The One Big Beautiful Bill Act (OB3) was signed into law on July 4, 2025, and it’s a big one. It includes a wide range of tax changes for individuals and businesses alike, some starting this year, and others rolling out later. To make sense of it all, we’re kicking off a blog series that breaks things down in manageable chunks.

This first post focuses on the provisions taking effect in 2025. Future posts will cover 2026 and beyond, plus deeper dives into specific areas like tips, overtime, and any IRS updates that come down the line.

As always, this is general information. Your own tax situation will shape how these changes affect you. If you have questions, we’re here to help.

Green Tax Credits on the Clock

Two popular energy tax credits are on their way out:

• Clean vehicle credit ends after September 30, 2025.
• Energy efficient home improvement credit ends after December 31, 2025.

If you’ve been thinking about solar panels, heat pumps, or an electric car, now’s the time to act. These tax breaks won’t be around much longer.

A Closer Look at the Tip Deduction

You’ve probably heard “no tax on tips” floating around, but that’s not quite accurate.

Starting in 2025 through 2028, qualifying workers in tipping jobs can deduct up to $25,000 a year in tips from their taxable income. It’s a below-the-line deduction, so it won’t impact AGI, and you don’t have to itemize to claim it.

To qualify:

• The tip must be optional, customer-initiated, and not required by policy.
• Tips must be reported through W-2, 1099-K, 1099-NEC, or Form 4137.
• The IRS will issue more detailed guidance by October 2, 2025.

Phaseouts apply: The deduction begins to reduce when your MAGI exceeds $150,000 (or $300,000 for joint filers). And this doesn’t change payroll tax obligations, FICA still applies.

Overtime Deduction Details

This one’s also been nicknamed “no tax on overtime,” but again, there’s more to it.

From 2025 to 2028, taxpayers can deduct up to:

• $12,500 per year in overtime pay (or $25,000 on a joint return)

This deduction:

• Is below-the-line and doesn’t require itemizing
• Applies only to required overtime under the Fair Labor Standards Act (FLSA)
• Starts phasing out at $150,000 MAGI ($300,000 for joint filers)

Optional overtime like holiday pay at double-time doesn’t count. For example, if you make $20 per hour and your overtime rate is $30, you can only deduct the extra $10 per hour.

A Boost for Seniors

No, Social Security isn’t suddenly tax-free. But there’s a new $6,000 deduction for individuals age 65 and up. That’s $12,000 on a joint return if both spouses are 65+.

• Available from 2025 through 2028
• You don’t need to be collecting Social Security to qualify
• Phases out at $75,000 MAGI (or $150,000 for joint returns)

Note: Taxpayers under 65 will not get this deduction, even if they are on social security.

Car Loan Interest Deduction (Yes, Really)

New for 2025 through 2028: you can deduct up to $10,000 per year in personal vehicle loan interest. But there are strings attached.

Here’s what qualifies:

• Loan must be taken out after December 31, 2024
• Vehicle must be brand new (no used cars)
• Loan must be secured by the car, not from a family member
• Leases don’t qualify
• Car must be assembled in the U.S.
• Use the NHTSA VIN Decoder to verify eligibility

Weight limit: The vehicle must have at least two wheels and weigh under 14,000 pounds.

MAGI phaseout: Starts at $100,000 for individuals and $200,000 for joint filers. Spouses can each claim the deduction if filing separately and both meet the criteria.

Other Adjustments You Should Know

Some additional 2025 changes worth noting:

• Child tax credit increases to $2,200 and will now adjust for inflation.
• SALT cap increases to $40,000 through 2029, then drops back to $10,000.
• 529 plans now allow deductions for more types of educational expenses.
• Bonus depreciation is back to 100% for property placed in service after January 19, 2025.
• 1099-K threshold returns to $20,000 and 200 transactions.
• 1099-MISC/NEC threshold jumps to $2,000—but not until 2026.

What This Means for You

Even this high-level summary shows how much is shifting for 2025. These updates may change how you withhold taxes, make estimated payments, or approach year-end planning.

If you’re already in one of our tax planning programs, we’ll be reaching out soon to review how these provisions impact you specifically. If you’re not a planning client yet, now is a great time to start. We’ll walk you through what OB3 means for your income, expenses, and future strategy.

Visit Watson & Associates to schedule your tax planning consult, or contact us directly and let’s talk through your 2025 game plan.