Your Income Could Shrink Your Refund. So Change the Math
You’ve probably heard the buzz: A number of new tax breaks — including deductions for tip income, overtime pay, and auto loan interest — could make your federal tax refund unusually big this year, bumping the average up by $675 to over $3,800.
But qualifying for these benefits isn’t a one-size-fits-all deal. The deductions were designed with “phase-outs,” meaning if your income is too high, you won’t get the full benefit and maybe nothing at all. (For example, you can deduct up to $12,000 in tip income, but that number shrinks if you earn more than $150,000.)
The good news? You can influence how your income is calculated. The IRS bases eligibility on your Modified Adjusted Gross Income, or MAGI, and if your MAGI is over the threshold (but not too over), there may be ways you can dial it back — like contributing more to a 401(k), traditional IRA, or Health Savings Account. Then you’re not leaving money on the table and you have more savings tucked away for the future.
Of course, every situation is different and the math can get complicated, but knowing that you have a say in your taxable income can help you determine whether it’s worthwhile to explore these options further with a tax planner or financial adviser. And because the One Big Beautiful Bill Act authorized the tax breaks through 2028, getting a handle on the rules now can help you plan ahead — even if you don’t make any changes before this year’s filing deadline.
Calculating MAGI
MAGI is calculated differently depending on the specific tax break. Generally speaking, it’s your gross income minus certain deductions and tax-exempt income.
For the OBBBA tax benefits, you can calculate your MAGI with the IRS’s new Schedule 1-A form, or to get a ballpark, look at your Adjusted Gross Income, or AGI, on your last tax return.
Phase-Outs for New OBBBA Tax Deductions
The OBBBA added four new tax deductions that can be taken on top of the standard deduction. With each one, your MAGI determines whether you can take the maximum deduction, a partial deduction, or none at all.
| Deduction Type | Maximum Deduction (Single Filer) | MAGI Phase-Out Range (Single Filer) | Maximum Deduction (Joint Filer) | MAGI Phase-Out Range (Joint Filer) |
|---|---|---|---|---|
| Tip Income | $25,000 | $150,000-$400,000 | $25,000 | $300,000-$550,000 |
| Overtime Pay | $12,500 | $150,000-$275,000 | $25,000 | $300,000-$550,000 |
| Auto Loan Interest | $10,000 | $100,000-$150,000 | $10,000 | $200,000-$250,000 |
| Age 65+ | $6,000 | $75,000-$175,000 | $12,000 | $150,000-$250,000 |
Source: IRS, Morningstar, Brinker Simpson
How to Reduce Your MAGI
Contributing to a tax-advantaged savings account is by no means the only way to reduce your taxable income, but it’s one of the most common and straightforward. It’s too late to make 2025 contributions to your 401(k), but there’s still time for your traditional IRA or Health Savings Account.
Bonus tip: MAGI is also used to determine eligibility for Affordable Care Act subsidies, so if you buy marketplace insurance, you may want to explore the same types of strategies.
| Account | 2025 Individual Contribution Limit | 2026 Individual Contribution Limit | Contribution Deadline |
|---|---|---|---|
| 401(k) | $23,500 | $24,500 | Dec. 31 |
| Traditional IRA | $7,000 | $7,500 | Tax filing deadline (usually April 15) of the following year |
| Health Savings Account (HSA) | $4,300 individual / $8,550 family | $4,400 individual / $8,750 family | Tax filing deadline (usually April 15) of the following year |
Source: IRS
So what?
When it comes to taxes, you never want to leave money on the table. So instead of taking a “wait and see” approach to your tax refund, be proactive and strategic about your financial levers. With a little extra legwork and some planning, you may be able to tilt the math in your favor.
Related Reading
Understanding How MAGI Impacts Your Retirement Strategy: A Simple Guide (Institute of Financial Wellness)
Taxes 2025-2026: One Big Beautiful Bill Act Tax Law Changes and How That Impacts You (TurboTax)
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