M & R Ferber
Key Provisions in H.R. 1 One Big Beautiful Bill Act (OBBBA) Tax Legislation
These deductions are temporary and currently set to expire after tax year 2028. The names of these deductions (ex. “No Tax on Tips”) are for marketing purposes; in practice, these are limited deductions, not full exemptions from tax.
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There are different documentation and substantiation requirements to claim these deductions that we have detailed below. Please note that there is transitional guidance as to the requirements for tax year 2025, and for tax years 2026-2028 there will be new information reporting tax forms developed (Ex. 1098-VLI, and updated Forms W-2).
Senior Deduction
How it works:
For tax years 2025 through 2028, individuals age 65 or older may claim a new deduction of $6,000 per qualifying taxpayer ($12,000 for married couples filing jointly if both spouses are 65+). This deduction is in addition to the existing additional standard deduction for seniors and is available whether or not you itemize deductions.
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Income thresholds:
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The deduction phases out for taxpayers with modified adjusted gross income (MAGI) over $75,000 (single) or $150,000 (joint).
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MAGI for this purpose includes adjusted gross income plus any amounts excluded as foreign earned income and housing exclusions (IRC §§911, 931, or 933).
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Important note:
There is no change in how Social Security benefits are taxed under this provision.
“No Tax on Tips” Deduction
How it works:
Despite the name, tips are still taxable income, but for tax years 2025–2028, you may deduct up to $25,000 of “qualified tips” received in eligible occupations. This deduction is available to both employees and self-employed individuals, but not to those in a Specified Service Trade or Business (SSTB).
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Income thresholds:
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Deduction phases out for MAGI over $150,000 (single) or $300,000 (joint).
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MAGI for this purpose includes adjusted gross income plus any amounts excluded as foreign earned income and housing exclusions (IRC §§911, 931, or 933).
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Eligible industries:
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Only tips received in occupations that “customarily and regularly” received tips as of December 31, 2024, are eligible. The IRS will publish an official list of eligible occupations (e.g., food service, hospitality, personal services, transportation, etc.).
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Documentation for 2025:
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For tax year 2025, you may claim the deduction for tips reported on:
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Form W-2 (if reported by your employer),
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Form 4137 (for unreported tips),
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Form 1099 (if self-employed or otherwise reported),
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Or other specified statements furnished to you by payers (ex. paystubs)
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The IRS is providing transition relief for 2025, so if your W-2 or 1099 does not separately state qualified tips, you may use employer- or payer-provided statements or your own records as required by IRS guidance.
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Documentation for 2026 and beyond:
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For 2026 and later, tips will be reported on your W-2 (box for tips) or Form 4137, and you must retain these forms for your records. The deduction is claimed on Schedule 1-A.
“No Tax on Overtime” Deduction
How it works:
This deduction allows you to deduct the “premium” portion of overtime pay—specifically, the amount paid above your regular rate as required by the Fair Labor Standards Act (FLSA) section 7. For example, if your regular rate is $20/hour and you work overtime at $30/hour, only the extra $10/hour (the “half” in “time-and-a-half”) is deductible.
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Income thresholds:
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Deduction phases out for MAGI over $150,000 (single) or $300,000 (joint).
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Deduction limits:
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Up to $12,500 per year (single) or $25,000 (joint).
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Documentation for 2025:
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For tax year 2025, you may claim the deduction for overtime reported on:
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Form W-2 (if reported by your employer),
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Form 1099 (if self-employed or otherwise reported),
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Or other specified statements furnished to you by payers.
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The IRS is providing transition relief for 2025, so if your W-2 or 1099 does not separately state qualified overtime, you may use employer- or payer-provided statements or your own records as required by IRS guidance.
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Documentation for 2026 and beyond:
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For 2026 and later, qualified overtime will be reported on your W-2 (in a designated box) or on a specified statement, and you must retain these forms for your records. The deduction is claimed on Schedule 1-A.
Vehicle Loan Interest Deduction
How it works:
For tax years 2025–2028, individuals may deduct up to $10,000 per year in interest paid on a loan used to purchase a new, personal-use vehicle that was assembled in the United States. Leased vehicles and used vehicles do not qualify.
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Eligibility and limitations:
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The vehicle must be a car, minivan, van, SUV, pickup truck, or motorcycle with a gross vehicle weight rating under 14,000 pounds.
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The loan must be originated after December 31, 2024, and secured by the vehicle.
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The deduction phases out for MAGI over $100,000 (single) or $200,000 (joint).
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The deduction is not available for business or commercial vehicles.
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Documentation for 2025:
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For tax year 2025, you must provide:
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The Vehicle Identification Number (VIN) of the qualified vehicle,
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A statement from the lender showing the total interest paid (this may be provided via an online portal, monthly or annual statement, or similar means),
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The deduction is claimed on Schedule 1-A.
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The IRS is providing transition relief for 2025, so lenders are not required to file information returns with the IRS for this year, but must provide the interest statement to the borrower.
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Documentation for 2026 and beyond:
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For 2026 and later, lenders will be required to file information returns (Form 1098-VLI) with the IRS and provide borrowers with a statement showing the total interest paid. Taxpayers must continue to report the VIN and retain the lender’s statement for their records.