New Deductions: One Big Beautiful Bill Act

There are new deductions* under the One Big Beautiful Bill Act:

No Tax on Tips

New deduction: Effective for 2025 through 2028, employees and self-employed individuals may deduct qualified tips received in occupations that are listed by the IRS as customarily and regularly receiving tips on or before December 31, 2024, and that are reported on a Form W-2, Form 1099, or other specified statement furnished to the individual or reported directly by the individual on Form 4137. 

No Tax on Overtime

New deduction: Effective for 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay – such as the “half” portion of “time-and-a-half” compensation -- that is required by the Fair Labor Standards Act (FLSA) and that is reported on a Form W-2, Form 1099, or other specified statement furnished to the individual. 

No Tax on Car Loan Interest

New deduction: Effective for 2025 through 2028, individuals may deduct interest paid on a loan used to purchase a qualified vehicle, provided the vehicle is purchased for personal use and meets other eligibility criteria. (Lease payments do not qualify.) 

Deduction for Seniors

New deduction:  Effective for 2025 through 2028, individuals who are age 65 and older may claim an additional deduction of $6,000. This new deduction is in addition to the current additional standard deduction for seniors under existing law. 

  • The $6,000 senior deduction is per eligible individual (i.e., $12,000 total for a married couple where both spouses qualify). 

  • Deduction phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers). 

*Note that all deductions are subject to limitations and income phase-outs.

Courtney Esch