Overtime Pay Deduction
The deduction applies only to overtime compensation that is required under the federal Fair Labor Standards Act (FLSA). Overtime that exists solely because of state law, union agreements, or employer policy does not qualify. In addition, only the premium portion of overtime pay is eligible for the deduction. For example, if an employee earns $20 per hour and is paid $30 per hour for overtime, only the $10 premium may be deducted.
The deduction is capped at $12,500 for single filers and $25,000 for married couples filing jointly. It begins to phase out once income exceeds $150,000 for single filers and $300,000 for joint filers and is fully phased out at higher income levels.
It is also important to note that this provision is intended for employees, not business owners. Owners of S corporations, partners, and other equity holders generally do not qualify, even if they work long hours or receive compensation tied to overtime concepts.
This deduction is available whether a taxpayer itemizes or takes the standard deduction and applies only for tax years 2025 through 2028.
Cash Tips Deduction
OBBBA introduces a new deduction for cash tips, a form of income that historically has often gone underreported or inconsistently tracked.
This provision allows eligible workers to deduct up to $25,000 of qualifying cash tips from income. To qualify, tips must be voluntarily paid by customers and received in industries that are traditionally and customarily tipped. Mandatory service charges and automatic gratuities do not qualify.
The deduction begins to phase out once income exceeds $150,000 for single filers and $300,000 for married couples filing jointly.
It is critical to understand what this provision does and does not do. While qualifying cash tips may be deductible for income tax purposes, payroll taxes (Social Security, Medicare, etc.) still apply. This change aims to encourage those who previously were not reporting tips received in cash to do so.
This deduction applies whether itemizing or taking the standard deduction and is available for tax years 2025 through 2028.
A New Senior Deduction
Taxpayers who are age 65 or older may qualify for a new, separate senior deduction beginning in 2025. This deduction is often discussed alongside Social Security benefits, but the two are not directly linked. Those taxpayers who do not wish to drawn on their social security until after age 65, they can still qualify for this deduction.
The senior deduction allows up to $6,000 per qualifying taxpayer. It applies regardless of whether a taxpayer itemizes.
The deduction is subject to income limits. It begins to phase out at $75,000 of income for single filers and $150,000 for married couples filing jointly and is fully phased out at $175,000 and $250,000, respectively.
For many middle-income retirees, this deduction can meaningfully reduce taxable income during the years it is available. Like several other OBBBA provisions, it applies only for tax years 2025 through 2028.
A Higher SALT Deduction Cap
The long-standing $10,000 cap on the deduction for state and local taxes (commonly referred to as the SALT cap) is temporarily increased.
For the 2025 tax year, the SALT cap increases to $40,000. Beginning in 2026, the cap increases by 1% per year through 2029. Under current law, the cap is scheduled to revert back to $10,000 in 2030.
This change is particularly relevant for taxpayers in high-tax states such as New Jersey and primarily benefits those who itemize deductions.
Mortgage and HELOC Interest Restrictions
OBBBA continues the trend of narrowing mortgage-related deductions.
Interest on home equity lines of credit (HELOCs) and home equity loans is no longer deductible, regardless of how the borrowed funds are used. Mortgage interest remains deductible only on qualifying acquisition debt, which continues to be capped at $750,000 ($375,000 if married filing separately).
Taxpayers who previously relied on HELOC interest deductions should be aware that this benefit is no longer available.
Vehicle Loan Interest
OBBBA introduces a new, temporary deduction for interest paid on certain vehicle loans. This deduction is limited and applies only when several conditions are met.
The vehicle must be new, not used, and its final assembly must occur in the United States. The loan must be used to purchase the qualifying vehicle, and only interest paid during the applicable years is eligible. You can verify eligibility at NHTSA.gov.
Income limits apply. The deduction begins phasing out once income exceeds $100,000 for single filers and $200,000 for married couples filing jointly and is fully phased out at higher income levels.
This deduction is available whether itemizing or taking the standard deduction and applies only for tax years 2025 through 2028. Additional IRS guidance is expected to clarify administrative details.
Cryptocurrency Reporting and Form 1099-DA
Taxpayers with cryptocurrency or other digital asset activity should expect expanded IRS reporting beginning in 2025.
Brokers will begin issuing Form 1099-DA to report digital asset transactions, including cryptocurrency, stablecoins, and NFTs. For transactions occurring in 2025, brokers will report gross proceeds.
For transactions occurring on or after January 1, 2026, brokers will also be required to report cost basis and gain or loss for covered digital assets. Assets acquired prior to that date may not have basis reported, making taxpayer record-keeping especially important during the transition period.
This change significantly increases IRS visibility into digital asset transactions.
Trump Accounts for Children
OBBBA creates a new tax-advantaged savings vehicle for children, commonly referred to as Trump Accounts.
Children born between 2025 and 2028 will receive an automatic $1,000 government contribution. Annual contributions are capped at $5,000 (indexed for inflation), and employer contributions of up to $2,500 may be excluded from income. No withdrawals are permitted before age 18. When withdrawals are allowed, principal is tax-free and earnings are taxable. They can be converted to a traditional IRA when the beneficiary reaches age 18.
Although eligibility begins earlier, these accounts will not be available to open until mid-2026. Congress intentionally provided brokerage firms and financial institutions additional time to build the infrastructure needed to administer these accounts.
Final Thoughts
Many of the changes introduced under OBBBA are temporary, income-dependent, and subject to further IRS guidance. While not every provision applies to every taxpayer, the volume of changes taking effect in 2025 makes it important to stay informed.
If your income, employment situation, retirement status, or investment activity has changed, these rules may affect your tax outcome. We will continue monitoring guidance and addressing these changes as part of our regular tax planning process.
