Four Big Tax Changes

New Provisions: the One Big Beautiful Bill

Several provisions in the act signed into law on July 4th, 2025 will impact 2025 returns during the 2026 filing season. Since the provisions went into effect during the year, new and additional documentation not usually provided during tax season will likely be needed to prepare your return. Here are some of the main updates:

"No Tax on Tips"

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. The maximum annual deduction is $25,000. The deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).

"No Tax on Overtime"

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. The maximum annual deduction is $12,500 ($25,000 for joint filers). The deduction phases out at the same rate at "no tax on tips."

"No Tax on Car Loan Interest"

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.) The maximum annual deduction is $10,000 and the loan must have originated after December 31, 2024. The deduction phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers).

Deduction for Seniors

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). The deduction phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers).

The article pulls information from IRS Issue Number: FS-2025-03.