What Tax Professionals Need to Know
Recent tax legislation—often referred to as the One, Big, Beautiful Bill Act—introduces several new deductions aimed at working Americans and seniors. While the headlines focus on phrases like “No Tax on Tips” and “No Tax on Overtime,” the real value comes from understanding how these provisions actually work and who qualifies.
Below is a breakdown of the key changes taking effect for tax years 2025 through 2028, and what they mean for taxpayers and preparers alike.
What Tax Professionals Need to Know
Recent tax legislation—often referred to as the One, Big, Beautiful Bill Act—introduces several new deductions aimed at working Americans and seniors. While the headlines focus on phrases like “No Tax on Tips” and “No Tax on Overtime,” the real value comes from understanding how these provisions actually work and who qualifies.
Below is a breakdown of the key changes taking effect for tax years 2025 through 2028, and what they mean for taxpayers and preparers alike.
“No Tax on Tips”: A New Deduction for Tipped Workers
One of the most talked-about provisions is a new deduction for qualified tips earned by employees and self-employed individuals.
How it works
Eligible taxpayers may deduct qualified tips that are:
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Voluntary cash or charged tips
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Received directly from customers or through tip sharing
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Reported on Form W-2, Form 1099, or Form 4137
The deduction is available whether the taxpayer itemizes or takes the standard deduction.
“No Tax on Tips”: A New Deduction for Tipped Workers
One of the most talked-about provisions is a new deduction for qualified tips earned by employees and self-employed individuals.
How it works
Eligible taxpayers may deduct qualified tips that are:
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Voluntary cash or charged tips
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Received directly from customers or through tip sharing
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Reported on Form W-2, Form 1099, or Form 4137
The deduction is available whether the taxpayer itemizes or takes the standard deduction.
Key limits and phaseouts
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Maximum deduction: $25,000 per year
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For self-employed individuals, the deduction cannot exceed net income from the related trade or business
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Phases out for taxpayers with modified AGI over:
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$150,000 (single filers)
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$300,000 (joint filers)
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Important restrictions
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Self-employed individuals in a Specified Service Trade or Business (SSTB) under Section 199A are not eligible
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Employees whose employer is an SSTB are also excluded
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Married taxpayers must file jointly
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A valid Social Security Number is required
The IRS is required to publish a list of occupations that “customarily and regularly” received tips by October 2, 2025, with transition relief available for tax year 2025.
“No Tax on Overtime”: Relief for Extra Hours Worked
Another major provision allows workers to deduct a portion of their overtime pay.
What qualifies
Taxpayers may deduct the portion of overtime compensation that exceeds their regular rate of pay—such as the “half” portion of time-and-a-half wages required under the Fair Labor Standards Act (FLSA).
Overtime must be reported on a Form W-2, Form 1099, or similar statement.
Deduction limits
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Maximum deduction:
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$12,500 for single filers
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$25,000 for joint filers
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Phases out for modified AGI over:
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$150,000 (single)
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$300,000 (joint)
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As with other provisions, the deduction is available to both itemizing and non-itemizing taxpayers, requires a Social Security Number, and joint filing if married.
“No Tax on Car Loan Interest”: A New Personal Vehicle Deduction
For taxpayers purchasing new vehicles, the Act introduces a deduction for qualified car loan interest.
Deduction details
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Maximum deduction: $10,000 per year
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Available for both itemizers and standard deduction filers
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Phases out for modified AGI over:
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$100,000 (single)
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$200,000 (joint)
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Vehicle and loan requirements
To qualify, the loan must:
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Be originated after December 31, 2024
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Be used to purchase a new vehicle (used vehicles do not qualify)
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Be secured by a lien on the vehicle
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Be for personal use only (not business or commercial)
Qualified vehicles must:
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Weigh under 14,000 pounds
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Be finally assembled in the United States
Taxpayers must include the vehicle’s VIN on their return when claiming the deduction. Refinanced loans may still qualify under certain conditions.
A New Deduction for Seniors Age 65 and Older
The Act also provides targeted relief for older Americans.
Senior deduction highlights
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Additional deduction of $6,000 per qualifying individual
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Married couples where both spouses qualify may deduct up to $12,000
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This deduction is in addition to the existing senior standard deduction
Eligibility
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Taxpayer must turn 65 on or before the last day of the tax year
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Phases out for modified AGI over:
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$75,000 (single)
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$150,000 (joint)
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As with other provisions, the deduction is available to both itemizers and non-itemizers and requires valid Social Security Numbers and joint filing if married.
A New Deduction for Seniors Age 65 and Older
The Act also provides targeted relief for older Americans.
Senior deduction highlights
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Additional deduction of $6,000 per qualifying individual
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Married couples where both spouses qualify may deduct up to $12,000
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This deduction is in addition to the existing senior standard deduction
Eligibility
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Taxpayer must turn 65 on or before the last day of the tax year
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Phases out for modified AGI over:
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$75,000 (single)
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$150,000 (joint)
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As with other provisions, the deduction is available to both itemizers and non-itemizers and requires valid Social Security Numbers and joint filing if married.
What This Means for Tax Professionals
These new deductions add meaningful planning opportunities—but also new compliance and reporting requirements. From verifying eligibility to ensuring proper documentation, tax professionals will play a critical role in helping clients maximize benefits while staying compliant.
At Swift Financial Partners, we’re committed to keeping tax professionals informed, prepared, and equipped with the tools they need to navigate evolving tax law with confidence.
Stay tuned for more updates as the IRS releases additional guidance—and make sure your tax software is ready for what’s ahead.
Don’t Miss Out!
Before you can file returns, you need an EFIN (Electronic Filing Identification Number) from the IRS. The application can feel overwhelming—but we make it easy.
Our team provides step-by-step, one-on-one guidance to help you get approved fast. With our EFIN program, you’ll be ready to e-file with confidence this tax season.
Get your Free Assistance here.
Before you can file returns, you need an EFIN (Electronic Filing Identification Number) from the IRS. The application can feel overwhelming—but we make it easy.
Our team provides step-by-step, one-on-one guidance to help you get approved fast. With our EFIN program, you’ll be ready to e-file with confidence this tax season.
