Rules used
- Tips: qualified tips capped at $25,000 per return, minus $100 per full $1,000 of MAGI over $150,000 ($300,000 MFJ). Not allowed for married filing separately.
- Overtime: FLSA-required premium capped at $12,500 ($25,000 MFJ), same phase-out as tips. Premium from hours = regular rate × 0.5 × hours; from time-and-a-half pay = pay ÷ 3.
- Car loan interest: capped at $10,000, minus $200 per $1,000 or fraction of MAGI over $100,000 ($200,000 MFJ). Interest estimates use a standard fixed-rate amortization schedule and count payments falling in the tax year.
- Seniors: $6,000 per qualifying person, each reduced by 6% of MAGI over $75,000 ($150,000 MFJ).
- Tax: 2025 and 2026 ordinary income brackets and standard deductions, including the additional standard deduction for age 65 ($2,000/$1,600 for 2025; $2,050/$1,650 for 2026). Qualifying surviving spouses use joint brackets and single phase-out thresholds.
Simplifications
- MAGI is treated as equal to the AGI you enter.
- We assume the standard deduction and ignore credits, capital gains rates, AMT and state taxes.
- Savings are the difference in federal income tax with and without the deductions.
Test cases the engine must pass
- Car loan: single, $12,000 interest, MAGI $120,600 → $5,800 deduction (TurboTax worked example).
- Seniors: single at $100,000 → $4,500; $95,000 → $4,800; $130,000 → $2,700.
- Tax: head of household 2026, $100,000 income → $9,588 federal tax.
- Loan: $32,000 at 6% for 60 months → $618.65 payment, $5,118.98 total interest.
31 automated checks run before every update.
Sources
- IRS FS-2025-03: Tax deductions for working Americans and seniors
- IRS: Tax year 2026 inflation adjustments (Rev. Proc. 2025-32)
- IRS: Schedule 1-A and instructions
- PwC summary of IRS Fact Sheet 2026-13 (overtime FAQs, Aug. 6, 2026)
See how Taxlumo calculates for every formula and test case.