Understanding the One Big Beautiful Bill: Individual Tax Provisions - YouTube video text script

March 3, 2026

Hello, and welcome to today’s webinar, Understanding the One Big Beautiful Bill: Individual Tax Provisions. I see it’s the top of the hour. We’re glad you joined us today. My name is Kenji Chavez and I’m a Senior Stakeholder Liaison with the Internal Revenue Service, and I’ll be your moderator for today’s webinar, which is slated for approximately 120 minutes.

Before we begin, if there’s anyone in the audience that is with the media, please send an email to the address on the slide. Be sure to include your contact information and the news publication you’re with. Our Media Relations and Stakeholder Liaison staff will assist you and answer any questions you may have. As a reminder, this webinar will be recorded for future viewing.

If you are just joining, I want to quickly mention some virtual webinar housekeeping items. First, closed captioning is available for today’s presentation and will be available throughout the webinar. Second, you can download several documents by clicking on the Materials dropdown arrow on the left side of your screen, as shown on this slide. We’ve included technical help documents along with a copy of today’s PowerPoint and other resources. Third, if you have a topic-specific question today, please submit it by clicking the Ask Question dropdown arrow to reveal the text box. Type your question in the text box and click Send. Please do not send any sensitive or taxpayer-specific information.

During the presentation, we’ll take a few breaks to check in and engage with you. At those times, a polling-style feature will pop up on your screen with the question and multiple-choice answers. Select the response you believe is correct by clicking on the radio button next to your selection and then click Submit. If you do not get the polling question, this may be because you have your pop-up blocker on, so please take a moment to disable your pop-up blocker now so you can answer the questions. We’ve included several technical documents that describe how you can disable pop-up blockers based on the browser that you are using. We have documents for Chrome, Firefox, Microsoft Edge, and Safari for Mac users. You can access them by clicking on the Materials dropdown arrow on the left side of your screen.

We’re going to take some time and test the polling feature. Here’s your opportunity to ensure your pop-up blocker is not on, so you can receive the polling questions throughout today’s presentation. Audience, this example polling question will count towards the polling question’s requirements to earn CE credit. Do you know who your local stakeholder liaison is? A, yes; B, no; or C, what is a stakeholder liaison? Take a moment and click the radio button that corresponds to your answer. I’ll give you a few more seconds to make your selection.

Okay. So, we’re going to stop the polling now, and let’s take a look and see how the majority of you responded. And I see the majority of you chose A, yes. So for those of you that selected B or C, I encourage you to visit the IRS.gov website and enter stakeholder liaison in the search bar. You should see a link for your stakeholder liaison local contacts that should take you to our page and learn more about our role as collaborative outreach champions and how to reach your local stakeholder liaison. We hope you received the polling question and were able to submit your answer. If not, now’s the time to check your pop-up blocker to make sure you have turned it off.

Now that we have concluded our administrative items, we can move along with our session. Today’s webinar is titled Understanding the One Big Beautiful Bill: Individual Tax Provisions. This webinar is scheduled for approximately 120 minutes from the top of the hour.

Now, let me introduce our presenter. Richard Furlong is a Senior Stakeholder Liaison in the Stakeholder Liaison Office of the Internal Revenue Service Communications & Liaison Division. Each year Mr. Furlong represents IRS at both face-to-face seminars and online webinars where he discusses IRS policies and procedures, tax law updates, tax professional data security, and emerging areas of tax administration. He coordinates the Pennsylvania Practitioner Liaison Meetings, where PA practitioner organizations meet with IRS to discuss latest developments in IRS policies, procedures, and practices and to solicited feedback from the practitioners. Annually, he provides IRS updates on topics including latest tax law changes, tax professional data security, and IRS Tax Pro Accounts. Mr. Furlong is a graduate of the University of Pennsylvania Wharton School with a Bachelor of Science degree in Economics.

And with that, I’m going to turn it over to Rich to begin the presentation. The floor is yours.

