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One Big Beautiful Bill Tax Changes: Complete Guide to New Deductions

Last updated: March 2026 | Reviewed by Taxo Editorial Team

Key Takeaways
What Is the One Big Beautiful Bill Act?
No Tax on Tips: The Qualified Tips Deduction
No Tax on Overtime: The Overtime Pay Deduction
Car Loan Interest Deduction
SALT Deduction Cap Increase to $40,000
Senior Bonus Deduction of $6,000
Enhanced Child Tax Credit
Permanent Extension of TCJA Provisions
Standard Deduction Bonus for 2025
Above-the-Line Charitable Deduction
Trump Accounts (Money Accounts for Growth and Advancement)
What’s Changed in 2026
Common Mistakes to Avoid
Frequently Asked Questions
Sources
Related Articles

Key Takeaways

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, is the most sweeping tax legislation since the Tax Cuts and Jobs Act of 2017.
Workers in qualifying tipped occupations can deduct up to $25,000 in qualified tips from taxable income (2025-2028).
Overtime pay is deductible up to $12,500 for single filers ($25,000 for joint filers) for tax years 2025-2028.
A new car loan interest deduction allows up to $10,000 per year on qualifying U.S.-assembled new vehicles (2025-2028).
The SALT deduction cap rises from $10,000 to $40,000 for married couples earning up to $500,000, with annual 1% increases through 2029.
Taxpayers age 65+ receive a new $6,000 above-the-line deduction with income phaseouts.
The TCJA’s individual tax provisions are now permanent, including the seven-bracket rate structure and the near-doubled standard deduction.

What Is the One Big Beautiful Bill Act?

The One Big Beautiful Bill Act (OBBBA), officially known as the “One, Big, Beautiful Bill,” was signed into law by President Trump on July 4, 2025. It represents the largest tax and spending legislation in modern American history, using the budget reconciliation process to pass Congress with a simple majority.

The OBBBA had two primary tax objectives. First, it permanently extended nearly all of the individual income tax provisions from the 2017 Tax Cuts and Jobs Act (TCJA), which were originally scheduled to expire on December 31, 2025. Without the OBBBA, tax rates would have reverted to their pre-2018 levels, the standard deduction would have been cut roughly in half, and several popular credits and deductions would have disappeared or shrunk.

Second, the OBBBA introduced a series of new tax deductions aimed at workers, seniors, vehicle buyers, and charitable givers. Most of these new provisions are temporary, running from tax year 2025 through 2028, though some (like the SALT cap increase) extend through 2029.

The combined effect is a significantly different tax landscape for 2026. Every taxpayer should understand how these changes interact with their specific financial situation. The sections below break down each major provision in detail.

No Tax on Tips: The Qualified Tips Deduction

One of the most publicized provisions of the OBBBA is the “no tax on tips” deduction. This above-the-line deduction allows employees and self-employed workers in qualifying tipped occupations to deduct qualified tips from their federal taxable income, up to $25,000 per year.

Who Qualifies

The deduction applies to workers in occupations where tipping is customary, including:

Wait staff, servers, and bartenders
Hairdressers, barbers, and salon workers
Personal trainers and fitness instructors
Delivery drivers and rideshare drivers
Valet and parking attendants
Hotel housekeeping and bellhop staff
Gig economy workers who receive tips

The IRS has published guidance listing qualifying occupations. The key requirement is that the taxpayer must work in an occupation where tips are traditionally received as part of compensation.

How It Works

Qualified tips are deducted on the new Schedule 1-A, which is an above-the-line deduction. This means you benefit from it whether you take the standard deduction or itemize. The deduction reduces your AGI, which can also make you eligible for other income-based credits and deductions.

Important: The tips deduction only reduces federal income tax. It does not reduce Social Security or Medicare (FICA) taxes on tip income. Tips must still be reported on your tax return, and employers must still withhold FICA taxes on reported tips.

Income Limits

The tips deduction phases out for higher earners, specifically those with MAGI above $160,000 (single) or $320,000 (married filing jointly).

Duration

The tips deduction is available for tax years 2025 through 2028 only, unless Congress extends it.

