OBBBA Deep Dive — Part 6: The Final Pieces of the Tax Planning Puzzle
The One Big Beautiful Bill Act (OBBBA) didn’t just overhaul high-profile areas like SALT deductions, charitable giving, AMT, estate planning, and Trump Accounts. It also introduced a set of quieter provisions aimed squarely at everyday income — particularly for seniors and working households.
These changes may not dominate headlines, but for many families they’ll have a real impact on annual cash flow and tax planning decisions over the next several years.
That’s why Part 6 of the OBBBA Deep Dive focuses on these miscellaneous provisions — including the new senior deduction and deductions tied to overtime and tips — and why the details matter more than the slogans.
A Common Thread: These Are Deductions, Not Exemptions
A key theme across these provisions is how they’re structured. Despite the popular phrasing around “no tax,” most of these benefits take the form of above-the-line or adjusted deductions, not income that disappears entirely from the tax return.
That distinction is important. That distinction matters. Wages, tips, and overtime pay are still income. Payroll taxes may still apply. State income taxes may still apply. And in many cases, income thresholds quietly determine how much benefit you actually receive.
“With OBBBA, the headline sounds simple — but the tax return rarely is.”
Understanding where a benefit shows up on the return often determines whether it meaningfully lowers your tax bill or simply shifts it around.
The New Senior Deduction
OBBBA created a new temporary deduction for individuals age 65 and older, available from 2025 through 2028. Beginning with the 2025 tax year, each taxpayer who is 65 or older can claim up to an additional deduction of up to $6,000. This deduction is layered on top of the existing age-based standard deduction increase and can provide meaningful relief — especially for retirees living primarily on taxable income.
However, the benefit phases out as income rises. The enhanced senior deduction starts to phase out when modified AGI exceeds $75,000 (single) and $150,000 (MFJ). That means retirees hovering near the threshold may see very different outcomes depending on how income is sourced and timed — whether from IRA distributions, Roth conversions, capital gains, or part-time work.
“For retirees, the question isn’t just how much income you have — it’s when and how you recognize it.”
This provision reinforces a broader trend under OBBBA: income management matters just as much in retirement as it did during peak earning years.
Overtime Pay: Relief With a Very Specific Definition
The overtime provision has been widely summarized as “no tax on overtime,” but IRS guidance makes clear that the benefit is far narrower — and more technical — than the headline suggests.
Under OBBBA, only qualified overtime compensation is eligible for the deduction. This does not mean all pay received for working extra hours. Instead, it generally refers only to the overtime premium required by federal labor law, typically the “time-and-a-half” portion mandated under the Fair Labor Standards Act.
For example, if an employee earns $30 per hour and is paid $45 per hour for overtime, the portion potentially eligible for the deduction is the $15 premium, not the full $45. Any additional overtime pay provided beyond what the law requires does not qualify.
“Not all overtime pay is ‘qualified’ — and that distinction is where planning either works or breaks down.”
Eligibility also depends on whether the worker is actually covered by — and not exempt from — federal overtime rules. Job duties, classification, and pay structure all matter. Simply receiving overtime pay does not automatically mean the deduction applies.
The deduction itself is capped annually and phases out as income increases. Married taxpayers must file jointly to claim it and proper reporting is essential. Beginning in future tax years, employers and payers will be required to separately identify qualified overtime amounts, adding another layer of coordination between payroll systems and tax filings.
Tips: A Deduction With Similar Constraints
OBBBA also introduced a deduction for qualified tips, again framed publicly as “no tax on tips.” Like overtime, this provision operates as a deduction subject to caps, income thresholds, and eligibility rules. It applies to workers in jobs that “customarily and regularly” received tips before 2025 (e.g., restaurant servers, bartenders, salon workers, certain gig platforms handling tips).
Tips must be properly reported (e.g., via W‑2 wages and/or Form 4137 for unreported tips, or documented tips for SE workers) to be treated as qualified tip income. The deduction begins to phase out when MAGI exceeds $150,000 (single and other non‑MFJ) or $300,000 (MFJ).
For workers with variable earnings, the planning challenge is less about whether tips are taxable — they are — and more about how deductions interact with withholding, estimated taxes, and other income-based limitations.
How These Provisions Fit Into the Bigger OBBBA Picture
Taken together, these miscellaneous provisions reinforce what we’ve seen throughout the OBBBA Deep Dive series: the law favors coordination over optimization.
Senior deductions interact with Roth conversion strategies. Overtime and tip deductions can influence withholding and phaseouts. And all of it layers on top of the broader changes to deductions, estate planning, and long-term savings tools already covered.
The Bottom Line
The miscellaneous provisions of OBBBA may look straightforward, but their real value depends on income timing, accurate reporting, and multi-year planning.
For some households, these changes will provide meaningful relief. For others, the benefit may be modest once caps, phaseouts, and interactions are considered. Either way, they reinforce the importance of proactive planning rather than reactive filing.
If you’d like help evaluating how these provisions fit into your broader tax and retirement strategy — especially as we look toward 2026 and beyond — I’m happy to help you think through the trade-offs thoughtfully and intentionally.