Thank you very much, Kenji, and good day, everyone. So, let me begin by first going over our objectives for today’s webinar. We will identify the individual tax provisions that were enacted under the One Big Beautiful Bill Act. We will explain the statutory rules governing the no tax on tips provision. We’ll then explain the statutory rules governing the no tax on overtime provision. Next, we’ll discuss the eligibility requirements and the limitations for the car loan interest deduction. We will also discuss eligibility requirements and calculation rules for the new enhanced senior deduction. And then, we’ll provide you with information on IRS resources and other guidance for the One Big Beautiful Bill Act that are available at IRS.gov and which will help you support accurate tax preparation.

Now, let me move on to several disclaimers for today. So, here are the disclaimers for today’s webinar. Please note that this is a high-level overview of significant individual provisions of the One Big Beautiful Bill Act, sometimes referred to as OBBBA. It’s formally known as Public Law 119-21. Our presentation today is based on the Act’s statutory language, along with IRS and Treasury Department guidance issued as of the date of this presentation. And the Treasury Department and the Internal Revenue Service carefully consider our stakeholder feedback before issuing final guidance.

Now, let’s move on to our discussion of the no tax on tips provision. This is Section 70201 of Public Law 119-21, the One Big Beautiful Bill Act. And under the legislation, an individual can deduct qualified tips received in years from 2025 through 2028. Now, qualified tips under the new law are cash tips received in an occupation that has been listed by the IRS as regularly and customarily receiving tips before December 31, 2024. The deduction is limited to $25,000 per year of qualified tips per tax return, regardless of whether the filing status is single or married filing joint. And the deduction for qualified tips begins to phase-out when modified AGI, modified adjusted gross income, exceeds $150,000, or for couples filing jointly, $300,000 for joint filers.

Now, qualified tips received by a self-employed person are deductible, but only if the business’s gross receipts are greater than its deductions. In other words, it has a net profit before this deduction. Employers must report qualified tips on Form W-2, or employers must report tips that they have not reported to their employer on the Form 4137 that is filed with their tax return. And if the tips are paid to a non-employee, the service recipient must report them to the non-employee on the Form 1099-NEC, 1099-MISC, or 1099-K. And keep in mind that any amounts that do not meet the rules for qualified tips do not qualify for this new deduction. Also, the deduction is only allowed if the Social Security Number of the taxpayer receiving and claiming the deduction appears on the tax return.

Now, moving on to the taxpayer eligibility rules. An eligible individual for this deduction can claim the qualified tips deduction on their income tax return, irrespective of whether they take the standard deduction or they itemize. And if a person is married as defined under Internal Revenue Code Section 7703, then they can claim this deduction only, and I repeat only, if both spouses agree to file a joint return. In other words, anyone filing married filing separate cannot claim this qualified tips deduction.

Also keep in mind, the deduction is not allowed unless the taxpayer includes a valid for work Social Security Number on their tax return for that year. And again, that Social Security Number must be issued before the tax return’s due date, and this is very important, it must be valid for employment. And if the taxpayer omits or enters an incorrect Social Security Number on the tax return, the IRS will treat this as a mathematical or clerical error under Code Section 24(h)(7). And what this does, it allows the IRS to automatically assess any additional tax owed without sending a formal deficiency notice as would be otherwise required under Code Section 6213(b).

Now, let me move on to special rules for workers in certain industries. Self-employed individuals who have what is referred to as a Specified Service Trade or Business, sometimes abbreviated as SSTB, or employees who work for an employer where the employer is an SSTB, these individuals are not eligible for the qualified tips deduction.

And generally speaking, an SSTB, a Specified Service Trade or Business, is defined in Internal Revenue Code Section 199A. These are businesses where most of the value of the business comes from the skill or reputation of the owner or employees. However, there is a transition relief that has been issued by IRS to inform these tipped workers in SSTBs that we will not enforce the Specified Service Trade or Business restriction on 2025 tax returns.