No Tax on Overtime: The Overtime Pay Deduction

The OBBBA created a new above-the-line deduction for overtime compensation. Workers who are paid overtime under the Fair Labor Standards Act (FLSA) can deduct qualifying overtime pay from their federal taxable income.

Deduction Limits

Single filers: Up to $12,500 per year
Married filing jointly: Up to $25,000 per year

Who Qualifies

The deduction is available to workers who are classified as non-exempt under the FLSA and receive overtime pay at a rate of at least 1.5 times their regular hourly rate. This covers millions of hourly workers across industries including manufacturing, healthcare, retail, construction, and transportation.

Salaried workers who are FLSA-exempt — typically those earning above the salary threshold and performing executive, administrative, or professional duties — generally do not qualify, because their extra hours are not classified as statutory overtime.

How to Claim

Qualifying overtime compensation is reported separately on your W-2 (employers have been required to break out overtime pay starting with the 2025 tax year). The deduction is claimed on Schedule 1-A. Like the tips deduction, it reduces income tax but not FICA taxes.

Duration

Available for tax years 2025 through 2028 only.

Car Loan Interest Deduction

The OBBBA introduced a deduction for interest paid on qualifying auto loans, aimed at encouraging purchases of American-assembled vehicles.

Deduction Details

Maximum deduction: $10,000 per year (same for all filing statuses)
Available for: Tax years 2025 through 2028
Claimed on: Schedule 1-A (above-the-line)

Vehicle Requirements

To qualify, the vehicle must meet all of the following criteria:

New vehicle — used vehicles do not qualify
Purchased after December 31, 2024
Final assembly in the United States
Gross vehicle weight under 14,000 pounds
Primarily for personal use (not a fleet or business-only vehicle)

Loans for campers, RVs, and recreational vehicles do not qualify. The IRS has published a list of qualifying vehicles based on VIN data, and the Treasury Department provides guidance on how to verify final assembly location.

Income Phaseout

The deductible amount is reduced — potentially to $0 — if your MAGI exceeds:

Single filers: $100,000
Married filing jointly: $200,000

The phaseout means that a single filer earning $120,000 would see the maximum deduction reduced proportionally.

Lender Reporting

Lenders are required to report qualifying interest on a new form, and the IRS has issued guidance on how taxpayers can substantiate their deduction.

SALT Deduction Cap Increase to $40,000

The state and local tax (SALT) deduction cap has been one of the most contentious tax provisions since the TCJA capped it at $10,000 in 2018. The OBBBA significantly raises this cap.

New SALT Cap Structure

2025: $40,000 for married couples filing jointly ($20,000 for married filing separately)
2026-2029: The $40,000 cap increases by 1% annually (approximately $40,400 for 2026)
Income phaseout: The higher cap phases down for married couples with MAGI above $500,000

The SALT deduction covers the total of state and local income taxes (or sales taxes, if you elect) plus property taxes. Taxpayers in high-tax states like New York, California, New Jersey, and Connecticut are the primary beneficiaries.

Impact on Itemizing

With the SALT cap at $10,000, many taxpayers who previously itemized switched to the standard deduction. The $40,000 cap may push some of these taxpayers back to itemizing, particularly homeowners in high-tax states who also have significant mortgage interest and charitable contributions.

For example, a married couple in New Jersey paying $18,000 in property taxes and $12,000 in state income taxes was previously capped at $10,000 for SALT. Under the OBBBA, they can deduct the full $30,000 — a $20,000 increase that, combined with mortgage interest and charitable giving, may easily exceed the $32,200 standard deduction.

Senior Bonus Deduction of $6,000

The OBBBA added a new above-the-line deduction of $6,000 for taxpayers age 65 and older (per qualifying taxpayer, so a married couple where both spouses are 65+ can deduct $12,000).

Income Phaseout

Single filers: Phases out for MAGI above $75,000
Married filing jointly: Phases out for MAGI above $150,000

The phaseout makes this deduction primarily beneficial for lower- and middle-income seniors. It is in addition to the standard deduction and the existing additional standard deduction for seniors ($2,050 for singles, $1,650 per spouse for joint filers).

