Key Takeaways
- The One Big Beautiful Bill Act (OBBBA) passed in 2025 permanently extends the 2017 TCJA tax rates and adds new above-the-line deductions for tips, overtime, auto loan interest, and seniors - all claimable on the new Schedule 1-A.
- If you earn tips, you can deduct up to $25,000 in qualified tips from federal income tax for 2025-2028 (income limit: $150,000 single / $300,000 joint).
- Overtime workers can deduct the 'premium' portion of overtime pay - up to $12,500 ($25,000 joint) - for the same period.
- Seniors 65+ get a new $6,000 bonus deduction ($12,000 joint) on top of the standard deduction; phases out at $75,000/$150,000 MAGI.
- The OBBBA cuts the Child Tax Credit to $2,200/child (up from $2,000), adjusts for inflation going forward, and makes that amount permanent.
- Energy tax credits from the IRA (solar, EV, home efficiency) are being phased out or eliminated - most residential credits expire December 31, 2025.
- All new individual deductions are temporary: 2025 through 2028. Use them now and plan for 2029 when they expire unless Congress acts.
If you’ve filed taxes in the last few years, the One Big Beautiful Bill Act (OBBBA) has already shown up on your 2025 return — and will do so for every return through 2028. In this post I will walk you through exactly what changed, what it means for your future refunds, and what to watch for over the coming years.
The short version: millions of Americans in service jobs, overtime roles, or retirement will pay less federal income tax starting with the 2025 tax year (filed in 2026). If any of those descriptions fit you, keep reading — this is potentially a lot more real money in your bank account.
What Is the One Big Beautiful Bill Act?
The One Big Beautiful Bill Act (OBBBA) is a sweeping tax and spending law signed in 2025. Its biggest job was preventing a massive tax increase that would have hit virtually every American when the 2017 Tax Cuts and Jobs Act (TCJA) provisions expired at the end of 2025. The OBBBA made those rates permanent — so your brackets, standard deduction, and other TCJA benefits aren’t going anywhere.
On top of that, the OBBBA added a stack of new, targeted tax breaks for specific groups: tipped workers, overtime workers, new car buyers, seniors, and families with children. See details on each of these tax breaks in the sections below with links to defined eligibility rules and payment thresholds.
All four new individual deductions live on a brand-new IRS form: Schedule 1-A. You attach it to your Form 1040.
How Does This Affect Your 2026 Tax Return?
Here’s the practical calendar: the OBBBA deductions apply to income earned in 2025, which you report on your 2025 tax return filed in early 2026. For income earned in 2026 (tax return filed in early 2027), the same rules apply — plus some paperwork gets cleaner because employers now have standardized W-2 reporting codes for tips and overtime.
So if you’re filing your 2025 return right now and you earned tips, overtime, or bought a new American-made car — you likely have deductions you haven’t claimed yet.
The New OBBBA Deductions at a Glance
| Deduction | Max Amount | Income Phase-Out Starts | Expires |
|---|---|---|---|
| No Tax on Tips | $25,000/person | $150,000 (single) / $300,000 (joint) | 2028 |
| No Tax on Overtime | $12,500 (single) / $25,000 (joint) | $150,000 (single) / $300,000 (joint) | 2028 |
| Auto Loan Interest | $10,000/year | $100,000 (single) / $200,000 (joint) | 2028 |
| Senior Bonus Deduction | $6,000 (single) / $12,000 (joint) | $75,000 (single) / $150,000 (joint) | 2028 |
All four are above-the-line deductions — meaning you claim them whether you itemize or take the standard deduction. That’s a big deal for the majority of Americans who don’t itemize.
No Tax on Tips (2025–2028)
If you’re a server, bartender, hairstylist, rideshare driver, hotel concierge, or work in any of the 70+ IRS-recognized tipped occupations, this is one of the biggest tax breaks you’ve ever seen. The IRS finalized the occupations list in April 2026 (effective June 12, 2026), adding three occupations that weren’t on the preliminary list: visual artists, floral designers, and gas pump attendants.
You can deduct up to $25,000 per year in qualified tip income from your federal taxable income. The catch: tips must be voluntary (no automatic gratuities), properly reported on your W-2 or 1099, and your MAGI must be under $150,000 (single) or $300,000 (joint).
A server earning $22,000 in tips in the 22% bracket saves $4,840 in federal income tax. That’s not a small number.
Starting in 2026, employers must report tips separately in Box 12 of your W-2 using code “TP,” making it easier to claim. For 2025 returns (filed in 2026), most tax software handles the deduction automatically.
→ Full details, eligibility rules, and examples: No Tax on Tips 2026 — Your Complete Guide
No Tax on Overtime (2025–2028)
This one targets hourly and non-exempt workers who put in extra hours under the Fair Labor Standards Act (FLSA). You can deduct the premium portion of your overtime pay — the “half” in “time-and-a-half.”
Maximum deduction: $12,500 for single filers, $25,000 for joint filers. Same $150,000/$300,000 MAGI phase-out as tips.