Now, let’s look at the income limitations for self-employed individuals. So, the net income limitation applies to each separate trade or business in which the self-employed individual receives qualified tips. Qualified tips from a trade or business cannot be more than the gross income from that trade or business in which the qualified tips were received, minus the total of all other deductions allocable to that trade or business.

So, in addition to ordinary and necessary business expenses for a self-employed individual, other allocable deductions that have to be deducted from the gross income before calculating the no tax on tips deduction would include the deductible part of the self-employment tax, the deduction for contributions to self-employed SEP plans or SIMPLE plans or other qualified retirement plans, and also the self-employed health insurance deduction. But those allocable deductions to the business do not include the new deduction for qualified tips. We’ll see later where this deduction is claimed.

Now, let me move on to more information on this limitation. And, again, this is the limitation for self-employed individuals. After you determine the other deductions that apply to the trade or business, which I just mentioned, in which you earn the qualified tips, then you reduce the net profit, which is Schedule C, line 31 of the –Schedule C, which goes to the 1040, or if you’re a Schedule E filer, line 28(g) through 28(k), or if it’s a farmer, Schedule F, line 34, reduce the net profit on any of those schedules by the amount of these allocable deductions, but don’t reduce them below zero for purposes of this calculation. And remember, again, that some entrepreneurs have more than one trade or business, so if you have more than one trade or business and you received qualified tips; and more than one trade or business, then you have to allocate the deductions in a reasonable manner.

Now, let me turn now to occupations that may qualify the tipped employee for this new deduction. So as you can see, back on September 19th of last year, September 19, 2025, the Treasury Department and the Internal Revenue Service issued news release IR-2025-92, and that news release provides guidance on occupations where workers were determined by Treasury to be customarily and regularly receiving tips prior to the first year of this deduction, in other words, prior to 2025. The One Big Beautiful Bill Act lists eight broad categories and approximately 68 occupations. So, here you see a snapshot of the news release, or at least the top half of the news release, which you can obtain on IRS.gov, and it links over to the proposed regs.

Moving on to our next slide, the eight categories of tipped occupations announced in this news release are listed here. And these are eight categories of tipped occupations, and they’re defined in depth in the proposed regulations that were announced on September 19, 2025. So collectively, these eight categories contain about 68 specific occupations that workers can customarily receive tips. And you don’t have to go to the proposed regs to see this list of all of the occupations. You can go to IRS.gov and see a list of all of these occupations, and what you will notice when you look at the full list on IRS.gov, you will see a reference to what is referred to as a Treasury Tipped Occupation Code, TTOC, which is a 3-digit code and provides descriptions of the occupations within the proposed regs. And I’ll come back to the TTOC later on.

Now, moving on next to a closer look at the all-important definition of qualified tips that were outlined in that news release from September 19, 2025. In order to claim this deduction, the worker must both be in an occupation on the list, which I just introduced on the prior slides, and also receive qualified tips. The proposed regulations issued in September provide a definition of what are qualified tips and are what not qualified tips. And they include these factors. Qualified tips must be paid in cash or an equivalent medium, and that could be a check, it could be a credit card, it could be a debit card, it could be a gift card, it could be a tangible or intangible token that’s readily exchangeable for a fixed amount in cash, for example, a casino chip to a dealer, or any other form of electronic settlement or mobile payment application denominated in cash.

Now, moving on to some other requirements, qualified tips must be received from customers or, in the case of an employee, through a mandatory or voluntary tip-sharing arrangement, such as a tip pool, and we can often see those in restaurants. The next point is extremely important. Qualified tips must be paid voluntarily by the customer and not be subject to negotiation between the customer and the service provider. Qualified tips do not include some service charges. For an example, as you see on this slide, some establishments, some restaurants, impose an automatic 18% service charge for large parties, and then they will distribute that amount to, let’s say, the waiters, the bussers, and other kitchen staff. If that service charge is added with no option for the customer to disregard or modify it, then the amounts distributed to the workers from it are not qualified tips, and we’ll have an example later.