Stacking With Other Senior Benefits

A single taxpayer age 65+ with MAGI at or below $75,000 could claim:

Standard deduction: $16,100
Additional standard deduction (age 65+): $2,050
Senior bonus deduction: $6,000
Total deductions: $24,150 before any other above-the-line deductions

Enhanced Child Tax Credit

The OBBBA increased the Child Tax Credit from $2,000 to $2,200 per qualifying child under age 17. The refundable portion (the Additional Child Tax Credit) remains at $1,400 per child.

The income phaseout thresholds remain at $200,000 for single filers and $400,000 for married filing jointly. The credit reduces by $50 for every $1,000 of income above the threshold.

Permanent Extension of TCJA Provisions

Without the OBBBA, the following provisions from the 2017 TCJA would have expired on December 31, 2025:

Provision	Pre-TCJA (would have reverted)	OBBBA (permanent)
Top marginal rate	39.6%	37%
Standard deduction (MFJ)	~$15,000	$32,200 (2026)
Child tax credit	$1,000	$2,200
Personal exemptions	$4,300 per person	Eliminated (offset by higher standard deduction)
SALT deduction	Unlimited	Capped at $40,000
Mortgage interest cap	$1,000,000	$750,000
20% QBI deduction (Sec 199A)	Did not exist	Permanent
Estate tax exemption	~$5.6 million	~$15 million (2026)

The permanence of these provisions provides long-term tax planning certainty that taxpayers and advisors have been waiting for since the TCJA’s passage in 2017.

Standard Deduction Bonus for 2025

For the 2025 tax year only (returns filed in early 2026), the OBBBA added a one-time 5% increase to the inflation-adjusted standard deduction. This meant a married couple filing jointly received an extra approximately $1,500 off their taxable income for 2025. This bonus does not apply in 2026 or later years.

Above-the-Line Charitable Deduction

Starting with tax year 2026, the OBBBA introduces a new above-the-line deduction for charitable contributions, available to taxpayers who do not itemize:

Single filers: Up to $1,000
Married filing jointly: Up to $2,000

This provision allows non-itemizers to receive a tax benefit for charitable giving, similar to the temporary provision that existed during 2020-2021 under COVID-era legislation. Contributions must be in cash and made to qualifying organizations.

Trump Accounts (Money Accounts for Growth and Advancement)

The OBBBA created a new tax-advantaged savings account called “Money Accounts for Growth and Advancement” (MAGA accounts), commonly known as “Trump Accounts.” These accounts allow parents and guardians to contribute up to $5,000 per year per child (with a $1,000 government match for lower-income families) into a tax-free investment account.

Trump Accounts can be used for education, homeownership, and retirement expenses. They are opened through qualifying financial institutions and reported on the new Form 4547.

What’s Changed in 2026

The 2026 tax year is the first full year where all OBBBA provisions are in effect. Compared to 2025, the key differences are:

Income thresholds adjusted for inflation: All seven bracket thresholds moved upward, with a larger 4% adjustment for the 10% and 12% brackets vs. 2.3% for higher brackets.
Above-the-line charitable deduction now available: This provision was effective starting with the 2026 tax year.
SALT cap adjusted: The $40,000 base cap increases by 1% for 2026.
AMT exposure widened: The OBBBA’s faster AMT exemption phaseout means more taxpayers above $200,000 should check for AMT liability.
IRS staffing and processing changes: With reduced IRS staffing and the cancellation of Direct File, processing times may be longer. Electronic filing is strongly recommended.

Common Mistakes to Avoid

Assuming tips and overtime are completely tax-free. The deductions reduce federal income tax only. FICA taxes (Social Security and Medicare) still apply to all tips and overtime.
Buying a used car expecting the interest deduction. Only new vehicles with final assembly in the U.S. qualify. Verify your vehicle’s eligibility before purchasing.
Not updating your W-4. If you qualify for the new deductions, your current withholding may be too high. Use the IRS Tax Withholding Estimator to adjust.
Ignoring income phaseouts. The tips deduction, overtime deduction, car loan interest deduction, and senior bonus deduction all have income phaseouts. Verify your eligibility based on MAGI.
Missing the Schedule 1-A. The new deductions are claimed on the new Schedule 1-A. Many tax software programs will populate this automatically, but if filing manually, do not skip this form.
Assuming these deductions are permanent. The tips, overtime, car loan interest, and senior bonus deductions expire after 2028 unless Congress extends them. Plan accordingly.

