Significant New Tax Law Changes for 2025 Tax Returns
- Overtime: The Act also adds a new deduction of up to $12,500 ($25,000 for joint filers) for “qualified overtime compensation,” subject to phaseout for a taxpayer with Modified Adjusted Gross Income exceeding $150,000 ($300,000 for joint filers). The employee must be considered non-exempt under the Fair Labor Standards Act. The deduction is for paid time-and-a-half for hours worked beyond 40 in a week. The overtime must be documented on Form W-2 or equivalent payroll record. The IRS will provide guidance for employers and for taxpayers claiming the deduction.
- Tips: The Act adds a new deduction of up to $25,000 for “qualified tips,” subject to phaseout for a taxpayer with Modified Adjusted Gross Income exceeding $150,000 ($300,000 for joint filers). However, tips from certain specified service trades or businesses don’t qualify; the IRS is required to publish a list of occupations that customarily receive tips (including occupations that customarily and regularly received tips before 2025). A preliminary list can be found here: Tipped-Occupations-Detailed-8-27-2025.pdf
Here is an article regarding overtime and tips from Paychex: https://www.paychex.com/articles/compliance/2025-tax-law-no-tax-on-overtime-and-tips?utm_source=partner&utm_medium=referral&utm_campaign=tax_law_no_tax_on_ot_and_tips_article_marc_dovi_fy26&utm_content=worx_article&utm_term=julie_jones_sharing
- Deduction for taxpayers age 65 or older: For tax years 2025-2028, individuals age 65 or older can claim a new senior deduction of up to $6,000. The deduction is available to both itemizers and non-itemizers. Both spouses on a joint return can claim the deduction if they qualify. The deduction is reduced by 6% of Modified Adjusted Gross Income exceeding $75,000 ($150,000 for joint filers).
- Car loan interest: For tax years 2025-2028, individuals can deduct up to $10,000 per year in interest paid on loans for new personal-use vehicles even if they don’t itemize deductions. To qualify, the loan must be for a new, U.S.-assembled car, SUV, van, pickup, or motorcycle (under 14,000 pounds), secured by a first lien, with the taxpayer as the original owner. The deduction is subject to a phaseout for a taxpayer with Modified Adjusted Gross Income exceeding $100,000 ($200,000 for joint filers). A non-authoritative list can be found here: https://freedomtaxaccounting.com/car-loan-interest-tax-deduction-full-list-of-qualifying-vehicles-under-the-one-big-beautiful-bill-act-2025-2028/
Other OBBBA Tax Provisions
- Estate & gift tax exclusion amount: The basic exclusion amount for federal estate and gift tax will increase to $15 million (indexed for inflation) for estates of decedents dying and gifts made after December 31, 2025.
- Remittance transfers: Starting in 2026, a new 1% excise tax will apply to remittance transfers from U.S. senders to recipients in foreign countries. Transfers funded with cash, money order, cashier’s check or similar physical instruments will be subject to the tax.
