OBBB Tax Deductions Hub

The One Big Beautiful Bill Act (OBBB) was signed into law in 2025 as part of comprehensive tax reform. It introduced four new below-the-line deductions (claimed on Schedule 1-A) designed to provide targeted tax relief to working Americans, seniors, and car buyers who support US manufacturing.

Unlike itemized deductions, OBBB deductions are available to all eligible taxpayers regardless of whether you itemize or take the standard deduction. They reduce your taxable income — your AGI is unchanged, so AGI-based thresholds like IRMAA, NIIT, and the medical-expense floor are unaffected.

Important: All OBBB provisions are currently scheduled to sunset after December 31, 2028. Congress would need to pass extension legislation for these deductions to continue beyond that date. Taxpayers should maximize these benefits while they're available.

The No Tax on Tips provision allows eligible service industry workers to deduct up to $25,000 in tip income from their federal income tax. This applies to tips reported on Form W-2 Box 7 or documented through tip records for self-employed workers in tipped occupations.

Who qualifies: Restaurant servers, bartenders, hotel staff, hairdressers, taxi/rideshare drivers, and other service workers who receive tips as a customary part of their compensation. The deduction is reduced by $100 for each full $1,000 of modified AGI above $150,000 ($300,000 on a joint return), so the $25,000 maximum reaches zero at $400,000 ($550,000 joint).

Tax savings example: A single server with $40,000 of modified AGI, $25,000 or more of it in qualified tips, deducts the $25,000 cap. After the $15,750 standard deduction her taxable income falls from $24,250 to $0, so she saves $2,672 in federal income tax for 2025 ($2,620 for 2026). The saving is the tax on the income the deduction removes, at her own brackets (here 10% and 12%), not the deduction times 22%. Tips are still subject to Social Security and Medicare taxes.

The No Tax on Overtime provision allows W-2 employees to deduct the premium portion of their overtime pay—that's the extra 0.5x, not the full 1.5x. The maximum deduction is $12,500 for single filers and $25,000 for married filing jointly.

How it works: If you earn $50/hour and work overtime at time-and-a-half ($75/hour), only the $25 premium is deductible. Ten hours of overtime would yield $250 in deductible income, not $750. This is designed to encourage overtime work while limiting the fiscal impact.

Eligibility: You must be a W-2 employee (not self-employed) working hours that qualify as overtime under the Fair Labor Standards Act. The deduction is reduced by $100 for each full $1,000 of modified AGI above $150,000 ($300,000 on a joint return), so the $12,500 maximum reaches zero at $275,000 and the $25,000 joint maximum at $550,000.

The Car Loan Interest Deduction allows taxpayers to deduct up to $10,000 in interest paid on loans for new vehicles whose final assembly occurred in the United States. This provision encourages purchasing US-made vehicles by providing a significant tax benefit.

Vehicle eligibility: The vehicle must have final assembly in the US. You can verify this using the NHTSA VIN lookup tool or the vehicle's Monroney sticker. Only new vehicles qualify: the original use must begin with you, so used and certified pre-owned vehicles do not (IRC §163(h)(4)(D)(i); IRS Topic 505). The loan must be taken out after December 31, 2024, secured by a first lien on the vehicle, and for personal use; leases do not qualify. The VIN goes on your return.

Income limits: This deduction has stricter phase-outs than the tips and overtime provisions. It is reduced by $200 for each $1,000 (or part of $1,000) of modified AGI above $100,000 for single filers and $200,000 for married filing jointly, so the $10,000 maximum reaches zero at $150,000 / $250,000.

The Senior Tax Deduction provides taxpayers age 65 and older with an additional $6,000 deduction for single filers or $12,000 for married filing jointly when both spouses are 65+. This is in addition to the existing higher standard deduction for seniors.

Stacking with existing benefits: Seniors already receive a higher standard deduction: in 2025, $2,000 for a single filer 65+ and $1,600 per spouse 65+ on a joint return ($3,200 for both); in 2026, $2,050 and $1,650 ($3,300). The new OBBB deduction adds to this, so a married couple who are both 65+ could deduct an extra $15,200 in 2025 ($15,300 in 2026) compared with younger taxpayers, before any phase-out.

Income limits: This deduction has the lowest phase-out thresholds. It begins phasing out at $75,000 of modified AGI for single filers and $150,000 for married filing jointly, designed to target relief to lower and middle-income seniors.

One of the most powerful aspects of the OBBB Act is that all four deductions can be claimed together if you meet the eligibility requirements for each. This creates significant tax-saving opportunities for certain taxpayers.