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.

 

The IRS Rings the Alarm: Don’t Fall for the Form W-2 Scam

In March 2023, the Internal Revenue Service (IRS) issued a consumer alert highlighting a particularly worrying trend: new scams urging taxpayers to falsify Form W-2 wage information to claim inflated tax refunds.

What’s the Scam?

This scheme—circulating mainly through social media—encourages individuals to fabricate large income and withholding figures on Form W-2 and even invent a fake employer. The scam promises massive refunds—sometimes reaching five figures—by submitting bogus tax returns electronically.

How the IRS Fights Back

The IRS, working in tandem with the Security Summit (a coalition including state tax agencies, payroll companies, and tax professionals), is actively monitoring and verifying W-2 information. This involves cross-checking filings with payroll data, SSA records, and other sources.

The Consequences

The risks are steep. Taxpayers caught filing such false returns can face:

• A frivolous return penalty of $5,000
• Criminal prosecution, in addition to potential civil penalties

If the IRS flags your W-2 data as unverifiable, your refund may be frozen. The IRS may issue notices like CP05A, requesting proof of income and withholding. Failure to provide documentation can lead to refund denial.

Red Flags to Watch For

• “Guaranteed” big refunds or “secret tricks”—these are almost always scams.
• Financial advice from unverified social media sources can be dangerously misleading. The IRS urges taxpayers to rely only on official guidance or licensed tax professionals.

What Should You Do Instead?

1. Always file accurate returns. Don’t be tempted by shortcuts or shady promises.
2. If you’ve already submitted a questionable return, consider amending it or consulting a reputable tax professional.
3. Use only IRS.gov and trusted sources for tax guidance—ignore suspicious social media tips.
4. If you suspect a scam, or if you’re targeted by suspicious communications, report it:
   • For phishing or fake W-2 requests, email phishing@irs.gov, or if you’ve sent information, also reach out to dataloss@irs.gov.

Bottom Line

There’s no shortcut for getting a massive tax refund. The IRS already has the means to verify reported wages, and making up numbers only leads to severe consequences. Always file honestly, stay informed from legitimate sources, and when in doubt, consult a trusted tax professional.

How to apply for it?

The fastest way to apply Unemployment is online. Because of COVID-19, applying by phone has very long wait times. The Employment Security Department provides a helpful checklist for the application of Unemployment Compensation. It will tell you your eligibility and documents needed to apply.

For more information, visit the Employment Security Department website and review their checklist.

How to report and pay taxes?

If you received unemployment compensation during the year, you will need to report it on your tax return in gross income.

You may be may be required to make quarterly estimated tax payments, or Can choose to have federal income tax withheld from your unemployment compensation. Refer to Form W-4V, Voluntary Withholding Request and Tax Withholding.