Dec 1, 2025
The most significant tax change in the One Big Beautiful Bill Act, signed by President Trump on July 4, is that the big tax increase that was on the books for next January was repealed, as most of the provisions of 2017’s Tax Cuts and Jobs Act were made permanent. There are many other wrinkles to take into account, including four changes that are retroactive to the first of the year. All four of these tax changes expire after 2028. After the legislation was enacted, the IRS provided a fact sheet on the new provisions, outlining the limits on and requirements for claiming the new benefits.
Deduction for seniors. An additional deduction will be available to seniors. This change substitutes for President Trump’s campaign promise to eliminate income taxes on Social Security benefits. According to U.S. Treasury calculations, 36% of seniors were paying income tax on benefits under the prior law, and now only 12% will be paying that tax.
Amount. The new deduction is $6,000 per senior, so it’s $12,000 for a retired married couple if they both meet the age requirement.
Phase-out. The deduction phases out for taxpayers with modified gross income greater than $75,000 ($150,000 for joint filers).
Requirements. The taxpayer must reach age 65 on or before the last day of the year. The deduction is available to both itemizing and non-itemizing taxpayers. Married couples must file jointly to claim the deduction.
No tax on tips. Employees and self-employed individuals who “customarily and regularly” receive tips are eligible for a new deduction on tipped income. These may be voluntary cash tips or charged tips from customers that are received through tip sharing. Restaurant servers and barbers, for example, are likely to qualify. The IRS published a proposed rule on September 25, 2025, outlining qualified occupations, at www.federalregister.gov/documents/2025/09/22/2025-18278/occupations-that-customarily-and-regularly-received-tips-defini-tion-of-qualified-tips.
Limit. The maximum deduction is $25,000. For the self-employed, the deduction may not exceed the net income from the trade or business without regard to the tips.
Phase-out. The deduction phases out for those taxpayers with modified adjusted gross income greater than $150,000 ($300,000 for joint filers).
Requirements. Taxpayers who are married must file jointly to claim this deduction, which is available to non-itemizers and itemizers alike. The Social Security Number must be included on the return. Employers will have to file information returns with the IRS.
No tax on overtime. Individuals who receive overtime compensation required by the Fair Labor Standards Act (FLSA) may deduct the extra wage element – the “half” in “time and a half.” However, individuals who are covered by other overtime laws, such as railroad workers and airline employees, may not be eligible under a narrow reading of the law. Workers specifically exempted from FLSA won’t be included.
Limit. The maximum deduction is $12,500 ($25,000 for joint filers).
Phase-out. The deduction phases out for taxpayers with modified adjusted gross income greater than $150,000 ($300,000 for joint filers).
Requirements. The deduction is available to both itemizers and non-itemizers. Married taxpayers must file jointly to claim the deduction. Employers will be required to furnish statements to taxpayers showing their total amount of qualified overtime compensation for the year.
No tax on car loan interest. The interest on a loan used to buy a new vehicle for personal use may be deductible. Used vehicles don’t qualify. A qualified vehicle is a car, minivan, SUV, pick-up truck or motorcycle with a gross vehicle weight of less than 14,000 pounds, and that has undergone final assembly in the United States.
Limit. The maximum deduction is $10,000, which should be high enough for most new car purchases. Leases do not qualify. The loan must be secured by a lien on the vehicle.
Phase-out. The deduction phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers).
Requirements. The deduction is available to itemizers and non-itemizers alike. The taxpayer must include the Vehicle Identification Number of the qualified vehicle on the tax return for any year in which the deduction is claimed. Lenders must file information returns with the IRS and provide statements to taxpayers showing the total amount of interest paid on the loan during the tax year. These new tax breaks will have an indirect impact on year-end tax planning. A taxpayer either meets the age requirement for the senior deduction or doesn’t, either earns tips or overtime pay or does not. However, the taxpayer who qualifies for any of these benefits will want to keep an eye on the phase-out boundaries. One who is close to a tax benefit income boundary will want to avoid a voluntary increase in taxable income, for example by realizing a capital gain or taking an unrequired retirement plan distribution, that might jeopardize the deduction.