[This is part of a Special Series on the tax changes made by the One Big Beautiful Bill Act, which was enacted in July 2025. It includes a wide range of changes to individual and corporate taxes, deductions, credits, forms and other topics, that affect tax filing starting this year into the future.]
The new tax law signed on July 4, 2025—the One Big Beautiful Bill Act (OBBBA)—will have a major impact on 2025 income tax returns that must be filed by April 15, 2026. Besides creating new tax forms, the OBBBA requires significant modifications to others. The IRS, or at least the staff still plugging away despite the government shutdown, hopes to comply with the new rules in time for tax filing season. It’s going to be close!
Notably, the IRS establishes a new form—Schedule 1-A, Additional Deductions—that reflects several new deductions available under the OBBBA. The initial draft of this new form has already been released. Following is a brief rundown on the new twists and turns for tax filers.
Schedule 1-A: This brand-new schedule includes entries for new deductions authorized for individuals beginning in 2025 and ending after 2028. These deductions, which are phased out based on modified adjusted gross income (MAGI), include the following:
- Tips: Employees who regularly receive tips for the services they provide at their jobs—like waiters, beauticians, and hotel workers—can deduct up to $25,000 in tips for the year. This deduction is phased out at MAGI beginning at $150,000 for single filers and $300,000 for joint filers.
- Overtime pay: An employee can deduct the “premum” portion of time-and-a-half overtime pay, up to a limit of $12,500 for single filers and $25,000 for joint filers. This change is retroactive to January 1, 2025. The deduction phase-out begins at $150,000 of MAGI for single filers and $300,000 for joint filers.
- Auto loan interest: A taxpayer may deduct the interest paid on a loan to purchase a qualified vehicle assembled in the U.S. The annual limit is $10,000, but it is phased out beginning at a threshold of $100,000 of MAGI for single filers and $200,000 for joint filers.
- Senior deduction: Someone age 65 or older can claim an extra “senior deduction” of $6,000 for single filers or $12,000 for joint filers who are both age 65 or older. These deductions are available in addition to the standard deductions. Again, the new tax break is phased out, beginning at $75,000 of MAGI for single filers and $150,000 for joint filers.
The total will be entered on Form 1040, Line 13b. The initial draft of Schedule 1-A confirms that these deductions are allowed whether you itemize or claim the standard deduction.
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Form W-4: Employees can submit a new 2026 Form W-4, Employee’s Withholding Certificate, to adjust withholding on their wages. This may make sense to account for some of the OBBBA changes such as the deductions for overtime pay and tips.
Form 1040: In addition to aforementioned Line 13b, the basic individual tax return series will be modified to incorporate other OBBBA changes and adjustments taking effect in 2025. For instance, Form 1040, Schedule A, is being updated to include the computation for the enhanced deduction for state and local tax (SALT) payments in 2025.
Form 1099-K: After recent changes for reporting of Form 1099-K, Payment and Third Party Network Transactions for third party settlement organizations (TPSOs) like PayPal and Venmo were postponed, the OBBBA reinstated the prior roles. Copies of Form 1099-K must be sent to recipients of more than $20,000 in payments comprised of more than 200 transactions rather than using a flat $600 annual threshold.
The upshot: There is likely to be mass confusion next spring as taxpayers grapple with all the OBBBA changes. Demonstrate the benefits of using a professional like yourself for tax return preparation.
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michael mesnick November 18 2025 at 11:38 am
Can I get the 2026 tax changes book?