The One Big Beautiful Bill Act created four temporary additional deductions available from 2025 through 2028. These deductions apply whether the taxpayer itemizes or claims the standard deduction and are claimed on Schedule 1‑A, Additional Deductions.
All four deductions phase out when MAGI exceeds the statutory limits.
The four new deductions are:
- No Tax on Tips
- No Tax on Overtime
- No Tax on Car Loan Interest
- Enhanced Deduction for Seniors
No Tax on Tips
Taxpayers may deduct qualified tips received in occupations that customarily and regularly receive tips.
Maximum Deduction
- Up to $25,000 per year
- Phases out when MAGI exceeds $150,000 (or $300,000 MFJ)
Eligibility
- Married taxpayers must file MFJ
- Tip recipient must have a valid SSN
- Deduction cannot exceed $25,000 total, even if both spouses receive tips
- For self‑employed individuals, deduction cannot exceed net income from the tipped business
Qualified Tips
- Cash or cash‑equivalent tips
- Paid voluntarily
- Determined by the customer
- Reported on Form W‑2, Form 1099, another payor statement, or Form 4137
Not Qualified Tips
- Tips received in an SSTB
- Non‑cash tips (tickets, meals, services)
- Mandatory service charges or automatic gratuities
- Tips received while performing illegal services
- Tips from prostitution or pornographic activity
Occupations That Customarily Receive Tips
Examples include:
- Food & beverage: bartenders, servers, cooks
- Entertainment: musicians, dancers, digital creators
- Hospitality: bellhops, concierges, housekeeping
- Home services: landscapers, cleaners, locksmiths
- Personal services: tutors, nannies, pet care
- Appearance & wellness: barbers, stylists, massage therapists
- Transportation: rideshare drivers, delivery workers
No Tax on Overtime
Taxpayers may deduct the overtime premium (the “half” portion of time‑and‑a‑half) required under the Fair Labor Standards Act (FLSA).
Maximum Deduction
- Up to $12,500
- Up to $25,000 MFJ
- Phases out when MAGI exceeds $150,000 (or $300,000 MFJ)
Eligibility
- Married taxpayers must file MFJ
- Overtime recipient must have a valid SSN
- Deduction applies only to FLSA‑required overtime for non‑exempt employees
Not Qualified Overtime
- Premium pay above FLSA requirements
- Holiday/weekend pay not tied to >40 hours
- Qualified tips
- Overtime paid under state rules to FLSA‑ineligible employees
No Tax on Car Loan Interest
Taxpayers may deduct qualified interest paid on a loan used to purchase a qualified passenger vehicle (APV) for personal use.
Maximum Deduction
- Up to $10,000
- Phases out when MAGI exceeds $100,000 (or $200,000 MFJ)
Qualified Vehicle Requirements
A vehicle must:
- Be new (original use begins with taxpayer)
- Be manufactured for public roads
- Have ≥2 wheels
- Be a car, van, SUV, pickup, or motorcycle
- Have GVWR < 14,000 lbs
- Undergo final assembly in the U.S.
Qualified Loan Requirements
- Originated after Dec. 31, 2024
- Borrower is the taxpayer
- Proceeds used to purchase the APV
- Secured by a first lien
- Vehicle expected to be used >50% personal
Loan Amount Includes
- Purchase price
- Sales tax
- Vehicle service plans
- Extended warranties
- Registration fees
Loan Amount Excludes
- Liability insurance
- Trailers
- Negative equity from trade‑ins
Refinancing
Interest remains eligible if:
- New loan is secured by a first lien
- Amount does not exceed the outstanding balance of the refinanced loan
VIN Reporting
Taxpayer must list the VIN for each APV on the return.
Enhanced Deduction for Seniors
Taxpayers age 65 or older may claim an additional deduction on top of the existing additional standard deduction.
Maximum Deduction
- $6,000 per eligible individual
- $12,000 MFJ if both spouses qualify
- Phases out when MAGI exceeds $75,000 (or $150,000 MFJ)
Eligibility
- Must be age 65 or older by year‑end
- Must have a valid SSN
- MFJ required if married
- A person reaches age 65 the day before their 65th birthday
Death Rule
If a taxpayer dies before reaching age 65, they do not qualify—even if born before January 2, 1961.