One Big Beautiful Bill Act – Tax Deductions for Working Americans and Seniors

1. “No Tax on Tips” Deduction


Allows qualified employees and self-employed individuals to deduct cash or charged tips from their taxable income.


Eligibility Criteria:

  • Must work in an occupation that customarily and regularly received tips as of December 31, 2024 (IRS to publish list by October 2, 2025).
  • Tips must be reported on Form W-2, Form 1099, or Form 4137.
  • Applies to both itemizing and non-itemizing taxpayers.

Deduction Limits:

  • $25,000 maximum per year.
  • For self-employed, deduction limited to net income from the business generating the tips.
  • Phase-out begins at:
  • $150,000 Modified AGI (individual)
  • $300,000 (joint filers)

Restrictions:

  • SSTBs (Specified Service Trade or Business under section 199A) are excluded.
  • Employees whose employer is an SSTB also do not qualify.

Requirements:

  • Must include Social Security Number on return.
  • Must file jointly if married to claim deduction.

Reporting:

  • Employers/payors must furnish statements to employees and report to IRS/SSA.
  • Transition relief applies for 2025.





2. “No Tax on Overtime” Deduction


Deducts the “premium pay” portion of qualified overtime wages earned under FLSA.


Eligibility Criteria:

  • Applies to overtime compensation above the regular hourly rate (i.e., the "half" in "time-and-a-half").
  • Must be reported on Form W-2, Form 1099, or similar.

Deduction Limits:

  • $12,500 for individuals
  • $25,000 for joint filers
  • Phase-out at:
  • $150,000 (individual)
  • $300,000 (joint)

Requirements:

  • Must include Social Security Number on return.
  • Must file jointly if married to claim deduction.
  • Applies to all taxpayers regardless of itemizing status.

Reporting:

  • Employers/payors must report total qualified overtime to IRS/SSA and furnish statements to workers.
  • Transition relief applies for 2025.


3. “No Tax on Car Loan Interest” Deduction


Allows taxpayers to deduct interest paid on a personal-use auto loan for newly purchased vehicles.


Eligibility Criteria:

  • Vehicle must be:
  • New (no used vehicles qualify).
  • Personal use only (not business/commercial).
  • Final assembly in the U.S.
  • Have a GVWR < 14,000 lbs.
  • Loan must be:
  • Originated after December 31, 2024.
  • Secured by a lien on the vehicle.
  • Refinanced loans may qualify for deduction.

Deduction Limits:

  • $10,000 per year
  • Phase-out at:
  • $100,000 (individual)
  • $200,000 (joint filers)

Requirements:

  • Must include Vehicle Identification Number (VIN) on return.
  • Deduction allowed for both itemizing and non-itemizing taxpayers.

Reporting:

  • Lenders/payees must report interest received to IRS and furnish statements to borrowers.
  • Transition relief applies for 2025.


4. New Senior Deduction


Adds an additional $6,000 deduction for seniors aged 65 and older.


Eligibility Criteria:

  • Taxpayer must be age 65 or older by December 31 of the tax year.
  • Applies to each qualifying individual (i.e., $12,000 total for a senior couple).

Deduction Limits:

  • No cap, but phases out at:
  • $75,000 (individual)
  • $150,000 (joint filers)

Requirements:

  • Must include Social Security Number of qualifying individual(s).
  • Must file jointly if married to claim the deduction.

Additional Notes:

  • This deduction is in addition to the current senior standard deduction under existing law.
  • Available for both itemizing and non-itemizing taxpayers.


Implementation and Guidance

The IRS will:

  • Provide occupation and vehicle eligibility lists, and
  • Issue transition relief and guidance for 2025 regarding the reporting and claiming of these new deductions.

Employers, lenders, and other reporting entities should prepare for new information return requirements.


Conclusion

The One Big Beautiful Bill Act introduces four new deductions targeting middle-income workers, tip earners, seniors, and individuals financing new vehicles. These measures aim to reduce taxable income, promote labor participation, and ease financial burdens from car loans and elder expenses. Taxpayers and reporting entities should closely follow IRS guidance ahead of the 2025 tax season.