Compliance
Navigating New Deduction Rules for Tips, Overtime & Car Loan Interest Under OBBB
The OBBB introduces novel deductions starting 2025 through 2028 for qualified tips, overtime, and car loan interest—key for both employees and self-employed workers.
By NomadicTax Research Team • 5-8 min read • November 15, 2025
## New deduction categories under the OBBB
Here are three major deductions introduced by the One, Big, Beautiful Bill that become available in 2025 and run through 2028, each with income limits and criteria. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions?utm_source=openai))
| Deduction | What it covers | Key limits & eligibility |
|---|---|---|
| **No Tax on Tips** | Cash or charged tips from customers or tip-sharing, reported via W-2, 1099, or 4137, for jobs ‘customarily and regularly’ receiving tips before end-2024. | Max deduction $25,000 per year. Phase-out begins at MAGI $150,000 ($300,000 joint filers). Self-employed in SSTB not eligible. ([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** | “Half-time” portion of “time-and-a-half” pay above regular rate, under FLSA requirements. Reported on W-2, 1099, etc. | Max is $12,500 for single filers, $25,000 joint. Phase-outs begin at same MAGI thresholds. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions?utm_source=openai)) |
| **Car Loan Interest Deduction** | Interest on a loan to purchase a new, U.S.-assembled eligible vehicle used personally. | Limit of $10,000 interest. Must originate after Dec 31, 2024. Phase-out starts at $100,000 MAGI ($200,000 joint). Lease payments don’t qualify. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions?utm_source=openai)) |
## What it means for compliance & reporting
- Taxpayers must report details: employer identification, occupation for tips; include VIN and loan details for car interest. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions?utm_source=openai))
- Employers, lenders, and payors must furnish information statements. IRS is issuing rules to define ‘customarily and regularly’ occupation list. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors?utm_source=openai))
- Transition relief is available for these new reporting requirements for 2025. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions?utm_source=openai))
## Tips to make the most of these deductions
- **Track every tip and overtime**: Keep accurate records to support deductions. If you receive tips in cash, a tip sharing pool, or via credit, record them clearly.
- **Check your income**: Phase-out thresholds mean once your modified AGI crosses certain levels, benefits reduce rapidly.
- **Use buy vs lease analysis**: For car interest deduction, buying may yield tax benefits vs leasing.
- **Consult with payroll or tax professionals**: Employers will have to adjust reporting to meet new requirements; avoid unexpected withholding or reporting penalties.
## Example scenario
Imagine a restaurant worker earning a base wage plus tips. In 2025, they receive $20,000 in tips. Under the OBBB tip deduction, if they’re eligible (not SSTB, etc.), they could deduct those tips from income (up to the maximum), reducing taxable income and saving potentially thousands in tax. If married filing jointly and earning $140,000, deductions may phase out partially.
These deductions are newly complex, especially from a documentation and MAGI perspective—addressing them early will help avoid trouble during filing season.