And finally, any amounts received for certain illegal activities, including prostitution services or other pornographic activity, are not a qualified tip under the One Big Beautiful Bill Act.

So, Kenji, I think this is a good point to pause and tee-up our first polling question for the attendees.

Good idea, Rich. Audience, so here is our first polling question. The new qualified tips deduction is available for A, 2024 only; B, 2025 through 2028, unless Congress extends it; C, 2025 through 2030; or D, all future tax years. Take a moment and click the radio button that completes the statement. If you do not receive the polling question, please enter only the letters A, B, C, or D that corresponds with your response in the Ask Question text box. Your response is timestamped.

Audience, please remember that you need to answer at least four polling questions and participate in the live broadcast from the official start time for at least 100 minutes to earn two IRS CE credits. The polling question example we did at the beginning of this presentation will count towards the requirement. I’ll go ahead and give you a few more seconds to make your selection and/or submit your answers in the Ask Question feature.

Okay. So, we’re going to stop the polling now, and let’s share the correct answer on the next slide. And the correct answer is B, 2025 through 2028, unless Congress extends it. So, let’s see how well you all did with this question. And it looks like 93% of you responded correctly. Now, that’s a great correct response rate. Rich, I’ll go ahead and turn it back over to you.

Well, thank you, Kenji. That’s gratifying. I haven’t put anyone to sleep yet, I hope. So, now, let’s turn to reporting. The first thing to keep in mind is that for 2025, the Form W-2 will remain the same as in prior years. Employers will continue to use the current W-2. In other words, there are no new boxes or codes for reporting tax free tips or, as we’ll see later, tax free overtime. Box 12 and 14 already exist and some employers report certain information there, but there are no changes to the 2025 W-2. And IRS has provided transition relief for 2025 as discussed on our next slide.

And remember, the One Big Beautiful Bill was passed and signed into law on July 4, 2025, right about mid-year. So, very quickly after the passage, Treasury and IRS both made the decision not to change withholding tables. And then, we provided transition relief, as I’m discussing now, that will not impose penalties for 2025 for good faith efforts if employers cannot separately capture tax free tips or overtime on the W-2. As we’ll see later, that’s going to change for 2026.

But remember, and this is very important for employees who are tipped employees, some of them may be your clients if you’re a tax professional attending today, to be eligible for the deductions, the tips must be included as part of the total amount of wages reported on the 2025 Form W-2, even though they may not be separately accounted for on the 2025 W-2.

Now, the employees can use either Box 7, Box 7 is social security tips on Form W-2, or the tip amounts that they report to their employer. Some tipped employees use an IRS Form 4070 or equivalent to report their tips to the employer so that the employer can take into account that income for Social Security purposes, Social Security and Medicare withholding.

Now, the employees who don’t report the tips to their employer, nor see them in Box 7 of the W-2, these employees when they file their 2025 tax return, they may report unreported tips on IRS Form 4137. And that’s not a new form, that’s been around for quite a long time. Employers can also use Box 14 if they so choose to provide tips or other information to the employees.

Now, what about independent contractors for 2025? Now, remember what I said earlier, to be eligible for this new deduction for qualified tips, the tips must be included as part of the total amount of income received by independent contractors or self-employed individuals on the 2025 Form 1099 series, even if they’re not separately accounted for on the 2025 version of the form.

Now, independent contractors, they could use an earnings statement or other documentation such as receipts, point-of-sale system reports, perhaps they keep a daily tip log, perhaps they are in what we call the gig economy and they get a 1099-K from a third-party settlement organization through whom they’re paid, or some other documentary evidence that corroborates the calculation of the total amount of tips that are qualified tips for 2025. But remember, they must have a 1099 and that the amount of the qualified tips must be included in gross income on that 1099. And they could also consult with the payer regarding any available information that may assist in determining and documenting the amount of qualified tips.