Important: salaried employees who are FLSA-exempt generally don’t qualify, because they don’t receive FLSA-mandated overtime in the first place.
A nurse earning $15,000 in overtime premium pay at the 22% rate saves $3,300 in federal income tax. You’ll report this on Schedule 1-A using your W-2 overtime figures.
→ Full eligibility, examples, and how to claim: No Tax on Overtime — Who Qualifies and How to Calculate Your Deduction
Auto Loan Interest Deduction (2025–2028)
If you financed a new, American-assembled vehicle for personal use starting January 1, 2025, you can deduct up to $10,000 per year in loan interest from your federal taxable income. The VIN on your car must confirm U.S. final assembly — your lender will provide an annual interest statement.
Income phase-out starts at $100,000 (single) / $200,000 (joint) and vanishes at $150,000/$250,000.
On a $40,000 car loan at 7% APR, you might pay around $2,700 in interest in year one — worth about $600 in tax savings at the 22% bracket. The deduction stacks across years through 2028.
→ Full rules, VIN requirements, and examples: Auto Loan Interest Tax Deduction 2025–2028
Senior Bonus Deduction — $6,000 for Ages 65+ (2025–2028)
If you’re 65 or older, the OBBBA adds a $6,000 deduction on top of your standard deduction (or itemized deductions). Both spouses over 65 filing jointly can claim $12,000 combined.
Phase-out starts at $75,000 MAGI (single) / $150,000 (joint). You lose $0.06 of deduction per dollar above the threshold. The full deduction disappears at $175,000 (single) / $250,000 (joint).
In the 22% bracket, that $6,000 deduction is worth $1,320 in direct tax savings — enough to cover a few months of Medicare Part B premiums.
→ Eligibility details, bracket-by-bracket savings, and strategies: $6,000 Senior Deduction — Do You Qualify?
Child Tax Credit — Permanent at $2,200/Child
The OBBBA permanently raised the Child Tax Credit from $2,000 to $2,200 per qualifying child (under age 17 with a Social Security number), and indexes it for inflation going forward. The refundable portion (Additional Child Tax Credit) rises to $1,700.
Phase-out: the credit reduces by 5% of AGI above $200,000 (single) / $400,000 (joint). Both the child and the taxpayer claiming the credit must have Social Security numbers.
→ Full eligibility rules and income limits: Child Tax Credit 2026 — OBBBA Changes Explained
What’s Ending: Energy and EV Credits
The OBBBA accelerated the death of most clean energy tax credits from the Inflation Reduction Act:
- Residential solar, geothermal, efficiency credits — expired December 31, 2025
- Energy Efficient Commercial Buildings deduction — expired June 30, 2026 (projects had to be placed in service by that date)
- EV tax credit (new/used/commercial) — repealed after September 30, 2025
If you were counting on any of these, talk to a tax professional now. Some transitional rules exist for projects already under contract.
→ Full business and energy tax changes: What the OBBBA Means for Business and Energy Tax Credits
What the OBBBA Means for Your 2027 Return (Income Earned in 2026)
The same tip, overtime, auto loan, and senior deductions all apply to 2026 income — filed in 2027. A few things get easier:
- Employers now use W-2 Box 12 code “TP” for tips and Box 14b for Treasury Tipped Occupation Codes, so your deduction documentation improves.
- You can adjust your W-4 withholding to have less tax withheld from tips and overtime throughout the year, putting money in your pocket each paycheck instead of waiting for a refund.
- The IRS refund schedule for 2027 will reflect these deductions — expect average refunds to remain elevated compared to pre-OBBBA years.
Looking Ahead: 2028 Sunset and What to Watch
All four new OBBBA deductions (tips, overtime, auto loan, senior bonus) expire after the 2028 tax year. They’re not permanent. Unless Congress acts before then, 2028 will be the last year to claim them.
I’ll be watching closely in 2027 and 2028 for any extension proposals. The political calculus changes with each election — these provisions are popular with working-class voters, so extension is plausible, but not guaranteed.
What I’m watching: income threshold adjustments for inflation and whether Congress bundles an extension into a future reconciliation bill. One item is now settled — the IRS issued final regulations on the tipped occupations list in April 2026 (effective June 12, 2026), so the eligibility rules for the tips deduction are locked in for your 2026 return.
I’ll update this page as things develop — subscribe to get notified when we post updates.
Common Issues to Watch Out For
One mistake I see a lot: confusing service charges with tips. A 20% automatically added gratuity on a large party does not qualify for the no-tax-on-tips deduction. Only voluntary tips do.
Another: assuming all overtime workers qualify. Salaried exempt employees — many managers and professionals — don’t receive FLSA overtime and therefore don’t qualify for the overtime deduction.
On the senior deduction, married couples who file separately are completely locked out. If you’re near the edge of that $150,000 joint phase-out threshold, the math on filing jointly vs. separately can shift significantly.
Finally: these are federal deductions administered by the IRS. Your state may or may not conform. Check with a tax pro if your state income tax situation is complex.
