One Big Beautiful Bill Act Update – IRS Fact Sheet for New Tax Year 2025 Deductions

Background

The  One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025. For an in-depth analysis of this major tax law change, read our blog post, The "One Big Beautiful Bill" Has Passed – What It Means for You and Your Tax Planning.  

Since then, the IRS has released a Fact Sheet outlining four new provisions that could impact individual taxpayers in 2025. Below, we break down these provisions and what they mean for you. 

No Tax on Tips

Overview 

New Deduction: From 2025 through 2028, employees and self-employed individuals can deduct qualified tips received in occupations that the IRS designates as customarily and regularly receiving tips. These tips must be reported on a Form W-2, Form 1099, or other specified statements. 

• Maximum Deduction: $25,000 annually (limited to net income for self-employed individuals). 
• Phase-Out Threshold: Modified adjusted gross income (MAGI) over $150,000 ($300,000 for joint filers). 
• Eligibility: Available to both itemizing and non-itemizing taxpayers. However, individuals in a Specified Service Trade or Business (SSTB) under section 199A are not eligible. 
• Taxpayers must:  
• Include their social security number on the return  
• File jointly if married, to claim the deduction  

Reporting Requirements: Employers and payors must file information returns with the IRS and provide statements to taxpayers detailing cash tips received and the recipient's occupation. 

Guidance: The IRS will publish a list of eligible occupations by October 2, 2025, and provide transition relief for taxpayers and employers for the 2025 tax year. 

Webinar Highlight: Curious about the new 'No Tax on Tips' deduction? Watch this clip from our recent webinar, where our Managing Director and Partner in Tax Stacy Weller breaks down how you could save up to $25,000 annually if you work in a tipping-based occupation. 

No Tax on Overtime

Overview 

New Deduction: From 2025 through 2028, individuals can deduct qualified overtime compensation that exceeds their regular rate of pay. This includes the "half" portion of "time-and-a-half" pay required by the Fair Labor Standards Act (FLSA). 

• Maximum Deduction: $12,500 annually ($25,000 for joint filers). 
• Phase-Out Threshold: MAGI over $150,000 ($300,000 for joint filers). 
• Eligibility: Available to both itemizing and non-itemizing taxpayers. 

Reporting Requirements: Employers and payors must file information returns with the IRS and provide statements to taxpayers showing the total amount of qualified overtime compensation paid. 

Guidance: The IRS will offer transition relief for taxpayers and employers for the 2025 tax year. 

Webinar Highlight: Overtime just got a little sweeter! Watch this clip from our recent webinar, where Weller explains how the 'No Tax on Overtime' deduction can help you keep more of your hard-earned money. 

No Tax on Car Loan Interest

Overview 

New Deduction: From 2025 through 2028, individuals can deduct interest paid on loans used to purchase a qualified vehicle for personal use. 

• Maximum Deduction: $10,000 annually. 
• Phase-Out Threshold: MAGI over $100,000 ($200,000 for joint filers). 
• Qualified Interest: Interest must be paid on loans originated after December 31, 2024, for new vehicles purchased for personal use and secured by a lien on the vehicle. 

Qualified Vehicle: Includes cars, minivans, SUVs, pick-up trucks, and motorcycles with a gross vehicle weight rating under 14,000 pounds. The vehicle must undergo final assembly in the United States. 

Reporting Requirements: Lenders must file information returns with the IRS and provide statements to taxpayers showing the total interest paid. 

Guidance: The IRS will provide transition relief for lenders and taxpayers for the 2025 tax year. 

Webinar Highlight: Thinking about buying a new car? In this webinar clip, Weller explains how the 'No Tax on Car Loan Interest' deduction could save you up to $10,000 annually on your taxes. 

Deduction for Seniors

Overview

New Deduction: From 2025 through 2028, individuals aged 65 and older can claim an additional deduction of $6,000. This is in addition to the current standard deduction for seniors. 

• Maximum Deduction: $6,000 per eligible individual ($12,000 for married couples where both spouses qualify). 
• Phase-Out Threshold: MAGI over $75,000 ($150,000 for joint filers). 
• Eligibility: Taxpayers must attain age 65 on or before the last day of the taxable year. 

Reporting Requirements: Taxpayers must include the Social Security Number of the qualifying individual(s) on their return. 

Webinar Highlight: Are you or a loved one 65 or older? Learn how the new senior deduction can help you save an extra $6,000 on your taxes in this webinar clip.

Next Steps

The new deductions outlined in the IRS Fact Sheet could have a significant impact on your tax planning for 2025 and beyond. If you have questions about these provisions or the One Big Beautiful Bill Act in general, please reach out to your Herbein tax consultant for personalized guidance.