Tax rules for workers and self-employed

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Overtime pay received deduction (No Tax on Overtime)

Effective: 2025–2028
The new “No Tax on Overtime” rule will allow certain workers to claim a dollar-for-dollar deduction for a designated amount of overtime pay covered by the Fair Labor Standards Act.

• Income eligible for the deduction is capped at $12,500 (Single) / $25,000 (Married Filing Jointly).

• Those with higher Modified Adjusted Gross Incomes (MAGI)  may only be able to claim a partial deduction as the benefit begins to phase out starting at $150,000 (Single) / $300,000 (Married Filing Jointly).

• The deduction is not available for people using the Married Filing Separately status. Additionally, the taxpayer receiving the overtime must have a Social Security number valid for work.

• Requires that employers designate overtime wages on the taxpayer’s Form W-2. A special rule in 2025 allows employers to approximate overtime.
   

Tips received deduction (No Tax on Tips)

Effective: 2025–2028
The new “No Tax on Tips” law allows for a dollar-for-dollar deduction for a designated amount of tips earned by workers where tipping is customary. 

• Income eligible for the deduction is capped at $25,000.

• Higher income workers may only be able to claim a partial deduction as the benefit begins to phase out starting at a Modified Adjusted Gross Income (MAGI) of $150,000 (Single) / $300,000 Married Filing Jointly).

• The deduction is not available for people using the Married Filing Separately status. Additionally, the rules require the taxpayer receiving the tips to have a Social Security number valid for work and employer designation on a W-2 or similar form.

Form 1099-K reporting threshold

Effective: 2025 and beyond  
If you receive payments from third-party apps or platforms, you may be aware that the rules have changed in recent years. Starting in 2025 and beyond, those entities are only required to send you a Form 1099-K if your total payments are over $20,000 and you received over 200 transactions on any one platform in a given year.

You’re still required to report the income even if you do not receive a form showing the payments you received. Rest assured that H&R Block will help you navigate the income on your taxes and determine what’s taxable to you.

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529 Plan expansion

Effective: 2025 and beyond
For those who are taking a withdrawal from a 529 Plan or considering starting a plan, you now have more options for what qualifies as an eligible expense. Specifically, the new bill allows tax-exempt distributions:

• Up to $20,000 to pay for K-12 expenses (up from the previous $10,000).

• For additional non-tuition qualified expenses for K-12 costs, such as books, online learning materials, and tutoring fees.

• For additional post-secondary educational costs such as tuition, fees, books, supplies, and equipment for credentialed programs (e.g., testing fees in pursuit of a post-secondary credential or fees for continuing education requirements).

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Car Loan Interest Deduction (No tax on car loan interest)

Effective: 2025–2028

Buying a new car soon? This new tax deduction could help your bottom line. If you’re purchasing a new car and taking out a loan, the OBBBA Car Loan Interest Deduction may help lower your tax bill by allowing you to deduct your loan interest.

• The deduction is limited to $10,000 of qualified interest.

• Vehicle must have a “final assembly” in the U.S.

• Vehicle Identification Number (VIN) must be included on the tax return.

• Phased out at 20% for Modified Adjusted Gross Income (MAGI) over $100,000 (Single) / $200,000 (Married Filing Jointly).

Deduction for Seniors 

 

New deduction: Effective for 2025 through 2028, individuals who are age 65 and older may claim an additional deduction of $6,000. This new deduction is in addition to the current additional standard deduction for seniors under existing law.

• The $6,000 senior deduction is per eligible individual (or $12,000 total for a married couple where both spouses qualify).

• Deduction phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers).

Qualifying taxpayers: The taxpayer must attain age 65 on or before the last day of the taxable year.

Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing taxpayers.

Taxpayers must:

• Include the Social Security number of the qualifying individual(s) on the return

• File jointly, if married, to claim the deduction

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