The IRS has issued some guidance on new provisions in the One Big Beautiful Bill Act.
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Still confused about the One Big Beautiful Bill Act (OBBBA)? It’s no wonder. Misinformation, mixed with good old-fashioned confusion, was circulating even before President Donald Trump signed the bill into law on Thursday, July 4, 2025.
Our Forbes team has been combing through the new law to provide the information you need (or want) to know about the individual tax cuts. You can take a peek at some of the most popular questions that I’ve received on social media, via email, and in a Reddit Ask Me Anything session—you’ll find those answers here.
The IRS has also now issued guidance—in the form of brief descriptions—with respect to new provisions that take effect for 2025. Here’s a look at a quick summary of each provision, followed by information from the IRS.
Tip income would be temporarily deductible—only for tax years 2025 through 2028—for taxpayers in traditionally and customarily tipped industries, regardless of whether they itemize. The deduction is limited to $25,000 of reported tips. It's important to note that this is a federal income tax deduction, not an exclusion. That means that tips would still be reportable—and taxable at the state and local level. Highly compensated employees won’t benefit since phase-out begins for individuals who make more than $150,000 or $300,000 in the case of a joint return.
The new deduction is effective for the tax years 2025 through 2028 and can be claimed whether or not you itemize your deductions.
The new deduction is available to taxpayers who receive qualified tips in occupations listed by the IRS as customarily and regularly receiving tips on or before December 31, 2024 (Treasury will provide a list by October 2, 2025). Qualified tips are voluntary cash or charged tips (meaning those made by credit card) received from customers or through tip sharing.
The maximum annual deduction is $25,000, and the deduction for self-employed taxpayers may not exceed your net income before the deduction from the trade or business in which the tips were earned. You must include your Social Security Number on the return and file jointly if married to claim the deduction. The deduction phases out with modified adjusted gross income over $150,000 ($300,000 for joint filers).
The deduction applies to employees and self-employed individuals, and qualified tips must be reported on Form W-2, Form 1099, or other specified statement furnished to the taxpayer or reported directly on Form 4137, Social Security and Medicare Tax On Unreported Tip Income. Self-employed individuals in a Specified Service Trade or Business (SSTB) under section 199A are not eligible—the same is true for employees whose employer is in an SSTB.
The IRS will provide transition relief for the tax year 2025 to taxpayers claiming the deduction, as well as to employers and payors subject to the new reporting requirements—this means more guidance is yet to come.
Workers who receive overtime will be eligible for a deduction for qualified overtime pay of $12,500 ($25,000 for married taxpayers filing jointly). As with tips, this is a deduction, not an exclusion. The deduction would apply to taxpayers regardless of whether they itemize and would also be temporary—only for tax years 2025 through 2028. For purposes of the rule, overtime compensation is defined as the amount paid in excess of the employee’s regular rate—only the overtime compensation is part of the break. It phases out for taxpayers with income over $150,000 ($300,000 for married taxpayers filing jointly)—that means the maximum deduction would disappear at $275,000 for single filers.
The new deduction is effective for 2025 through 2028 for taxpayers who receive qualified overtime compensation—it can be claimed regardless of whether you itemize your deductions. The deductible amount is the bit that exceeds your regular rate of pay—the “half” portion of “time-and-a-half” compensation. The overtime pay must be reported on a Form W-2, Form 1099, or other specified statement furnished to the taxpayer.
The maximum annual deduction is $12,500 ($25,000 for joint filers). You must include your Social Security Number on the return and file jointly if married to claim the deduction. The deduction phases out for taxpayers with modified adjusted gross income (MAGI) over $150,000 ($300,000 for joint filers).
As with tips, the IRS will provide transition relief for the tax year 2025 to taxpayers claiming the deduction, as well as to employers and payors subject to the new reporting requirements—this means more guidance is yet to come.
Car loan interest used to be deductible until 1986, when Congress decided that it, along with other consumer loan interest, encouraged spending and discouraged saving. Now, a temporary provision would make auto loan interest deductible (but only for cars assembled in the U.S.) in tax years 2025 through 2028. The deduction would be limited to $10,000 and subject to phase-outs for individuals with income above $100,000 (for single filers) or $200,000 (for married taxpayers filing jointly). And autos only—campers and RVs are excluded.
The deduction applies to the tax years 2025 through 2028 and allows you to deduct interest paid on a loan used to purchase a qualified vehicle. It can be claimed regardless of whether you itemize your deductions.
To qualify for the deduction, the interest must be paid on a loan which originates after December 31, 2024, to purchase a vehicle (leased vehicles do not qualify). The original use of the vehicle must start with you (used vehicles do not qualify). The deduction applies to interest paid on a loan for a personal use vehicle (not for business or commercial use) and must be secured by a lien on the vehicle.
A qualified vehicle is a car, minivan, van, SUV, pick-up truck, or motorcycle with a gross vehicle weight rating of less than 14,000 pounds that has undergone final assembly in the United States. If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction. You must include the Vehicle Identification Number (VIN) of the qualified vehicle on the tax return for any year in which the deduction is claimed, while lenders or other recipients of qualified interest must file information returns with the IRS and furnish statements to taxpayers showing the total amount of interest received during the taxable year.
The maximum annual deduction is $10,000, and it phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers).
As with tips and overtime, the IRS will provide transition relief for tax year 2025 for interest recipients—this means more guidance is yet to come.
Under OBBBA, seniors who are age 65 and older are eligible to claim a new, temporary deduction of $6,000 beginning in 2025—the deduction would expire after 2028. The deduction would be available to taxpayers who itemize and those who claim the standard deduction. This is a stand-in for Trump’s “no tax on Social Security” promise—there is no separate provision.
The deduction is effective for 2025 through 2028 for taxpayers who are age 65 and older on or before the last day of the taxable year. The additional deduction of $6,000 and is in addition to the current additional standard deduction for seniors under existing law. It can be claimed regardless of whether you itemize your deductions.
The $6,000 senior deduction is per eligible individual (or $12,000 total for a married couple where both spouses qualify). You must include your Social Security Number on the return and file jointly if married to claim the deduction. The deduction phases out for taxpayers with modified adjusted gross income (MAGI) over $75,000 ($150,000 for joint filers).
There’s just one more thing you need to know. Guidance found on the IRS website isn’t to be treated as gospel. Specifically, as the IRS has reminded us time and again, FAQs and other information on the IRS website are not included in the Internal Revenue Bulletin and can’t be relied upon as legal authority. This means that the information cannot be used to support a legal argument in a court case.
Your best bet? Keep checking with our Forbes team for more information.
You can find the IRS guidance here.