Tax Planning
How the One, Big, Beautiful Bill Transforms Deductions: Tips, Overtime & Car Interest Explained
The new One, Big, Beautiful Bill introduces major deductions for tips, overtime pay, and car loan interest from 2025-2028—this article breaks down eligibility, reporting, and how to maximize the benefits.
By NomadicTax Research Team • 5-8 min read • November 20, 2025
## What Is the One, Big, Beautiful Bill (OBBB)?
This law, enacted July 4, 2025 as Public Law 119-21, introduces sweeping tax changes that take effect **for tax years 2025 through 2028**. Three of the most notable additions are the **deduction for tips**, the **deduction for qualified overtime**, and the **deduction for car loan interest**. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors?utm_source=openai))
## Deductions: Who Qualifies & What to Know
| Deduction Type | What’s New | Key Points to Know |
|---|---|---|
| **“No Tax on Tips”** | Eligible employees/self-employed individuals may deduct qualified tips if they are in occupations **customarily and regularly** receiving tips as of December 31, 2024. Annual cap: **$25,000** (or limited by net income for self-employed). Phases out for MAGI over $150K (single) / $300K (joint). ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions?utm_source=openai)) | IRS must publish the eligible occupations list by **October 2, 2025**. Reporting and information returns required for employers/payors. Transition relief provided for tax year 2025. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors?utm_source=openai)) |
| **“No Tax on Overtime”** | Individuals may deduct the pay exceeding the regular rate (e.g. the “half-portion” of “time-and-a-half”). Annual cap: $12,500 (single), $25,000 (joint). Phases out same as tips deduction. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors?utm_source=openai)) | Reporting by employer/payors required. Employers need to furnish statements showing overtime compensation. Transition relief for 2025 applies. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors?utm_source=openai)) |
| **“No Tax on Car Loan Interest”** | Interest on a loan to purchase a **qualified vehicle** used personally, purchased after December 31, 2024, is deductible. Cap: $10,000. Phase-out starts at MAGI over $100,000 (single) / $200,000 (joint). Vehicle must be assembled in the U.S., VIN reported on return. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors?utm_source=openai)) | Lenders required to report information to both IRS and borrowers when interest ≥ $600. Transition relief for 2025: statement can be online portal, monthly or annual statement, etc. No penalties if requirements met in those ways. ([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)) |
## Practical Examples
- **Example 1**: Jane, a single server making $140,000 ($MAGI), receives $30,000 in cash tips per year. She works in a listed occupation. She can deduct up to $25,000 (per OBBB's cap) for tips, subject to MAGI phase-out rules. She should ensure her employer or she maintains proper documentation.
- **Example 2**: Mark earns overtime pay. His regular rate is $30/hr, overtime pay (1.5x) means $45 for extra hours. The “half portion” (i.e. $15/hr for overtime hours) might be deductible, up to the caps and phase-outs.
- **Example 3**: Sara buys a new SUV on January 10, 2025. The vehicle’s assembly is done in the U.S., cost financed via loan. She pays $1,200 in interest during the year. Since the loan is qualified and she reports the VIN on her return, she may deduct up to that amount (within the $10,000 cap).
## Actionable Advice
1. **Determine eligibility early**: Find out whether your occupation qualifies for the tips deduction—expect IRS to publish a list by **October 2, 2025**. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors?utm_source=openai))
2. **Collect documentation**: Employers and lenders who need to report interest or tips must issue statements or provide via online portals. Keep copies.
3. **Check MAGI thresholds**: Before overcontributing to anything, know where you fall in terms of MAGI to avoid losing deduction via phase-out.
4. **File correctly**: Ensure you include your Social Security Number, Vehicle Identification Number (VIN) where applicable, and file jointly if married when required.
5. **Use transition relief**: For 2025, many reporting and penalty rules are relaxed. Take advantage while still implementing full compliance.
## What If You're Self-Employed or In a SSTB?
Self-employed individuals may qualify for tips or overtime deductions, but if operating in a “Specified Service Trade or Business” (SSTB) under section 199A, some deductions (especially tips) might be disallowed. Always confirm. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors?utm_source=openai))
## Conclusion
The OBBB Act offers **valuable new ways to reduce taxable income** via tips, overtime, and vehicle interest deductions. To fully benefit, start planning now—ensure occupation status, vehicle eligibility, and keep your documentation straight. With proper compliance in 2025 and beyond, these deductions can meaningfully impact your taxes in the next four years.