The One Big Beautiful Bill enhanced several deductions (such as the SALT deduction, overtime, tips, etc.). However, each of these deductions have certain phase-out ranges and depending on where your final taxable income falls, the marginal tax rate can increase, and the increase can be dramatic.
For a married couple whose adjusted gross income is between $500,000 and $544,600 in 2025, the marginal tax rate for most of these couples is 32%, however, if you have certain deductions the tax rate can increase as follows:
Let’s assume the couple is limited to the $40,000 State and Local Tax Deduction (SALT). In this case, the SALT deduction will be phased down from $40,000 to $10,000 which is a 30% reduction. This results in an increase to the marginal tax rate to 41.60%.
Now let’s assume that the taxpayer is subject to a Section 199A deduction that is being fully phased out. This in conjunction with the SALT phase-out now increases the marginal tax rate to 47.1%.
Now let’s assume the spouse has overtime pay of $25,000. Adding in the phase-out of this deduction now increases their marginal tax rate to 51.9%.
Finally, let’s assume this married couple lives in California where their state tax rate is 11.3%.
This makes their marginal tax rate for income between $500,000 and $544,600 at 63.2%. For single taxpayers facing a SALT phase-out, their marginal tax rate would be 45.5% assuming they are in the 35% tax bracket.
The bottom line is most taxpayers in this situation have a great incentive to reduce their income under $500,000 if they can.