One Big Beautiful Bill (OBBBA): 2025–2026 Individual Tax Updates You Should Know
Congress has passed the One Big Beautiful Bill Act (OBBBA) — a broad federal tax reform package intended to simplify filing and provide targeted relief for working Americans. Several provisions begin in 2025, with more rolling out through 2028. Here’s a clear, fact-based overview of what individuals and families should expect.
Overtime and Tips Deductions (2025–2028)
Overtime Deduction:
Starting in 2025, hourly, non-exempt employees can deduct the “half” portion of their time-and-a-half overtime pay — up to $12,500 for single filers and $25,000 for joint filers. The deduction begins phasing out at $150,000 (single) and $300,000 (joint) in modified adjusted gross income (MAGI).
Employers will report qualifying overtime in Box 14 of Form W-2 beginning with the 2025 tax year.
Tips Deduction:
Workers who earn tips — such as restaurant staff or service professionals — can claim up to $25,000 annually in tip income deductions, subject to income limits.
Tip: Keep detailed logs of reported tips and ensure they match your W-2 for full compliance.
Extra Deduction for Seniors (2025–2028)
Taxpayers aged 65 and older are eligible for an additional $6,000 deduction on top of their standard or itemized deductions.
This helps retirees offset higher living and healthcare costs. The benefit phases out for higher-income taxpayers and requires a valid Social Security number.
Higher SALT Deduction Cap (Starting 2025)
Beginning in 2025, the state and local tax (SALT) deduction cap will increase from the current $10,000 limit, offering significant relief to taxpayers in high-tax states.
The IRS plans to publish full details in Publication 4011 (Rev. 10-2025).
Form 1099-K Threshold Restored (2025+)
Starting in 2025, gig workers, freelancers, and online sellers using platforms like PayPal, Venmo, or Etsy will only receive Form 1099-K if they exceed $20,000 in total payments and 200 transactions.
This reverses the stricter threshold that caused confusion for small sellers in 2023 and 2024.
IRS implementation guidance is expected by early 2025.
Car Loan Interest Deduction (2025–2028)
Individuals purchasing qualifying new U.S.-assembled vehicles can deduct up to $10,000 in car loan interest per year.
Eligibility phases out at higher income levels. To claim, filers must include the vehicle identification number (VIN) and lender details on their return.
529 Plan Expansion (Starting 2026)
From 2026 onward, annual K–12 withdrawals from 529 education savings plans will increase to $20,000.
Approved uses now include private tutoring, online learning platforms, and professional certification programs.
Important: Since state-level 529 rules differ, always confirm with your state’s 529 administrator before making withdrawals.
Key Filing and Timing Notes
- 2025 is a transition year — expect new codes for overtime and tip deductions in W-2 Box 14.
- Form 1040 instructions will be updated in 2026 to reflect new deduction categories.
- Paper refund checks will phase out after September 30, 2025 — switch to direct deposit or IRS Direct Pay to avoid delays.
What You Should Do Now
- Confirm with your employer how overtime and tips will be reported in 2025.
- Track all tips and overtime throughout the year.
- Review whether the higher SALT cap makes itemizing more beneficial.
- Keep all vehicle and loan records if buying a new car.
- Monitor Form 1099-K thresholds if you have side income.
- Consult a tax professional before using expanded 529 plan benefits.
Final Thoughts
The One Big Beautiful Bill Act (OBBBA) marks one of the most comprehensive tax overhauls in recent years.
With new deductions for overtime, tips, seniors, and car loans — plus expanded education benefits — the law is designed to support working families, small earners, and retirees.