On July 4, 2025, the One Big Beautiful Bill Act (Public Law 119-21) was signed into law, bringing several major tax deductions designed to benefit working Americans and seniors. The provisions take effect starting with the 2025 tax year and will be available through 2028.
Here’s a breakdown of the new deductions and what they could mean for you.
1. No Tax on Tips
For millions of service workers, tips are a big part of take-home pay. Under the new law, eligible taxpayers can now deduct qualified tips.
- Who qualifies? Employees and self-employed individuals in occupations (as defined by the IRS) that customarily receive tips from customers or tip sharing. The list of qualifying occupations will be published by October 2, 2025.
- Deduction limits: Up to $25,000 per year (limited to net business income for self-employed).
- Income phase-out: Begins at $150,000 MAGI for single filers ($300,000 for joint filers).
- Eligibility rules:
- Both itemizers and non-itemizers can claim it.
- Married couples must file jointly.
- Certain Specified Service Trades or Businesses (SSTBs) are excluded.
- Reporting: Employers and payors must issue statements showing the amount of tips received.
2. No Tax on Overtime
For those who regularly put in extra hours, overtime pay just got more rewarding.
- Deduction covers: The “extra half” portion of time-and-a-half required by the Fair Labor Standards Act (FLSA).
- Deduction limits: Up to $12,500 for individuals or $25,000 for joint filers.
- Income phase-out: Same as the tips deduction ($150,000 / $300,000).
- Eligibility rules:
- Available to both itemizers and non-itemizers.
- Married couples must file jointly.
- Reporting: Employers will be required to show total qualified overtime on tax forms.
3. No Tax on Car Loan Interest
Buying a new car could come with a valuable tax break.
- Deduction covers: Interest paid on a new car loan (leases and used vehicles do not qualify).
- Deduction limits: Up to $10,000 per year.
- Income phase-out: Begins at $100,000 MAGI for individuals ($200,000 for joint filers).
- Qualifying vehicle requirements:
- Original use must start with the taxpayer.
- Weighs less than 14,000 lbs.
- Final assembly must be in the United States (check vehicle info label or VIN).
- Reporting: Lenders must provide annual statements of interest paid.
Note: You’ll need to include your vehicle’s VIN on your tax return when claiming this deduction.
4. Extra Deduction for Seniors
Seniors receive an additional boost under this law.
- Deduction amount: An extra $6,000 per eligible taxpayer age 65+. For married couples where both spouses qualify, that’s $12,000 total.
- Income phase-out: Begins at $75,000 MAGI for individuals ($150,000 for joint filers).
- Eligibility rules:
- Available to both itemizers and non-itemizers.
- Married couples must file jointly.
This is in addition to the standard senior deduction already available under existing law.
Key Takeaways
- These deductions apply only for tax years 2025–2028.
- Many provisions require additional IRS guidance, expected later this year.
- Taxpayers must meet eligibility rules (including joint filing requirements, income thresholds, and valid social security).
- Employers, lenders, and other payors will face new reporting requirements—but the IRS promises transition relief for the first year.
Bottom Line
The One Big Beautiful Bill Act creates meaningful tax relief for service workers, employees logging overtime, car buyers, and seniors. Whether you’re earning tips, working extra hours, financing a new vehicle, or enjoying retirement, these new deductions could help reduce your tax bill.
Taxpayers should keep an eye out for IRS updates and start planning now to take advantage of these opportunities in 2025.