How the One Big Beautiful Bill Changed Your Taxes
The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, is one of the most significant tax reform packages since the Tax Cuts and Jobs Act of 2017. It introduced multiple new above-the-line deductions that directly reduce taxable income, raised the SALT deduction cap from $10,000 to $40,000, increased the standard deduction, and boosted the Child Tax Credit from $2,000 to $2,200 per qualifying child. Most of the new deductions are available for tax years 2025 through 2028.
The law's impact varies dramatically depending on your income sources, age, and state. A tipped restaurant worker might save $3,000 or more, while a salaried office worker with no tips, overtime, or children might see a more modest benefit from the higher standard deduction and adjusted bracket thresholds. This calculator runs both scenarios — your taxes under 2024 rules and under the new 2025 OBBBA rules — so you can see the exact dollar impact.
The Five New Deductions Available for the First Time in 2025
The OBBBA created five entirely new deductions that did not exist under prior law. The tip income deduction allows qualifying tipped workers to deduct up to $25,000 in tips. The overtime premium deduction covers up to $12,500 in overtime pay above the regular rate. The senior bonus deduction gives taxpayers age 65+ an additional $6,000 (single) or $12,000 (MFJ) deduction with income-based phaseouts. The new vehicle loan interest deduction covers up to $10,000 in interest paid on loans for new vehicles purchased after the law's enactment, subject to income phaseouts. The SALT cap was quadrupled from $10,000 to $40,000 for itemizers in high-tax states.
All of these deductions (except SALT, which requires itemizing) are above-the-line deductions claimed on the new Schedule 1-A. This means you benefit from them regardless of whether you take the standard deduction or itemize. The tips and overtime deductions share a combined $25,000 cap, and each has income-based phaseouts that reduce the deduction at higher income levels.
Who Benefits Most from the New Tax Law?
The largest dollar savings go to workers in tipped occupations. A server earning $25,000 in annual tips can deduct the full amount, saving $3,000 to $5,500 in federal income tax depending on their bracket. Workers who regularly earn overtime are also significant beneficiaries — deducting $12,500 in overtime premium can save $1,500 to $4,600 per year. Seniors earning below the phaseout thresholds gain the most from the senior bonus deduction, potentially saving $720 to $2,220 annually on the bonus deduction alone.
Families with children see a modest increase from the higher CTC ($200 per child more than 2024). Homeowners in high-tax states like New York, California, New Jersey, and Connecticut may benefit substantially from the SALT cap increase if they itemize. The higher standard deduction benefits all taxpayers, but the savings are typically $200 to $400 compared to 2024 for most filers.
What Didn't Change: FICA, AMT, and State Taxes
The OBBBA primarily affects federal income tax. FICA payroll taxes (Social Security and Medicare) were not changed — tip and overtime income remain fully subject to the 7.65% employee share of FICA. The Alternative Minimum Tax (AMT) continues to apply to high-income taxpayers. State income taxes are governed by state legislatures, not federal law — whether your state conforms to the new federal deductions depends on your state's legislation. Some states automatically adopt federal AGI adjustments, while others decouple and require separate state-level action.
How to Claim the New Deductions (Schedule 1-A)
The IRS introduced a new Schedule 1-A for tax year 2025 to capture the OBBBA deductions. This form is attached to your Form 1040 and includes sections for tip income deduction, overtime premium deduction, senior bonus deduction, and new vehicle loan interest deduction. The combined tips and overtime deduction is computed on this schedule and flows to Line 10 of Schedule 1 as an adjustment to income. The senior bonus deduction flows to Line 11. Keep thorough records — pay stubs showing overtime hours, tip logs, loan interest statements (Form 1098), and proof of age — in case the IRS requests documentation. Most major tax preparation software will include Schedule 1-A for the 2025 filing season.