07/29/2025
One Big Beautiful Bill Act: Tax deductions for
working Americans and seniors
FS-2025-03, July 14, 2025
Note: This Fact Sheet has been updated July 25 by adding to the section on
“No Tax on Car Loan Interest” new language describing the requirement for
“Final assembly in the United States.”
Below are descriptions of new provisions from the One Big Beautiful Bill Act,
signed into law on July 4, 2025, as Public Law 119-21, that go into effect for
2025.
“No Tax on Tips”
New deduction: Effective for 2025 through 2028, employees and
self-employed individuals may deduct qualified tips received in
occupations that are listed by the IRS as customarily and regularly
receiving tips on or before December 31, 2024, and that are
reported on a Form W-2, Form 1099, or other specified statement
furnished to the individual or reported directly by the individual on
Form 4137.
“Qualified tips” are voluntary cash or charged tips received
from customers or through tip sharing.
Maximum annual deduction is $25,000; for self-employed,
deduction may not exceed individual’s net income (without
regard to this deduction) from the trade or business in
which the tips were earned.
Deduction phases out for taxpayers with modified adjusted
gross income over $150,000 ($300,000 for joint filers).
Taxpayer eligibility: Deduction is available for both itemizing and
non-itemizing taxpayers.
Self-employed individuals in a Specified Service Trade or
Business (SSTB) under section 199A are not eligible.
Employees whose employer is in an SSTB also are not
eligible.
Taxpayers must:
include their Social Security Number on the
return and
file jointly if married, to claim the deduction.
Reporting: Employers and other payors must file information
returns with the IRS (or SSA) and furnish statements to taxpayers
showing certain cash tips received and the occupation of the tip
recipient.
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IRS Social Media Guidance: By October 2, 2025, the IRS must publish a list of
occupations that “customarily and regularly” received tips on or
before December 31, 2024.
The IRS will provide transition relief for tax year 2025 for
taxpayers claiming the deduction and for employers and
payors subject to the new reporting requirements.
“No Tax on Overtime”
New deduction: Effective for 2025 through 2028, individuals who
receive qualified overtime compensation may deduct the pay that
exceeds their regular rate of pay – such as the “half” portion of
“time-and-a-half” compensation -- that is required by the Fair Labor
Standards Act (FLSA) and that is reported on a
Form W-2, Form 1099, or other specified statement
furnished to the individual.
Maximum annual deduction is $12,500 ($25,000 for joint
filers).
Deduction phases out for taxpayers with modified adjusted
gross income over $150,000 ($300,000 for joint filers).
Taxpayer eligibility: Deduction is available for both itemizing and
non-itemizing taxpayers.
Taxpayers must:
include their Social Security Number on the
return and
file jointly if married, to claim the deduction.
Reporting: Employers and other payors are required to file
information returns with the IRS (or SSA) and furnish statements to
taxpayers showing the total amount of qualified overtime
compensation paid during the year.
Guidance: The IRS will provide transition relief for tax year 2025 for
taxpayers claiming the deduction and for employers and other
payors subject to the new reporting requirements.
“No Tax on Car Loan Interest”
New deduction: Effective for 2025 through 2028, individuals may
deduct interest paid on a loan used to purchase a qualified vehicle,
provided the vehicle is purchased for personal use and meets other
eligibility criteria. (Lease payments do not qualify.)
Maximum annual deduction is $10,000.
Deduction phases out for taxpayers with modified adjusted
gross income over $100,000 ($200,000 for joint filers).
Qualified interest: To qualify for the deduction, the interest must be
paid on a loan that is:
originated after December 31, 2024,
used to purchase a vehicle, the original use of which starts
with the taxpayer (used vehicles do not qualify),
for a personal use vehicle (not for business or commercial
use) and
secured by a lien on the vehicle.
If a qualifying vehicle loan is later refinanced, interest paid
on the refinanced amount is generally eligible for the
deduction.
Qualified vehicle: 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.
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Final assembly in the United States: The location of final
assembly will be listed on the vehicle information label attached to
each vehicle on a dealer's premises. Alternatively, taxpayers may
rely on the vehicle’s plant of manufacture as reported in the vehicle
identification number (VIN) to determine whether a vehicle has
undergone final assembly in the United States.
The
VIN Decoder website for the National Highway Traffic
Safety Administration (NHTSA) provides plant of
manufacture information. Taxpayers can follow the
instructions on that website to determine if the vehicle’s
plant of manufacture was located in the United States.
Taxpayer eligibility: Deduction is available for both itemizing and
non-itemizing taxpayers.
The taxpayer must include the Vehicle Identification
Number (VIN) of the qualified vehicle on the tax return for
any year in which the deduction is claimed.
Reporting: 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.
Guidance: The IRS will provide transition relief for tax year 2025 for
interest recipients subject to the new reporting requirements.
Deduction for Seniors
New deduction: Effective for 2025 through 2028, individuals who
are age 65 and older may claim an additional deduction of $6,000.
This new deduction is in addition to the current additional standard
deduction for seniors under existing law.
The $6,000 senior deduction is per eligible individual (i.e.,
$12,000 total for a married couple where both spouses
qualify).
Deduction phases out for taxpayers with modified adjusted
gross income over $75,000 ($150,000 for joint filers).
Qualifying taxpayers: To qualify for the additional deduction, a
taxpayer must attain age 65 on or before the last day of the taxable
year.
Taxpayer eligibility: Deduction is available for both itemizing and
non-itemizing taxpayers.
Taxpayers must:
include the Social Security Number of the
qualifying individual(s) on the return, and
file jointly if married, to claim the deduction