Now, both for employees and independent contractors claiming this deduction, they are still responsible for determining whether that occupation is in the list in those eight categories we referenced earlier of tipped occupations that were announced last year. And as noted on this slide, for 2025 tax year only, for purposes of this qualified tips deduction, the IRS will consider all employees to have not worked in a Specified Service Trade or Business, i.e., an SSTB, for only the 2025 tax year. So, we’re not enforcing that provision in the 2025 tax year as it references SSTBs. Now, in 2026, employers will want to maintain records for both tips and, as we’ll see later, for qualified overtime because they will be required to be reported on the 2026 versions of the Form W-2.

Now, moving on to the 2026 W-2, we’ve released the 2026 W-2 and instructions. They’re available on IRS.gov. And as you can see on this slide, on the 2026 W-2, we anticipate that there will be a new code TP to report tips, cash tips, in Box 12. And then that Treasury Tipped Occupation Code, that 3-digit code sometimes referred to by the acronym TTOC, for the qualified professions that we’ve identified, that will be reported in a new Box 14b, but all of that will be on the 2026 W-2 statement.

Now, let me move on to what we believe are several examples that may help you better understand the new qualified tip deduction. So, we first want to tee-up example number one. And let me read this to you and get you thinking about it. You work on a wait staff in a restaurant. You serve a group of six people. The restaurant has an automatic 18% charge that’s added to the bill of any party of six or more people. That bill includes the 18% automatic gratuity on the “tip line”, and the total bill includes that automatic gratuity as part of the total bill presented to that group of six. Even though the restaurant may have distributed that amount to you, the server, and your bussers, because the customer did not determine the amount of the additional charge and was not given an express option to ignore or change the amount, in other words, they did not give that voluntarily to the server, that 18% is not, I repeat, not a qualified tip and may not be deducted by that server.

Now, moving on to example number two, which is a variation on this, a little bit different here. Again, we have a waiter on a wait staff in a restaurant. When you give the customers the bill, you may be giving them a paper bill or you may, as we see increasingly these days, giving the customer an electronic handheld point of sale device. And in this restaurant, because the charges for meals and sales tax – besides the charges for the meal for the party of six and the sales tax, the point of service device also prompts the customer to leave a tip. So, the customer has the option to voluntarily choose 15%, 18%, 20%, or no tip. The customer selects 18% voluntarily, pays the total amount with their credit card, because the customer had the right to determine the tip amount, including the option to leave no tip. In other words, everything was voluntary, that 18% is a qualified tip under OBBBA.

Now, our next example covers yet another restaurant tip employee. Now here, there’s some information to that server. They have only one employer. The employer in Box 7, Social Security tips included in the amount of $18,000. No one reported tips that the employee received, but did not report to the employer. No one reported tips. So that restaurant server can use $18,000 in Box 7 to figure the deduction for qualified tips. And they’ll enter it, that $18,000, on new Schedule 1-A, which we’ll look at later, lines 4a and 4c of that new Schedule 1-A.

Now, let’s move on to example four, which covers a hypothetical tip bartender. So, this bartender has one employer only. Bartender is doing very well. They have $200,000 of wages in Box 1 and $15,000 reported in Box 7. But during the year, that bartender reported to the owner, to the employer, $20,000 of tips on that IRS Form 4070. And then in addition to that, when they filed their 2025 1040, they report unreported tips on that Form 4137, line 4. So, how does the bartender take all of this for purposes of the qualified tip deduction? The bartender can use the $4,000 reported on Form 4137, plus either the $15,000 from Box 7 of the Form W-2, or the $20,000 of tips reported during the year to the employer on that Form 4070 to use to figure the deduction for qualified tips on Schedule 1-A.

Now, let’s pivot to another industry, a ridesharing driver. Very common these days. A ridesharing driver, they receive a 1099-K from that third-party settlement organization. That’s the ride-sharing company. And that 1099-K, and this is extremely important in this example, that includes tips in the overall total amount of compensation, income, and payments received by that rideshare driver. The ridesharing company reports separately in the earning statement on their rideshare app, let’s say, or on their website, the fares earned by that rideshare driver and the tips received by the driver during the year. So in order to figure the amount of qualified tips for 2025, the rideshare driver can use the amount of designated tips by the rideshare company in their earning statement or on the rideshare app on the website, even though it’s not on the 1099-K itself.

