With the passage of the “One Big Beautiful Bill Act,” some tax changes have been enacted related to Social Security, vehicle interest, and more. There has been some confusion related to the changes and whether there are “no taxes” in particular areas, including overtime compensation. We compiled this list explaining some of the biggest changes to help you understand before filing your taxes.
The tax changes for this year came in the form of deductions, which are available for the 2025 tax season. Importantly, these deductions are not unlimited and have caps on who can take them based on modified adjusted gross income (MAGI), so “no tax” may be true for some, but not for others.
“No Tax” on Tips and Overtime:
Effective 2025 through 2028, employees and self-employed individuals may deduct up to $25,000 of qualified tips they received in occupations the IRS identified as “customarily and regularly receiving tips” on or before Dec. 31, 2024. (For the full list: link https://www.irs.gov/forms-pubs/occupations-that-customarily-and-regularly-received-tips-on-or-before-december-31-2024). “Qualified tips” include voluntary cash or charged tips received from customers, including shared or pooled tips, but do NOT include mandatory gratuity or service charges.
Similarly, from 2025 through 2028, taxpayers may deduct up to $12,500 ($25,000 for joint filers) of the portion of qualified overtime pay that exceeds their regular rate of pay. That is, they can deduct the “half” portion of time-and-a-half overtime pay. overtime pay is “qualified” if it is paid is required under section 7 of the Fair Labor Standards Act (FLSA). The deduction is not available to FLSA ineligible employees, even if state labor laws require payment of overtime to these employees. The employee is responsible for knowing if they are FLSA ineligible. If you are unsure, ask your employer if this applies to you.
Employers are not required to give the employee a separate record of the amount of tips and qualified overtime and paid in 2025, but will be required to do so in 2026. Guidance for determining how to claim a deduction for tips and overtime in 2025 is available in IRS Notice 2025-69. Importantly for California taxpayers, a taxpayer may use the amount reported as overtime compensation on earnings statements, pay stubs, and other documentation to calculate the FLSA Overtime Premium for 2025, even if the overtime compensation combines state-required and FLSA-required overtime.
These deductions both phase out for taxpayers with MAGI above $150,000 ($300,000 for joint filers), and are set to expire in 2028, but may be extended.
“No Tax” on Social Security:
Despite the name, this new deduction doesn’t specifically require that you have Social Security income. A new $6,000 deduction ($12,000 for joint filers if both spouses qualify) is available to taxpayers aged 65 and older, phasing out for those with MAGI above $75,000 ($150,000 for joint filers). This deduction is available to offset income regardless of whether the taxpayer receives Social Security. Furthermore, this deduction does not replace the existing additional standard deduction available to seniors and the blind ($1,600, or $2,000 for unmarried taxpayers), so both can be taken. This deduction is set to expire in 2028, but may be extended.
“No Tax” on Car Loan Interest:
Unlike tips, overtime, and Social Security, interest paid on car loans is not income. However, under the One Big Beautiful Bill Act, taxpayers may take up to $10,000 in deductions per year for interest paid on a qualified loan to purchase a qualified vehicle. This deduction phases out for taxpayers with MAGI over $100,000 ($200,000 for joint filers). A qualified loan is one which was used to purchase a new (not used) vehicle for personal use. The loan must have been taken out after December 31, 2024. A qualified vehicle is a car, minivan, van, SUV, pickup truck, or motorcycle with a gross vehicle weight of less than 14,000 pounds, and underwent final assembly in the United States. The Vehicle Identification Number (VIN) can be used to determine whether the vehicle was assembled in the US. Notably, some makes and models of foreign brands do qualify for this deduction, because they are finally assembled in the United States. Check the VIN to be sure. This deduction is set to expire in 2028, and may or may not be extended, so plan any vehicle purchases accordingly.
OBBBA Deductions and the Standard Deduction:
All of the new deductions mentioned above are able to be claimed by both itemizing and non-itemizing taxpayers, meaning that they are available on top of the $15,750 standard deduction ($31,500 for married couples filing jointly.) However, this means that if all of your income is already offset by the standard deduction, the new ones will not help you. Tax deductions cannot bring your taxable income below zero, and unlike certain tax credits, do not cause refunds.