OBBBA MAGI Phase-Out: When Tip and Overtime Deductions Shrink
The OBBBA tip and overtime deductions aren't unlimited. They phase out based on Modified Adjusted Gross Income (MAGI). Most tipped employees won't hit these thresholds, but it's important to understand them.
Phase-Out Thresholds
| Deduction | Filing Status | Phase-Out Begins | Phase-Out Ends |
|---|---|---|---|
| Qualified Tips (Code TP) | Single | $150,000 | $175,000 |
| Qualified Tips (Code TP) | Married Filing Jointly | $300,000 | $350,000 |
| Qualified OT (Code TT) | Single | $150,000 | $175,000 |
| Qualified OT (Code TT) | Married Filing Jointly | $275,000 | $325,000 |
How the Phase-Out Works
The deduction is reduced proportionally within the phase-out range. Example for a single filer with $160,000 MAGI and $20,000 in qualified tips:
- Phase-out range: $150K to $175K = $25K range
- Amount over threshold: $160K - $150K = $10K
- Phase-out percentage: $10K / $25K = 40%
- Deduction reduced by 40%: $20,000 × 60% = $12,000 deduction
Who Does This Affect?
Most tipped employees earn well under $150K. But some high-earning workers may be affected:
- Fine dining servers in major cities
- Bartenders at high-volume nightclubs
- Casino dealers at high-stakes tables
- Employees with significant non-tip income (second job, investments, spouse's income for joint filers)
Employer vs. Employee Responsibility
The phase-out is calculated on the employee's tax return, not by the employer. As an employer, you report the FULL qualified tip and OT amounts on the W-2 regardless of MAGI. The employee (or their tax preparer) handles the phase-out calculation on Form 1040.
Related Guides
Automate your OBBBA compliance
Track qualified tips, calculate OT premiums, and export W-2 data in minutes.
Start free 14-day trial →