New Deductions Under the One Big Beautiful Bill Act
The OBBBA introduces targeted relief for workers and seniors. These are temporary (2025-2028) but can significantly reduce taxable income.
No Tax on Tips
Overview: Taxpayers may deduct the "premium" portion of federally mandated overtime pay—typically the "half" in "time-and-a-half."
Limits: Up to $12,500 single/$25,000 joint. Phases out above $150,000/$300,000 MAGI.
Eligibility: Applies to FLSA-required overtime reported on W-2/1099. Must be U.S. work.
Example: James, a warehouse worker, earns $60,000 base pay and $8,000 overtime ($2,666 premium). His MAGI is $70,000. He can deduct the full $2,666 on Schedule 1-A.
No Tax on Overtime
Overview: Deduct qualified tips in tipped occupations (e.g., bartenders, waitstaff, valets).
Limits: Up to $25,000. Phases out above $150,000/$300,000 MAGI.
Eligibility: Voluntary tips reported on W-2/1099/4137. Automatic charges don't qualify.
Example: Maria, a bartender, earns $18,000 reported tips. Her joint MAGI with spouse is $250,000. She deducts $18,000 on Schedule 1-A.
No Tax on Car Loan Interest
Overview: Deduct interest on loans for new personal vehicles.
Limits: Up to $10,000 annually. Phases out above $100,000/$200,000 MAGI.
Eligibility: New vehicle assembled in U.S.; loan originated after 2024 with VIN and lender statement.
Example: Tasha finances a new Ford Escape in 2025 with $3,200 interest paid. Her MAGI is $90,000. She deducts $3,200 on Schedule 1-A.
Enhanced Deduction for Seniors
Overview: Additional deduction for those 65+ by Dec. 31 of the tax year.
Limits: $6,000 per person ($12,000 joint). Phases out above $75,000/$150,000 MAGI.
Eligibility: Valid SSN; file jointly if married.
Example: George and Linda, both 67, file jointly with $160,000 MAGI. Their deduction is reduced by 6% over threshold, resulting in $11,400 total on Schedule 1-A.