Now, let’s move on to example number six. And here we have a self-employed individual who runs a business tutoring for local schools. The tutor is an independent contractor, operates it as a sole proprietor, Schedule C. During 2025, the tutor received $500 in qualified tips from students that were reported to the tutor by the schools on the Form 1099-NEC. And then they were also reported separately in an earning statement provided by the school for which the tutor was working. So, the gross income for this business wasn’t a big business, $5,000 gross receipts. Deductible ordinary and necessary business expenses of $500. And that includes allocable deductions on Schedule C and the self-employment tax calculated on Schedule 1, line 15. So basically the net income from the tutoring business was $4,500, $5,000 gross receipts minus $500 allocable expenses.

But then moving on to the tip calculation, on that Schedule 1-A, line 5, they enter $500. And this tutor can take the full amount of the qualified tips from the business into account when figuring the qualified tip deduction. Why? Because the net income from that business was more than the amount of qualified tips from the business. Remember, the net income was $4,500. So they can take into account the full $500, but those $500 were reported separately. They were part of the 1099-NEC.

So let me pause here, Kenji, and I think it’s time for our next polling question.

Audience, so here we go. Polling question number two. Select the answer that best completes the statement, the deduction for qualified tips, A, requires the taxpayer to itemize deductions on Schedule A; B, is allowed for taxpayers using the married filing separate filing status; C, eliminates the requirement to report tip income; or D, none of the above. Same as before, please click the radio button that best answers the question. If you do not receive the polling question, please enter only the letters A, B, C, or D that corresponds with your response in the Ask Question text box. Your response is timestamped. I’ll give you a few more seconds to make your selection and/or submit your answer in the Ask Question feature.

Okay. So, we’re going to stop the polling now. And let’s share the correct answer on the next slide. And the correct answer is D, none of the above. Let’s take a look and see how you all did with this question. And 87% of you responded correctly. Excellent job. Rich, it looks like the audience is still paying attention, so I’ll go ahead and turn it back over to you to continue.

Well, thank you, Kenji. That’s very gratifying. So, now, let’s pivot to the next new deduction, referred to as the no tax on overtime, which was enacted in the OBBBA under Section 70202. And for years 2025 through 2028, an individual can claim an income tax deduction for qualified overtime pay received in those years, any years under current law, between 2025 and 2028. Now, this deduction is limited to $12,500 per year for single filers and $25,000 per year for joint filers. There is a phase-out. It begins the phase-out when modified adjusted gross income exceeds $150,000 for single filers or $300,000 for joint filers.

Now, what is qualified overtime pay? Qualified overtime pay is overtime earned under the Fair Labor Standards Act of 1938. That’s abbreviated FLSA. And that qualified overtime under FLSA exceeds the individual’s regular rate of pay as required under the FLSA. And this is very important to keep in mind. The deductible amount of the no tax on overtime is only the half portion of time-and-a-half. So what we’re referring to here is labor law, Fair Labor Standards Act, which for those covered under FLSA mandate time-and-a-half be paid for overtime hours.

Now, just as we saw previously with the no tax on tips, qualified overtime pay must appear on the employee’s Form W-2 or the non-employee’s Form 1099-NEC. But as we saw earlier, transition rules apply for tax year 2025, just as they were reported to tip reporting. So to clarify, qualified overtime compensation must be included in Box 1 on either the Form W-2 or 1099-NEC or possibly the 1099-MISC or 1099-K. But this transition rule for 2025 only applies to the separate reporting accounting requirement for qualified tips and overtime. And for more detailed information, I would refer you to IRS Notice 2025-62, which can be accessed through the resources on the One Big Beautiful Bill Act at IRS.gov.

