How the OBBB Could Impact Your 2025 Taxes
- ccrowley06
- Jan 13
- 4 min read
Last year, Congress passed H.R. 1, also known as the One Big Beautiful Bill. While it included a variety of legislation among its 870 pages, tax implications were some of the most significant. In an effort to answer some common questions and provide insight into some of issues that will impact individual filers, we’re going to break down some of the tax information in the OBBB.
1. The SALT Deduction Cap: First, what is SALT? SALT stands for State and Local Tax and the deduction is calculated on Schedule A if you itemize. Emphasis on IF YOU ITEMIZE. Not everyone itemizes – in fact most individuals take the standard deduction as it is generous and makes more financial sense. However, with the expansion of the SALT cap from $10,000 to $40,000, we anticipate more people will itemize on this year’s taxes. Up to now, if your state and local real property taxes (in NY we see county property taxes, school taxes, and sometimes also city or municipal taxes) in addition to your state and local income taxes (or sales taxes, if elected) were greater than $10,000, you could only deduct up to $10,000. For folks with significant property taxes, this change will likely be beneficial and could cause you to itemize. Make sure you provide your property tax receipts and that they were paid in 2025. Of note – this is a temporary expansion expiring in 2030.
2. Social Security Tax Deduction: For some seniors, social security payments have not been federally taxable at all. For all seniors, up to 85% of social security benefits can be taxable federally. The difference in how much is taxable is within how much other taxable income the individual or couple has. The formula for calculating the taxable portion of social security remains the same, HOWEVER, the OBBB has enacted a new social security deduction of up to $6,000 for individuals and $12,000 for eligible married couples. For some, this will make the entirety of their social security benefit tax-free. For others, it will significantly reduce the taxable portion. For some, it will not be noticeable as their benefits were already tax free. The deduction is in place through 2028 and applies to seniors 65 and over whether they itemize or take the standard deduction.
3. Deduction for Tips and Overtime Compensation: Widely advertised as “no tax on tips”, that is not truly the case. As is the case with any income earned, the IRS has always expected workers to report tips, cash or otherwise. Often, a service worker’s W-2 will show earned tips in box 7. For tips not included in that calculation (see: cash tips), the IRS provides Form 4137 to be used to report those tips and calculate applicable tax accordingly. The OBBB allows workers to deduct up to $25,000 of qualified tips. For the 2025 tax year, you can only deduct tips on your federal income tax return if you:
a. receive the tips through a job that “customarily and regularly” received tips before 2025
b. have a valid Social Security number issued before the due date of your return
Certain self-employed individuals and contractors (such as photographers) can benefit from the deduction but are limited to deducting no more than their net income. Certain professions are not eligible to claim this deduction.
Regarding overtime, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay – such as the “half” portion of “time-and-a-half”. The maximum deduction is $12,500 (or $25,000 for joint filers who both have overtime). Employers will be required to furnish statements to employees which show the total amount of qualified overtime paid during the year.
Important to note for both tips and overtime: both deductions require married couples to file jointly – if filing separately, the deductions do not apply. Also, both deductions are temporary (through 2028) and phase out at higher income levels.
4. Car Loan Interest Deduction: a maximum $10,000 deduction will be available in tax years 2025-2028 for the interest paid on a loan used to purchase a personal-use vehicle after December 31, 2024. This deduction is available whether you itemize or not, and is only available to vehicles that underwent “final assembly in the United States.” The IRS provides a tool to determine if your vehicle qualifies. Used vehicles do NOT qualify and, as with the other new deductions, it phases out at a certain income level. If you purchased a new car in 2025 using a loan, you should receive documentation from your loan servicer regarding interest you paid (similar to a mortgage interest statement). To claim the deduction, you must provide that information as well as your vehicle VIN.
So, what does all of this mean? For many people, none of it will impact them at all while some folks will see temporary tax relief through the aforementioned deductions. If you have questions about a particular new deduction, it is best to reach out to your tax preparer for clarification. Additionally, as this tax year is a transitional year for these particular deductions (many of which require additional reporting from employers and taxpayers), the IRS will provide what it calls “transition relief” as everyone becomes more comfortable with the changes.
The information provided here is intended to be informational in nature and not specific tax advice. There are additional tax issues in the OBBB that were not addressed here.
For advice regarding your specific tax situation, please reach out to one of our qualified preparers.
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