Updated November 2026 · VG CPA PC advisors
Tips deduction
For 2025 through 2028, workers in occupations that customarily received tips before 2025 can deduct up to $25,000 of qualified tips a year. The deduction phases out for modified adjusted gross income above $150,000 ($300,000 joint). Tips must be voluntary and reported, and a valid Social Security number is required.
The deduction is available whether or not you itemize. Social Security and Medicare taxes still apply to tips.
Overtime deduction
Workers can deduct the premium portion of overtime required by the Fair Labor Standards Act, for example the extra half in time-and-a-half, up to $12,500 a year ($25,000 joint), with the same income phase-out. Overtime paid under company policy beyond what the FLSA requires does not qualify.
Employers must report qualified overtime and tips separately, so payroll systems and W-2 reporting need to track them.
Senior deduction
Taxpayers 65 and older can claim an additional deduction of $6,000 each for 2025 through 2028, phasing out above $75,000 of modified adjusted gross income ($150,000 joint). It is in addition to the existing extra standard deduction for age.
Retirees who manage income through Roth conversions or IRA distributions should consider the phase-out when timing withdrawals.