Congress passed the 2025 reconciliation legislation — informally known as the One Big Beautiful Bill Act (OBBBA) — introducing a range of tax changes for both workers and retirees. Some provisions take effect immediately in 2025, while others roll out through 2026 and beyond. Here’s a plain-English overview of key updates that individual taxpayers should know.

New Overtime and Tips Deductions (2025–2028)

Overtime Deduction:
Eligible workers can now deduct the overtime premium portion of their pay — typically the “half” in time-and-a-half under the FLSA — up to $12,500 (single) or $25,000 (MFJ). Phase-outs begin at $150,000 and $300,000 MAGI. Employers will furnish totals for 2025 as the IRS updates W-2 reporting.

Tips Deduction:
Tipped workers can deduct up to $25,000 of qualified tips per year, subject to income limits and occupation rules. It’s essential to track tips accurately and retain records per IRS guidance.

Additional Deduction for Seniors (2025–2028)

Taxpayers age 65 and older may claim an extra $6,000 deduction in addition to their standard or itemized deduction. The amount phases out at higher incomes and requires a valid Social Security number. This change helps retirees offset rising living and healthcare costs.

Higher SALT Deduction Cap (Beginning 2025)

For many households under specific income thresholds, the state and local tax (SALT) deduction cap increases starting in 2025. This update offers relief for taxpayers in high-tax states who previously hit the $10,000 limit. The IRS will provide final phase-out details in Publication 4011 (Rev. 10-2025).

Form 1099-K Threshold Restored (2025 and Beyond)

Online sellers and freelancers will see a return to the prior threshold rules: third-party payment platforms (like PayPal, Etsy, or Venmo) will only issue Form 1099-K when payments exceed $20,000 and 200 transactions in a year. This reverses the temporary lower threshold implemented in recent years.

New Car-Loan Interest Deduction (2025–2028)

Taxpayers can deduct up to $10,000 of interest on qualifying new, U.S.-assembled vehicles purchased with loans originated after December 31, 2024. This deduction phases out at higher incomes and requires the VIN and lender information on your tax return.

529 Plan Expansion (Starting 2026)

Beginning in 2026, the annual K-12 withdrawal limit increases to $20,000, and qualified expenses expand to include tutoring, online courses, and certain certification materials. Check your state’s conformity rules before taking withdrawals to ensure state tax benefits apply.

Timing and Filing Updates: 2025 vs. 2026

2025 is a transition year for reporting some items like overtime and tips (tentatively through W-2 Box 14). By 2026, the IRS plans to finalize new codes and instructions for Form 1040.

Additionally, the IRS announced that paper refund checks will be phased out after September 30, 2025, under Executive Order 14247. Taxpayers are encouraged to set up direct deposit or IRS Direct Pay now to avoid refund delays.

What to Do Now

1. Confirm with your employer how overtime and tips will be reported for 2025.
2. Track all tips and overtime amounts using a consistent method.
3. If buying a new vehicle, verify U.S. assembly eligibility and keep your loan documentation.
4. Review itemizing vs. standard deduction strategies under the new SALT cap.
5. For side income or online sales, understand the $20k/200 transaction 1099-K threshold.
6. Coordinate with a tax advisor before making 529 withdrawals under the expanded rules.

Final Thoughts

The OBBBA introduces a variety of benefits for workers, seniors, and families — but many details depend on timing, income, and IRS implementation. Working with a qualified tax professional can help you maximize your deductions and stay compliant as these new rules roll out.