Compliance
How the One, Big, Beautiful Bill Changes Deduction Rules: Compliance Tips for Individuals and Businesses
From qualified tips deductions to no-tax car loan interest, the One, Big, Beautiful Bill introduces sweeping changes—learn how to stay compliant and avoid penalties.
By NomadicTax Research Team • 5-8 min read • November 21, 2025
## Key Changes Introduced by the One, Big, Beautiful Bill (OBBB)
- **No tax on tips**: Employees and qualifying self-employed individuals can deduct tips earned in roles “customarily and regularly” tipped, subject to income thresholds and reporting requirements. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions?utm_source=openai))
- **Overtime compensation deductions**: The portion of overtime pay over regular rate (as per FLSA) may now be deductible. Maximums apply depending on filing status. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions?utm_source=openai))
- **Car loan interest deduction**: Interest on loans for qualified passenger vehicles purchased after Dec 31, 2024, used personally (not businesses), may be deductible. New reporting obligations for lenders also apply. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions?utm_source=openai))
- **Standard deduction increases & senior deduction**: Standard deduction increased for tax years 2025 & 2026; additional deduction available for taxpayers 65+ with income below certain thresholds. ([irs.gov](https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill?utm_source=openai))
## Compliance Obligations and Reporting
- Employers/payors must report tips and overtime information in specified statements. New reporting threshold for car loan interest under Section 6050AA will require statements or online disclosures to buyers. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-transition-relief-for-2025-for-businesses-reporting-car-loan-interest-under-the-one-big-beautiful-bill?utm_source=openai))
- Notice 2025-57 provides **transitional relief for 2025**, meaning penalties may be waived if lenders satisfy reporting obligations by providing statements (online, monthly, annual) to borrowers showing interest paid. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-transition-relief-for-2025-for-businesses-reporting-car-loan-interest-under-the-one-big-beautiful-bill?utm_source=openai))
- Form 1099-K thresholds revert to **$20,000 and 200 transactions**, undoing lower thresholds put in place under ARPA. This alters reporting obligations for third-party settlement organizations. ([irs.gov](https://www.irs.gov/newsroom/irs-issues-faqs-on-form-1099-k-threshold-under-the-one-big-beautiful-bill-dollar-limit-reverts-to-20000?utm_source=openai))
## Actionable Advice for Individuals
- Review your occupation: Only roles that IRS designates as “customarily and regularly” tip-based qualify for the tips deduction. Confirm if your job title is included in guidance. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions?utm_source=openai))
- Track overtime pay separately: Documentation showing regular rate vs. overtime premium will be essential. Keep payroll records and employer statements. |
- If you took a car loan for a qualifying vehicle, ensure you save the loan agreement, VIN, and statements justifying whether the vehicle underwent final assembly in the US. Ask your lender for annual statement of interest paid. |
## Actionable Advice for Businesses and Employers
- Update payroll and reporting systems by end-of-2025 to handle tip and overtime data according to the new rules. Employers will be responsible for furnishing statements showing tips/overtime compensation. “Transition relief” for penalties may apply in 2025. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions?utm_source=openai))
- Lenders of qualified passenger vehicle loans should ensure they have systems in place for borrower statements of interest, VIN, loan origin date, etc. Use online portals, monthly statements, or a similar means to satisfy reporting under Section 6050AA. Transition relief applies for calendar year 2025. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-transition-relief-for-2025-for-businesses-reporting-car-loan-interest-under-the-one-big-beautiful-bill?utm_source=openai))
- If your business or you received or issued Form 1099-K reports, recheck thresholds and update internal accounting to accommodate the $20,000/200 transaction rule. Avoid surprises and possible auditing issues. ([irs.gov](https://www.irs.gov/newsroom/irs-issues-faqs-on-form-1099-k-threshold-under-the-one-big-beautiful-bill-dollar-limit-reverts-to-20000?utm_source=openai))
## Penalties and Reliefs to Know
- For car loan interest reporting, the IRS will **not impose penalties** for failure to file info returns or furnish statements in 2025 **if** lenders meet transitional guidance requirements. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-transition-relief-for-2025-for-businesses-reporting-car-loan-interest-under-the-one-big-beautiful-bill?utm_source=openai))
- Similarly, for tips and overtime reporting, there’s **penalty relief** for tax year 2025 under certain conditions. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions?utm_source=openai))
- However, for tax year 2026 and beyond, full compliance will be expected under standard rules.
## Example Scenarios
- **Freelancer Nikki** works as a bartender (qualifying tipped occupation). She earns $30,000 in tips and has AGI of $120,000. She may now deduct her tips, up to a cap and considering filing jointly or singly, assuming she meets all reporting requirements. |
- **Lender “AutoFirst Finance”** collected interest on passenger vehicle loans in 2025. To meet Section 6050AA in 2025 and avoid penalties, they publish an online statement accessible to buyers showing total interest paid. They also ensure each statement includes vehicle makes/models or VINs. |
## Final Thoughts
The OBBB Act’s changes are sweeping and affect both common income sources (tips, overtime) and auto financing. For individuals, keeping detailed records and reviewing delinquency thresholds are crucial. Businesses must update systems and comply with reporting obligations. Transition reliefs for 2025 provide breathing room—but getting in alignment now will prevent headaches later.