Income Phaseouts and MAGI for the 2026 Deductions

Every one of the new 2026 deductions from the One Big Beautiful Bill Act (OBBBA) shrinks as your income rises, and each uses modified adjusted gross income (MAGI) as the trigger. If you earn above a threshold, part or all of the deduction disappears. Getting the phaseout right is often the single most important step in estimating your benefit, because two workers with identical overtime or tips can end up with very different deductions once income is factored in. This guide explains what MAGI is and how the phaseouts are shaped. For the caps that the phaseouts reduce, read the pillar guide first.

What MAGI means here

Adjusted gross income (AGI) is the subtotal at the bottom of the first page of your return. Modified adjusted gross income takes AGI and adds back certain items the law specifies, such as some foreign-earned income exclusions. For most wage earners with no foreign income, MAGI is close to or equal to AGI. The IRS defines the exact MAGI computation for each deduction, and you should confirm the definition that applies to you on IRS.gov, because "MAGI" is not one universal number; it is defined per provision.

Two shapes of phaseout

The OBBBA deductions use two different phaseout shapes, and knowing which applies changes your estimate. The overtime, tips, and car loan interest deductions use a step reduction: the cap drops by a set dollar amount for every $1,000 of MAGI above the threshold. The extra senior deduction uses a percentage reduction: it falls by a percentage of every dollar of MAGI over its threshold. Both reach zero, but they get there on different slopes, and the car loan interest deduction in particular phases out fastest of all.

A worked step-phaseout example

Use clearly labeled example numbers and confirm the current thresholds on IRS.gov. Imagine a single filer whose overtime deduction cap is $12,500 and whose phaseout begins at $150,000 of MAGI, dropping $100 for every $1,000 above that line. If this filer's MAGI is $170,000, they are $20,000 over the threshold, which is 20 increments of $1,000. Twenty increments times $100 is a $2,000 reduction, so the cap falls from $12,500 to $10,500. The worker's actual deductible overtime is then the smaller of their true overtime premium and that reduced $10,500 cap. Note that the phaseout limits the cap, not necessarily your deduction; if your overtime premium is only $3,000, you still deduct $3,000 because it is under the reduced cap.

A worked percentage-phaseout example

The senior deduction works differently. Suppose the extra senior deduction is $6,000 per qualifying taxpayer and is reduced by 6 percent of MAGI over $75,000 for a single filer. A single filer age 67 with $105,000 of MAGI is $30,000 over the threshold. Six percent of $30,000 is $1,800, so the $6,000 deduction is reduced to $4,200. The full walkthrough of the senior rules, including the joint-return figures, lives in the article on the senior deduction.

Why the thresholds differ by filing status

Each deduction has separate thresholds for single and joint filers, and the joint threshold is generally higher but usually not double the single figure. That means your filing status can materially change whether you keep a deduction. Because the phaseouts are keyed to a shared MAGI, a household with two strong incomes can find several deductions phasing out at once. The interaction between filing status and these deductions is covered in filing jointly vs separately in 2026, which matters most for married couples near a threshold.

How to estimate your own phaseout

To estimate your position, start with a realistic MAGI for the year, then compare it to each deduction's threshold. For the step-based deductions, count the full $1,000 increments over the line and multiply by the per increment reduction. For the senior deduction, multiply the excess by the stated percentage. The three subdomain calculators linked from the hub home page apply these phaseouts automatically once you enter your income, which is the reliable way to see the combined effect when you qualify for more than one deduction at the same income.

Levers that can lower your MAGI

Because the phaseouts are driven by MAGI, anything that legitimately lowers your MAGI can preserve more of a deduction. Traditional retirement plan contributions and health savings account contributions, where you are eligible, generally reduce adjusted gross income and therefore can reduce MAGI. So can other above-the-line deductions you already qualify for. The OBBBA deductions themselves are above-the-line, which means they lower AGI too, though each provision's MAGI definition specifies exactly what is counted. The takeaway is not to chase deductions for their own sake but to recognize that near a threshold, an ordinary retirement contribution can have an outsized effect by rescuing part of a phasing-out deduction. Confirm eligibility and limits for any such contribution on IRS.gov.

Watch the cliffs versus the slopes

These deductions phase out gradually rather than dropping to zero at a single dollar of income, so there is no hard cliff where one extra dollar erases the whole benefit. That is friendlier than an all-or-nothing rule, but it also means the deduction erodes steadily across a wide income band. For a worker whose income sits in the middle of a phaseout range, a raise or a large bonus does two things at once: it adds taxable income and it shrinks the deduction, so the marginal effect is larger than the headline tax rate alone suggests. Understanding where you sit in each range helps you read the true value of additional income, which is exactly what the calculators are built to show.

General information, not tax advice

This article is general information about how income affects the 2026 deductions and is not tax advice. The thresholds, increments, and percentages are set by the OBBBA statute and IRS guidance and may be adjusted, and the example figures here are illustrative. Confirm the current numbers and the exact MAGI definition for your situation at IRS.gov, and consult a qualified tax professional before you file.