The One Big Beautiful Bill Act signed into law on July 4, 2025 has some beneficial changes to our tax laws for individuals across the country. Below are a few of the changes that go into effect for 2025.
No Tax on Tips
This is effective starting with tax year 2025 and set to expire after tax year 2028. Individuals may receive a tax deduction on their tax return for qualified tips in occupations that customarily and regularly receive tips on or before December 31, 2024, and that are listed and approved by the IRS.
A few things to note:
•Maximum annual deduction is $25,000 per individual.
•For W2 employees and self-employed individuals. Self-employed tips deduction must not exceed the net income without the deduction.
•The deduction phases out for taxpayers with MAGI over $150,000 or $300,000 for joint filers.
•Qualified Tips refer to tips that are voluntary received from customers or through tip-sharing.
•Employers are required to file information returns with the IRS and furnish statements to their employees showing the cash tips received and the occupation of the employee receiving tips.
•No changes to the W2s are required. The W2s will show the tip income. The deduction will come from the statement received from employers.
No Tax on Overtime
This is effective starting with tax year 2025 and set to expire after tax year 2028. Individuals may receive a tax deduction on their tax return for qualified overtime compensation pay that exceeds their regular rate of pay – such as the “half” portion of “time-and-a-half” compensation.
A few things to note:
•Maximum annual deduction is $12,500 per individual.
•The deduction phases out for taxpayers with MAGI over $150,000 or $300,000 for joint filers.
•Employers are required to file information returns with the IRS and furnish statements to their employees showing the total amount of qualified overtime pay received and the occupation of the employee receiving tips.
•No changes to the W2s are required. The W2s will show the tip income. The deduction will come from the statement received from employers.
No Tax on Car Loan Interest
This is effective starting with tax year 2025 and set to expire after tax year 2028. Individuals may receive a deduction for the interest paid on a loan used to purchase a qualified vehicle.
A few things to note:
•Maximum deduction is $10,000.
•The deduction phases out for taxpayers with MAGI over $100,000 or $200,000 for joint filers.
•The vehicle purchased must be for personal use.
•The loan for the vehicle must be used to purchase a vehicle AFTER December 31, 2024.
•A qualified vehicle is a car, minivan, van, SUV, pick-up truck or motorcycle, with a gross vehicle weight rating of less than 14,000 pounds, and that has undergone final assembly in the United States.
•Lenders or other recipients of qualified interest must file information returns with the IRS and furnish statements to taxpayers showing the total amount of interest received during the taxable year.
•Taxpayers MUST include the vehicles VIN number on the tax return.
Deduction for Seniors
This is effective starting with tax year 2025 and set to expire after tax year 2028. Individuals who are 65 and older may claim an additional $6,000 deduction, along with the standard or itemized deduction.
A few things to note:
•The deduction phases out for taxpayers with MAGI over $75,000 or $150,000 for joint filers.