With the passing of the One Big Beautiful Bill (OBBBA) on July 4th, 2025, many changes have been made that could affect many taxpayers in a meaningful way. Some of the biggest changes made by the OBBBA relate to Overtime, Tips, Car Interest, and Charitable Contributions.
- No Tax on Overtime: For tax years 2025-2028, the No Tax on Overtime Provision of the OBBBA allows for a deduction in addition to the standard deduction to the extent of qualified overtime reported on the employee’s W-2. The deduction is not to exceed $12,500 per individual, provided the filer has reported a valid SSN on their return. This $12,500 ceiling is applied per taxpayer SSN, even if the employee is married filing jointly. The deduction amount is also reduced (but not below zero) by $100 for each $1,000 by which the taxpayer’s modified adjusted gross income (MAGI) exceeds $150,000 ($300,000 for taxpayers filing a joint return). Therefore, the overtime deduction amount phases out completely when the taxpayer’s MAGI reaches $275,000 ($550,000 for joint filers).
- No Tax on Tips: This provision allows taxpayers who receive tip income to receive a deduction equal to the amount of qualified tips received during the taxable year. This exclusion applies to those who work in an industry that customarily receives tip income, such as the food service industry and the beauty service industry. The allowable deduction for any taxable year cannot be greater than $25,000. This deduction begins to phaseout when a taxpayer’s modified adjusted gross income exceeds $150,000 ($300,000 in the case of a joint tax return) and will apply for tax years 2025-2028.
- Car Loan Interest Deduction: Up to $10,000 of interest on personal auto loans becomes deductible in 2025 through 2028 for a car purchased after 2024. The deduction is available for both taxpayers who itemize as well as those who take the standard deduction. The deduction begins to phaseout at modified adjusted gross income of $100,000 for single filers or $200,000 for joint filers.
- Charitable Contributions: Starting after 2025 (Beginning in 2026) Those who take the standard deduction can deduct up to $1,000 ($2,000 if filing jointly) in cash contributions. For an individual to claim a charitable contribution deduction, the total amount of contributions must be greater than 0.5% of the individual’s adjusted gross income for the year. A soon-to-expire provision that allows cash charitable deductions up to 60% of the individual’s contribution base is made permanent.
The OBBBA introduces several tax breaks that can significantly reduce taxable income for eligible taxpayers, making tax planning more important than ever. Consult your tax professional to understand how these changes apply to your specific situation.
