In one paragraph: All four deductions use the same MAGI, which is your adjusted gross income plus a few foreign and territory exclusions, but each has its own threshold and reduction rate. Overtime and tips lose $100 per full $1,000 over $150,000 ($300,000 joint); car loan interest loses $200 per $1,000 or part over $100,000 ($200,000 joint); the senior deduction loses 6% of the excess over $75,000 ($150,000 joint).
How MAGI is built (Schedule 1-A, Part I)
- Line 1: Form 1040 line 11b (adjusted gross income).
- Lines 2a–2d: add income from Puerto Rico that you excluded, Form 2555 lines 45 and 50, and Form 4563 line 15, if any.
- Line 3: add them. That's MAGI.
For most wage earners MAGI simply equals AGI.
Side-by-side
| Deduction | Max | Phase-out starts (single / joint) | Reduction | Rounding | Reaches $0 at (single / joint)* |
|---|---|---|---|---|---|
| Overtime | $12,500 / $25,000 | $150,000 / $300,000 | $100 per $1,000 | Excess rounded down | $275,000 / $550,000 |
| Tips | $25,000 | $150,000 / $300,000 | $100 per $1,000 | Excess rounded down | $400,000 / $550,000 |
| Car loan interest | $10,000 | $100,000 / $200,000 | $200 per $1,000 or part | Excess rounded up | $150,000 / $250,000 |
| Seniors (per person) | $6,000 | $75,000 / $150,000 | 6% of excess | None | $175,000 / $250,000 |
*If you start with the maximum deduction. A smaller starting amount reaches zero sooner. For example, $5,000 of tips disappears after $50,000 of excess MAGI.
Why the rounding rule matters
Overtime rounds the excess down
A single filer has $5,000 of qualified overtime and MAGI of $150,500. The excess is $500, which is 0 whole thousands, so there is no reduction: deduction $5,000. Even at MAGI of $150,999 the excess of $999 is still under one whole thousand and the deduction stays $5,000.
Car loan interest rounds the excess up
With $5,000 of interest and MAGI of $100,500, the excess is $500. The rule counts any part of a thousand as a full one: 1 × $200 = $200. Deduction: $4,800.
Lowering MAGI
Because MAGI starts with AGI, items that reduce AGI, such as contributions to a traditional IRA or HSA, or pre-tax payroll deferrals that never reach your W-2 box 1, can also reduce MAGI. Whether any of that makes sense for you depends on your whole situation. We can't give tax advice, so talk with a qualified tax professional.
The Schedule 1-A deductions are taken on Form 1040 line 13b, below AGI, so they can't push you under their own thresholds.
Frequently asked questions
What is MAGI for the new deductions?
It is defined on Part I of Schedule 1-A: your adjusted gross income from Form 1040 line 11b, plus any excluded Puerto Rico income, plus amounts from Form 2555 (foreign earned income and housing exclusions) and Form 4563 (American Samoa).
Is MAGI the same as AGI?
For most people, yes. The additions on Schedule 1-A lines 2a–2d only matter if you excluded income from Puerto Rico, claimed the foreign earned income or housing exclusion, or excluded American Samoa income.
Does the deduction itself lower MAGI?
No. The deductions are claimed below the AGI line on Form 1040 line 13b, so they don't reduce the MAGI used for the phase-out.
Do the phase-outs apply as a cliff?
No. They are gradual reductions. For overtime and tips each full $1,000 over the threshold costs $100 of deduction; for car loan interest each $1,000 or part costs $200; for seniors each dollar costs 6 cents.
Does the same MAGI apply to all four?
Yes, the same MAGI from Part I feeds every deduction, but each deduction has its own threshold.
Which thresholds apply to head of household?
The single-filer thresholds apply to every filing status except married filing jointly. Married filing separately is not eligible at all.
Sources and citations
Every dollar figure on this page was checked against the official pages below on November 14, 2026. If an agency updates its guidance, the agency page controls.
- 2025 Schedule 1-A (Form 1040), Additional Deductions (IRS)
- IRS Fact Sheet FS-2025-03: Working Families Tax Cuts — Tax deductions for working Americans and seniors
- Instructions for Form 1040 (2025), including Schedule 1-A instructions (IRS)
- 26 U.S.C. § 151 (senior deduction, subsection (d)(5)(C)) — House Office of the Law Revision Counsel