New tax deductions introduced under President Donald Trump’s “One Big Beautiful Bill Act” (OBBBA) could lead to reduced tax bills and larger refunds for millions of Americans. The legislation,which aims to lower taxable income for various groups,includes provisions that may significantly benefit workers, retirees,homeowners,and vehicle owners.
Among the most impactful changes is the elimination of federal taxes on a portion of qualifying tip income. Eligible workers can now deduct up to $25,000 in tip earnings from their taxable income until 2028. This provision is particularly advantageous for those in industries such as hospitality and food service, where tips constitute a major part of earnings . However, married taxpayers filing separately will not qualify for this deduction.
The new law also offers relief for employees who earn overtime. Single filers,heads of household,and qualifying surviving spouses can deduct up to $12,500 in overtime income, while married couples filing jointly may claim up to $25,000. This deduction is set to remain available for next two years, providing a financial cushion for many workers.
Another notable feature is an above-the-line deduction that reduces taxable income regardless of whether taxpayers itemize their deductions. Single filers can claim a $1,000 deduction,while married couples filing jointly can receive $2,000. This type of deduction lowers adjusted gross income, potentially allowing taxpayers to qualify for additional tax benefits.
For those purchasing new vehicles, the legislation permits a deduction of up to $10,000 on interest paid for eligible loans. This could ease financial burden for many car buyers by offsetting borrowing costs.
Older Americans stand to gain significantly from the new tax law. Taxpayers aged 65 and older can claim additional $6,000 deduction from their taxable income. If both spouses in a married couple qualify, they can collectively reduce their taxable income by up to $12,000. This additional deduction is particularly beneficial for retirees relying on fixed incomes.
The law also maintains several existing tax advantages for homeowners. Mortgage interest remains deductible, and property tax deductions will continue through 2028, preserving valuable savings opportunities for many homeowners. However, not all taxpayers will benefit equally. Some deductions begin to phase out at higher income levels,potentially leaving wealthier households with reduced benefits or ineligibility.
Tax experts advise individuals to consult updated IRS guidelines and seek professional advice to understand their eligibility for these new deductions. As taxpayers prepare for future refunds,a recent survey by Talker Research reveals that tax refunds play a crucial role in household finances. Nearly 79% of respondents expect to receive a refund this year, with 52% indicating that it is vital for their annual budgeting.
Most taxpayers plan to allocate their refunds toward necessities, such as bills and groceries, rather than luxury items. Among those intending to use their refunds to pay down debt,over half are focusing on balances accrued during the holiday shopping season. Only 8% of participants aim to spend their refunds on non-essential purchases .
The average taxpayer anticipates a refund of approximately $1,700 this year. While 12% reported receiving a larger-than-expected refund last year,20% found their refunds smaller than anticipated. Those expecting larger refunds cite various reasons,while others anticipating lower amounts point to different factors impacting their tax situations.
The OBBBA introduces a range of deductions that could lower taxable income for many Americans,particularly benefiting workers earning tips or overtime,seniors, homeowners, and vehicle buyers. As the tax season approaches,the significance of refunds remains evident, with most Americans prioritizing essential expenses over discretionary spending.