Frequently Asked Questions

When did the One Big Beautiful Bill become law?

The OBBBA was signed into law on July 4, 2025. Most of its individual tax provisions took effect for tax year 2025, with the above-the-line charitable deduction starting in 2026.

Is overtime really tax-free now?

Not entirely. The OBBBA allows a federal income tax deduction for qualifying overtime pay, up to $12,500 (single) or $25,000 (joint). However, FICA taxes (Social Security and Medicare) still apply to overtime pay. State income taxes may or may not conform to the federal deduction depending on your state.

Who qualifies for the tips deduction?

Workers in occupations where tipping is customary, including wait staff, bartenders, salon workers, delivery drivers, fitness instructors, and similar roles. The deduction is up to $25,000 and phases out at higher income levels.

Can I deduct interest on a used car loan?

No. The car loan interest deduction under the OBBBA applies only to new vehicles purchased after 2024 with final assembly in the United States. Used vehicle loans do not qualify.

Does the SALT cap increase affect everyone?

The $40,000 SALT cap primarily benefits taxpayers in high-tax states who itemize their deductions. If you live in a state with no income tax (like Florida or Texas) and have modest property taxes, you likely were not hitting the previous $10,000 cap. The new cap phases down for married couples with MAGI above $500,000.

Are the new deductions permanent?

The tips deduction, overtime deduction, car loan interest deduction, and senior bonus deduction are available for tax years 2025-2028 only. The TCJA extensions (rate structure, standard deduction, QBI deduction, etc.) are permanent. The SALT cap increase runs through 2029.

What is a Trump Account?

A Trump Account (officially a Money Account for Growth and Advancement, or MAGA account) is a tax-advantaged savings vehicle for children, allowing contributions of up to $5,000 per year. Lower-income families receive a $1,000 government match. Funds grow tax-free and can be used for education, homeownership, or retirement.

Sources

IRS: One Big Beautiful Bill Provisions — accessed March 2026
IRS: How to Take Advantage of No Tax on Tips and Overtime — accessed March 2026
IRS: Tax Deductions for Working Americans and Seniors — accessed March 2026
IRS: New and Enhanced Deductions for Individuals — accessed March 2026
IRS: Treasury/IRS Guidance on Car Loan Interest Deduction — accessed March 2026
Tax Foundation: Tax Refunds and the One Big Beautiful Bill Act — accessed March 2026

One Big Beautiful Bill Tax Changes: Complete Guide to New Deductions

Table of Contents

Key Takeaways

What Is the One Big Beautiful Bill Act?

No Tax on Tips: The Qualified Tips Deduction

Who Qualifies

How It Works

Income Limits

Duration

No Tax on Overtime: The Overtime Pay Deduction

Deduction Limits

Who Qualifies

How to Claim

Duration

Car Loan Interest Deduction

Deduction Details

Vehicle Requirements

Income Phaseout

Lender Reporting

SALT Deduction Cap Increase to $40,000

New SALT Cap Structure

Impact on Itemizing

Senior Bonus Deduction of $6,000

Income Phaseout

Stacking With Other Senior Benefits

Enhanced Child Tax Credit

Permanent Extension of TCJA Provisions

Standard Deduction Bonus for 2025

Above-the-Line Charitable Deduction

Trump Accounts (Money Accounts for Growth and Advancement)

What’s Changed in 2026

Common Mistakes to Avoid

Frequently Asked Questions

When did the One Big Beautiful Bill become law?

Is overtime really tax-free now?

Who qualifies for the tips deduction?

Can I deduct interest on a used car loan?

Does the SALT cap increase affect everyone?

Are the new deductions permanent?

What is a Trump Account?

Sources

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