Guest Post: 5 Immediate Tax Impacts from The One Big Beautiful Bill Act
This is a Guest post from Eric Harvey, CPA at Chico Tax, LLC. You can learn more about him and his business at Chicotax.com
President Trump’s recently-enacted tax and spending bill, the One Big Beautiful Bill Act, contains a wide range of tax provisions. Of its 870 pages, about 350 of them are devoted to extending temporary tax policies introduced in Trump’s first term and adding new tax policies promised in his 2024 campaign season. Some of the new tax policies take effect in the 2025 tax year, others in the 2026 tax years. This letter exists to inform you of the most relevant stuff taking effect in 2025.
1. $6,000 deduction for Seniors
On the campaign trail, Trump promised “no tax on social security.” This special deduction is what seniors were given instead. Strictly speaking, it is not a “deduction” against social security income. It is an above-the-line adjustment to total gross income. Think of it like a “personal exemption” tax benefit like we used to have pre-2017. This benefit begins to phase out if the taxpayer has income greater than $75,000 (single) or $150,000 (married filing jointly).
2. SALT Deduction Limitation
Depending on where you’ve lived in the past 8 years, Trump’s 2017 tax bill included one incredibly unpopular provision: the “SALT” deduction limitation. The amount of state and local tax deductible on your federal return was capped at $10,000. Taxpayers that live in states with high income tax or property tax (CA, NY, CT, IL, HI) went from being able to deduct 10’s of thousands in taxes to only $10K. Lawmakers from these high-tax states successfully lobbied to raise the SALT deduction limitation to $40,000.
3. No Tax on Tips
Another of Trump’s campaign promises was “no tax on tips.” What we got was a $25,000 deduction specifically against qualified tip income (note how this differs from the no tax on social security promise in #1 above). This deduction begins to phase out for taxpayers earning $150,000 (single) or $300,000 (filing jointly). Tips received in cash directly from a customer or client qualify, as well as tips distributed from a shared pool of money (common in restaurants). There are lots of reporting and compliance burdens for payroll processing companies and payment processing companies to sort through, as the law specifies that qualified tips now need to be reported on things like W-2s and 1099s.
4. No Tax on Overtime
Yet another Trump campaign promise was addressed in the Big Beautiful Bill: no tax on overtime wages. This is structured as a deduction up to $12,500 (single) or $25,000 (filing jointly) of qualified overtime compensation. In the state of CA, overtime is typically earned at 1.5x or 2.0x one’s regular hourly rate. The “qualified overtime” is defined as only the portion of the OT rate in excess of the regular rate. Given this limited definition of “qualified overtime,” this may be a much smaller benefit than one might think, depending on each person’s situation. For example, imagine a single taxpayer with the following fact pattern: - Regular wage of $20 / hr - Working 2,000 regular hours a year (full time) - Working an additional 250 overtime hours through the year (5 OT hrs per week). This hypothetical taxpayer earned pre-tax income of $47,500. In this scenario, the maximum potential deduction of $12,500 is reduced to a mere $2,500. Which, at the 12% tax bracket, is only worth $300. Similar to the qualified tips (#3 above), qualified overtime wages will now be reported on W-2s and 1099s.
5. Deductible Interest on Vehicle Loans
Interest paid for personal (non-business) purchases has long been non-deductible. Only one notable exception existed: mortgage loan interest. But today, as our nation’s aggregate vehicle debt exceeds $1.6 trillion, another exception has been granted. Beginning in 2025, up to $10,000 of “qualified passenger vehicle loan interest” is deductible. To be “qualified”, the following conditions must be true: - The loan originated in 2025+; - The vehicle is new (used vehicles don’t apply); - The vehicle must be assembled in America; - The vehicle must be under 14,000 lbs. Not only are the vehicles and loans limited in scope, but the law itself is scheduled to expire after the 2028 tax year.