How the OBBBA Tax Savings Work
A plain English guide to every tax provision in the One Big Beautiful Bill Act and how it can save you money starting in 2026.
The 6 Major Tax Provisions
No Tax on Tips
Tipped workers can deduct up to $25,000 in tip income from their federal taxable income. This means servers, bartenders, hairstylists, delivery drivers, and other tipped workers keep more of what they earn.
Key Details:
- Maximum deduction: $25,000 per year
- Income phaseout: $150,000 (single) / $300,000 (married filing jointly)
- Applies to: Any occupation that traditionally receives tips
- FICA taxes (Social Security and Medicare) still apply to tips
- You must still report all tips as income
- State income taxes may still apply
No Tax on Overtime
Hourly workers who earn overtime pay (1.5x their regular rate for hours over 40/week) can deduct that overtime income from their federal taxes. This makes working extra hours significantly more rewarding.
Key Details:
- Maximum deduction: $12,500 (single) / $25,000 (married filing jointly)
- Income phaseout: $150,000 (single) / $300,000 (MFJ)
- Applies to: Hourly (non-exempt) employees only
- Salaried exempt employees do not qualify
- Overtime must be paid at the overtime rate (typically 1.5x)
- FICA taxes still apply to overtime pay
Auto Loan Interest Deduction
Buy a new car assembled in America and deduct the interest on your auto loan, similar to the mortgage interest deduction but for vehicles. This makes financing a new US-built car more affordable.
Key Details:
- Maximum deduction: $10,000 in annual interest
- Income phaseout: $100,000 (single) / $200,000 (MFJ)
- Vehicle must be new (not used or certified pre-owned)
- Vehicle must be assembled in the United States
- Applies to loans taken out after the law takes effect
- Check the VIN or window sticker for US assembly confirmation
Senior Tax Deduction
Americans aged 65 and older receive an additional $6,000 deduction on top of their standard deduction. This is an above-the-line deduction, meaning you get it whether you itemize or not.
Key Details:
- Additional deduction: $6,000
- Age requirement: 65 or older by December 31 of the tax year
- Income phaseout: $75,000 (single) / $150,000 (MFJ)
- Above-the-line deduction (no itemizing required)
- Stacks with the standard deduction
- Also stacks with existing additional standard deduction for seniors
Expanded Child Tax Credit
The Child Tax Credit increases from $2,000 to $2,200 per qualifying child under age 17. As a tax credit (not a deduction), it directly reduces your tax bill dollar-for-dollar.
Key Details:
- Credit amount: $2,200 per qualifying child
- Child must be under 17 at end of tax year
- Income phaseout: $200,000 (single) / $400,000 (MFJ)
- Phaseout rate: $50 per $1,000 over threshold
- Up to $1,700 per child is refundable (ACTC)
- Child must have a valid Social Security number
SALT Cap Increase
The State and Local Tax (SALT) deduction cap increases from $10,000 to $40,400. This is a major relief for homeowners and residents of high-tax states who have been limited by the $10,000 cap since 2018.
Key Details:
- New cap: $40,400 (up from $10,000)
- Includes state income taxes, property taxes, and local taxes
- Requires itemizing (must exceed standard deduction)
- Biggest benefit for high-tax states: NY, NJ, CA, CT, MA
- Can choose to deduct state sales tax instead of income tax
- Personal property taxes (vehicle registration) may also qualify
Frequently Asked Questions
Common questions about the OBBBA tax provisions and how they affect you.
Official Sources & References
Our calculator uses data from the following official sources:
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