What’s New Under the OBBB for Deductions
The One, Big, Beautiful Bill introduces permanent and temporary deductions designed to reduce tax burdens across many categories:
- No tax on qualified tips: Eligible workers can deduct up to $25,000 in tips that are ineligible to income tax for tax years 2025–2028. This includes occupations like bartenders, gas pump attendants, floral designers, and more (see final regulations for full list). (irs.gov)
- No tax on overtime compensation: Deductions up to $12,500 for individuals (or $25,000 if married filing jointly), phased out for higher earners. (irs.gov)
- No tax on car loan interest: Qualified passenger vehicle loan interest incurred by individuals is now deductible, regardless of whether they itemize or take the standard deduction. (irs.gov)
- Enhanced deduction for seniors: Taxpayers born before January 2, 1961, get an additional deduction, phase-outs apply depending on income. (irs.gov)
Practical Examples: How These Deductions Work
| Scenario | What You Earned/Spent | Deduction Available |
|---|---|---|
| Jane, bartender, $20,000 in qualified tips in 2025, single filing | Receives tips reported on W-2 & Form 1099-K | Deduct up to $25,000 of qualified tips because her income is under the phase-out threshold. |
| Mark, salaried worker with overtime pay of $15,000 | Makes overtime under FLSA definitions, files jointly | Deduct $12,500 (or $25,000 if married joint) capped by MAGI limits, so here he gets full deduction. |
| Laurie, senior born in 1959, income $120,000 | QSEN, standard deduction claimed | Takes enhanced deduction allowed for seniors; phases out as income rises. |
How to Claim and What to Watch For
- File your taxes using Schedule 1-A with your 2025 Form 1040. The instructions and worksheets explain how to compute “qualified tips,” “qualified overtime,” car loan interest, and the senior deduction. (irs.gov)
- Income phase-outs apply: For example, deductions for tips, overtime, etc., phase out when your MAGI exceeds $150,000 (if single) or $300,000 (if married filing jointly). (irs.gov)
- Regardless of whether you itemize or take the standard deduction, these new deductions are available. This is a big change—no longer tied to itemization for these particular deductions. (irs.gov)
Tax Planning Tips Before You File
- Keep accurate records: tips (cash, credit card, digital), overtime hours/payments, car loan interest statements, and your date of birth for senior credit.
- If close to a phase-out threshold, evaluate whether adjustments to income (deferring income, contributing to retirement accounts, etc.) could preserve more deduction benefit.
- Software & professional help: most tax prep software now includes these new rules; tax advisors should be aware of the occupation code list and ensure “qualified tips” meet criteria. (irs.gov)
The bottom line: The OBBB dramatically broadens deductions for many workers. Whether you’re a tipped worker, earning overtime, a senior, or paying interest on a qualified car loan—you likely have new tools to reduce taxable income. Make sure you assess your eligibility before your 2025 return due in 2026.