Tax Planning
Navigating the One, Big, Beautiful Bill: Overtime & Car Loan Interest Deductions Simplified
Understanding the new One, Big, Beautiful Bill Act (OBBB) deductions on **qualified overtime pay** and **personal vehicle loan interest** can unlock meaningful tax savings. This article covers who qualifies, how to claim, and what employers/lenders need to do.
By NomadicTax Research Team • 5-8 min read • December 23, 2025
## Overview of New OBBB Deductions
The One, Big, Beautiful Bill Act, enacted in **July 2025**, introduces sweeping tax changes for individuals through 2028—especially with respect to **qualified overtime pay** and **car loan interest** deductions. These aren’t only for those itemizing; even non-itemizers may benefit. Knowing the eligibility, reporting requirements, and income phase-outs can make a big difference. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
## Qualified Overtime Pay Deduction
**What qualifies**: The portion of overtime pay exceeding the regular rate (e.g. the “half” portion of time-and-a-half) under the Fair Labor Standards Act (FLSA), reported on a Form W-2, 1099, or similar statement. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
**Deduction limits**: Up to **$12,500** annually for single filers (or taxpayers filing separately), **$25,000** for joint filers. But phased out once your *modified adjusted gross income (MAGI)* exceeds **$150,000** ($300,000 for joint filers). ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
**Eligibility**:
- Any individual earning qualified overtime
- Must include their SSN on the return
- Married taxpayers must file **jointly** to claim this deduction unless just one spouse earned qualified overtime and qualifies individually. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
## Deduction for Car Loan Interest on Qualified Vehicles
**What qualifies**: Interest on loans used to purchase **new, U.S.-assembled vehicles** (cars, SUVs, motorcycles, vans) that are **personal use only**, under **14,000 lbs** gross vehicle weight. Leases are excluded. Loans must originate after Dec. 31, 2024. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
**Deduction caps & phase-outs**: Up to $10,000 annually. Phased out for MAGI above **$100,000** (or $200,000 for joint filers). Both itemizers and non-itemizers are eligible. Must report the **VIN** on your return. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
## What Employers and Lenders Must Know
- **Employers/payors** must report **qualified overtime compensation** and furnish statements to employees showing the amounts. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
- **Lenders** or interest recipients must file information returns and provide statements showing interest received on qualifying loans. For 2025, the IRS is providing *transition relief*, relaxing penalties if lenders make interest information available through similar means (online portals, statements, etc.) ([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))
## Transition Relief & Timeline
- For tax year **2025**, the IRS is not imposing penalties for failing to report perfectly the new items, as systems evolve. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-penalty-relief-for-tax-year-2025-for-information-reporting-on-tips-and-overtime-under-the-one-big-beautiful-bill?utm_source=openai))
- The deductions are *effective 2025 through 2028*. For car loan interest deduction: loans must be incurred after Dec. 31, 2024. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
## Practical Example
**Maria**, single filer, earns $160,000 in MAGI in 2025. She works part-time as a Lyft driver and earns an extra $3,000 in overtime compensation beyond her regular rate. She can claim the **overtime deduction** of $3,000 since her MAGI is above the $150,000 threshold—so her deduction will be **reduced** by $100 for every $1,000 over $150,000 (i.e. $100 * 10 = $1,000), making her deduction $2,000.
Separately, she takes out a loan in 2025 to buy a qualifying SUV (final assembly in US, under 14,000 lbs) and pays $8,000 interest during the year. Since her MAGI is $160,000 (above the $100,000 single-threshold), her car loan interest deduction phase-out applies: her phased deduction amount would be reduced accordingly. But since she is non-itemizer, she still qualifies to claim it.
## Action Steps
1. Track your overtime compensation separately—ensure pay stubs clearly show the portion above regular rate.
2. If you buy a new vehicle, confirm final assembly and record VIN; keep lender statements or portal confirmations of interest paid.
3. Employers and lenders: prepare to update payroll systems & reporting processes for 2025; take advantage of IRS relief to avoid penalties during transition.
## Key Takeaways
- These deductions apply **starting 2025 and ending 2028**.
- Both itemizers and non-itemizers may benefit.
- New reporting requirements for employers, payors, and lenders—but with relief in 2025.
- For high earners, MAGI limitations will phase out benefits.
Integrating these provisions into your planning—especially for 2025—can yield substantial savings. Ensure accurate documentation, stay ahead of reporting obligations, and review MAGI thresholds to optimize your benefit.