Overtime phase out

[Anthonyfr]

I entered my overtime with my W-2 and my AGI is over the $300,000 amount where the phase out begins for married filed jointly.  I received this message and my deduction is $0.  The information on the TurboTax website says the phase out amount starts at $25,000 and should be reduced from there but the software seems to be taking that amount from what I claimed instead.  I should be able to claim $25,000 minus $7,700 for a maximum of $17,300 which my current amount is well below.

“You have $6,984 in qualified overtime, but your income is over the phase-out threshold of $300,000.

This reduces the overtime you can deduct by $7,700, bringing your deduction to $0.”

[DianeW777]

If you would like to send us a “diagnostic” file that has your “numbers” but not your personal information it would help.  If you would like to do this, here are the instructions:  (Don't forget to give us the state)

TurboTax Online:

Open your return -Go to the menu panel on the left side of your return and select Tax Tools. 

1. Then select Tools below Tax Tools.
2. A window will pop up which says Tools Center.  
3. On this screen, select Share my file with Agent.
4. You will see a message explaining what the diagnostic copy is.  Click okay through this screen and then you will get a Token number.
5. Reply to this thread with your Token number and your state. This will allow us to open a copy of your return without seeing any personal information.

TurboTax Desktop:

If you like, you can send a copy of your return that will be scrubbed to eliminate your personal data by using these steps:

1. Click on Online in the top left menu of TurboTax Desktop for Windows
2. Select 'Send Tax File to Agent'* > Follow the prompts to reach the token number.
   • Enter your email used for TurboTax > Enter your code > Send
3. Write down or send an image of your token number and state then place in this issue.
4. We can then review your exact scenario for a solution.
5. Please also tell us any states included in the return. This is necessary for us to view the return.
   • *If using a MAC, go to the menu at the top of the screen, select Help, then, 'Send Tax File to Agent')

We will be able to see exactly what you are seeing and we can determine what exactly is going on in your return to provide you with a resolution.

[Anthonyfru]

I created a diagnostic file and the token is 1326990.  I am in Georgia.

[DianeW777]

Thank you  for sending your diagnostic file. The reason your return shows the amount you reference of $7,700 as example, is the amount by which your overtime would be reduced. 

• How the Phase-Out Works: The deduction is reduced by $100 for every $1,000 of MAGI that exceeds the $300,000 threshold.
  • Let's say the overall adjusted gross income was $400,000. First you would subtract the maximum AGI allowed for a full deduction ($300,000 for MFJ). In my example this would be $100,000 in excess of the limit.
  • Next you will divide $100,000 by $1,000 = $100
  • Finally you multiply $100 x $100 = $10,000 | This amount is used to reduce the overtime you actually received to see if have any deduction remaining.  $6,984 - $10,000 = zero deduction allowed.

Please update here if you have more questions and we will help.

@Anthonyfru 

[Anthonyfru]

My understanding is that the reduction comes out of the maximum allowed which for married filed jointly would start at $25,000 not from the amount that you are claiming.

[DianeW777]

It's not calculated with the maximum overtime number, rather the amount of overtime actually received. 

The amount calculated is the result of determining if you have any amount of overtime you would be allowed to use to reduce income. Based on the income in the example and the amount of the reduction, there is not enough overtime to allow any deduction because of the income level and the amount of actual overtime. 

If the total overtime were actually over $10,000 then there would be a deduction, with a maximum of $15,000 if the actual overtime were $25,000, or more, in my example. 

@Anthonyfru 

[Anthonyfru]

This is a quote of the actual language in the BBB.  The allowable amount for married filed jointly is $25,000 under (b) part (1).  Then it follows to say the allowable amount as a deduction shall be reduced by $100 for every $1,000 over the excess of the MAGI cap which for married filed jointly is $300,000 so the reduction is from the allowable amount not from the amount claimed in the deduction.

139 STAT. 174 SEC. 70202. NO TAX ON OVERTIME.(a) Deduction Allowed.—Part VII of subchapter B of chapter 1, as amended by the preceding provisions of this Act, is amended by redesignating section 225 as section 226 and by inserting after section 224 the following new section: “SEC. 225.

26 USC 225.

QUALIFIED OVERTIME COMPENSATION.“(a)

Statements.

In General.—There shall be allowed as a deduction an amount equal to the qualified overtime compensation received during the taxable year and included on statements furnished to the individual pursuant to section 6041(d)(4) or 6051(a)(19).“(b) Limitation.—“(1) In general.—The amount allowed as a deduction under this section for any taxable year shall not exceed $12,500 ($25,000 in the case of a joint return).“(2) Limitation based on adjusted gross income.—“(A) In general.—The amount allowable as a deduction under subsection (a) (after application of paragraph (1)) shall be reduced (but not below zero) by $100 for each $1,000 by which the taxpayer’s modified adjusted gross income exceeds $150,000 ($300,000 in the case of a joint return).“(B)

Definition.

Modified adjusted gross income.—For purposes of this paragraph, the term ‘modified adjusted gross income’ means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933.

[DianeW777]

Yes. Here are the key lines in your post. 

1. (2) Limitation based on adjusted gross income. (Not the overtime)
2. (A) In general.—The amount allowable as a deduction under subsection (a) (after application of paragraph (1)) shall be reduced (but not below zero) by $100 for each $1,000 by which the taxpayer’s modified adjusted gross income exceeds $150,000 ($300,000 in the case of a joint return).“

This follows the formula used in the example. In the example the AGI has eliminated any deduction for tips. The math is computed on the AGI and not the overtime itself.  The overtime deduction is eliminated based on the formula that must be used.

@Anthonyfru