One Big Beautiful Bill Act Creates Multiple New Tax Deductions

One Big Beautiful Bill Act Creates Multiple New Tax Deductions 

As a result of Congress enacting the 2025 One Big Beautiful Bill Act, many people will have the opportunity to claim new tax deductions over the next several years. These deductions will be available both to those who itemize deductions and those who use a standard deduction.

Qualified Tips:

One of the new deductions is for qualified tip income in occupations where tipping is customary. The maximum deduction amount will be $25,000 per year, with a lower limit potentially applying for those who receive tips in the context of self-employment. Note that only tips reported on an official tax document like Form W-2, 1099 or 4137 will qualify for the deduction.

Overtime Pay:

A second deduction relates to bonus pay that employees may receive for working overtime. For example, if employees ordinarily get paid $20/hour, but a $30/hour rate applies to their overtime work (“time and a half”), then up to $10/hour of their overtime earnings will be deductible. The maximum deduction amount will be $12,500 per year, or $25,000 for joint filers. People with modified adjusted gross incomes (MAGIs) above $150,000 (or $300,000 for joint filers) may not qualify for the tip and overtime deductions, or may receive a reduced deduction amount.

Deduction for Seniors:

Eligible people of age 65 or older may also claim a general deduction of up to $6,000 per year (up to $12,000 for joint filers). Note that you may claim this new deduction in addition to the enhanced standard deduction already available to seniors. However, seniors with modified adjusted gross incomes (MAGIs) above $75,000 (or $150,000 for joint filers) may not qualify for the deduction, or may receive a reduced deduction amount.

Auto Loan Interest:

Finally, eligible people may deduct interest on auto loans initiated after December 31, 2024, along with certain auto loans refinanced after that date. In order to qualify for the deduction, the loan must be used to finance the purchase of a qualifying new (not used) vehicle. The maximum deduction amount is $10,000 per year, with the deduction phasing out for people with MAGIs above $100,000 (or $200,000 for joint filers).

The IRS will provide additional guidance on all of these deductions later this fall, including a complete list of occupations that may be eligible for the tip income deduction.