Now, let me move on to some other requirements for this deduction for the no tax on overtime. First, the deduction is available for itemizers and non-itemizing taxpayers. So it’s not a Schedule A deduction. You don’t have to itemize. But the taxpayer must have a valid for work Social Security Number on the tax return. And as was the case with the prior deduction, taxpayers filing married filing separate, are not eligible to claim the deduction for qualified overtime.

Now, in terms of reporting, employers and other payers, they are required to file, as you know, information returns with the IRS, or in the case of W-2s, they file them with the Social Security Administration, and then furnish statements to their taxpayers, the employees or the independent contractors in the case of 1099 series, showing the total amount of qualified overtime compensation paid during the year.

Now, let me turn to a chart on our next slide showing the difference between 2025 and 2026 reporting. And this is a point we’ve come back to on a couple of occasions today. So, here we have a comparison chart breaking down the reporting requirements for no tax on overtime provisions and no tax on tips for 2025 and then next year for 2026. Remember what I said earlier on 2026, that form will be revised, the W-2, and there will be new Box 12 reporting for tips and for overtime. And you can access the 2026 W-2 and instructions on IRS.gov.

And then just before we get to our next polling question, remember, as you see under the IRS approach side of this grid, transition relief means that no penalties for employers and payers who do not separately report on the 2025 forms qualified overtime on either the W-2 or the 1099. And I encourage you, when you have time, to take a look at Notice 2025-62. It’s very understandable and it provides great guidance in this area.

So, Kenji, I’m going to pause for another glass of water, and turn it over to you to share our next polling question.

Thanks, Rich. So, we are at the halfway point with our polling questions. So, here is our third polling question, which states the qualified overtime deduction is allowed for A, all overtime paid for hours worked over 8 hours in a day; B, may be claimed by taxpayers filing the married filing separate; C, must be overtime covered under the Fair Labor Standards Act; or D, is claimed on Schedule A, itemized deductions. Again, your response is timestamped, so take a moment and click the radio button that best answers the question. If you do not receive the polling question, please enter only letters A, B, C, or D that corresponds with your response in the Ask Question text box. I’ll give you a few more seconds to make your selection and/or submit your answer in the Ask Question feature.

Okay. So, we’re going to stop the polling now, and let’s share the correct answer on the next slide. And the correct answer is C, must be overtime pay required under the Fair Labor Standards Act. So let’s take a look and see how you all did on this question. And it’s 88% of you responded correctly. Wonderful response rate. Rich, it seems the audience is still with us. I’ll go ahead and turn it back over to you.

Well, that’s great, Kenji. And now maybe to help reinforce the requirements for the qualified overtime deduction, I’m going to tee-up four separate examples. And these are important, so no multitasking here, let’s pay attention to these. So, the first example is a Fair Labor Standards Act, or FLSA, eligible employee. In 2025, this employee received $50,000 in regular pay and $15,000 for overtime hours worked. So, the Box 1 in the W-2 for 2025 does not separately show the qualified overtime compensation. But this employee has access to the employer’s payroll system or the employer provided them access, which shows that they were paid a total of $15,000 for overtime hours worked in 2025.

What’s in that $15,000 of overtime? It’s because they’re only going to be able to deduct on Schedule 1-A or to include the qualified overtime. And the qualified overtime is $5,000 out of the total $15,000 paid. How did we come up with that? Well, the $5,000 is that “half” portion. Remember, for purposes of the discussion, we’re looking at the half of time-and-a-half. So, the total overtime was $15,000. That would have been their base pay for hours worked, which would be $10,000. And so, $10,000 plus $5,000, brings it up to $15,000. Or conversely, and this example is from the instructions, for the Schedule 1-A and also in the notice, the deduction would only be $5,000. So it’s important to get the numbers right when you’re calculating the amount of the qualified overtime on the Schedule 1-A.

Now, let’s turn to example number two. Now, this is a more generous employer, at least in terms of the amount they’re paying for overtime. Here again, we have an FLSA-eligible employee who works for an employer, but this employer pays overtime equal to twice the employee’s regular pay. So in 2025, that employee received $50,000 for non-overtime hours and $20,000 for overtime hours worked. But the W-2 does not separately show qualified overtime compensation. However, this employee has a pay stub that shows $10,000 of the overtime pay was for the regular rate of pay for those overtime hours, and then $10,000, which is the double of the overtime pay, was the premium amount under the relationship that employee has with the employer. That’s how they got $20,000 for the overtime, double the basic $10,000.

But under FLSA, it would only be required to pay $15,000. $10,000 regular wages for the overtime hours multiplied by 1.5, that would have been $15,000. So, this employee got $20,000, but this employee can only use $5,000, the “half” of the regular rate of pay for the overtime hours when figuring the deduction for qualified overtime compensation. So, you want to be very careful when you look at those statements from the payroll department or the pay stub and make sure you’re only using the half for qualified overtime for the calculation.

Now, let’s move on to example number three. Now here the pay stub, the fact pattern here is the same as the one we just addressed. But here the pay stub of that employee does not show the premium amount of overtime. In other words, it shows that $20,000 was the total amount for the overtime hours. That would be the base plus the additional overtime rate as determined by that employer. So that $20,000 is double the regular wages for the overtime hours worked by that employee during the year. So, the regular wages would be $10,000, which is $20,000 divided by 2. But time-and-a-half would only equal $15,000, the $10,000 of regular wages times 1.5.

So here the half portion, again, the $5,000 is the amount required by FLSA even though the employer paid double that for overtime. So, they’ll only use the $5,000 when figuring the deduction for qualified overtime wages. And, remember, when we’re talking about overtime here under FLSA, we’re generally speaking about overtime for hours worked beyond 40 hours in a work week. That’s under FLSA.

And then one example in a different industry in law enforcement. So example number four, we have an individual who works in law enforcement and the employer has a special overtime rule which is addressed in Section 7 of the Fair Labor Standards Act. In 2025, this law enforcement personnel was paid $15,000 for overtime hours worked based on a work period. But for law enforcement under FLSA, they could calculate the overtime based on a work period basis of 14 days, essentially the equivalent of 2 weeks. So that law enforcement personnel can include $5,000 of the overtime pay, which would be the half, when figuring the deduction for qualified overtime compensation.

In other words, the total amount of $15,000 divided by three would be the $5,000. And, again, this example is essentially from the instruction to the Schedule 1-A. And I highly encourage everyone, if you haven’t already, to download the Schedule 1-A instructions and to review these examples because they’re great.

So Kenji, let’s now take a pause after we’ve done these examples and tee-up our next polling question.

Okay, audience, for the fourth question, select the response that answers, why is tax year 2025 a transition year for the new qualified tips and qualified deductions? Is it A, taxpayers may choose which rules to follow; B, payroll systems and employers are adjusting to new rules; C, the deductions only apply in 2025; or D, reporting is optional in 2025. Click the radio button that best answers the question or please enter only letters A, B, C, or D that corresponds with your response in the Ask Question text box. If you do not receive the polling question, your response is timestamped. I’ll give you a few more seconds to make your selection and/or submit your answer in the Ask Question feature.

Okay. So, we’re going to stop the polling now and let’s share the correct answer on the next slide. And the correct answer is B, payroll systems and employers are adjusting to new rules. And it looks like 89% of you responded correctly. That’s an impressive response rate. Rich, I think we can continue.

Well, thank you, Kenji. And, remember, 2025 is a transition year, because Treasury and IRS designated as such to give employers and payroll systems time to adjust their systems for some detailed reporting that they have not previously been required to do.

So, now, let’s turn to the third new deduction referred to as a no tax on car loan interest, which is Section 7203 of the legislation. Now, this again is a temporary provision for tax years beginning after 2024 and before 2029, in other words, 2025 through 2028. An individual can claim a deduction of up to $10,000 for interest paid or accrued on a loan taken out beginning in 2025 or later to buy a qualified passenger vehicle primarily for personal use.

Now, this deduction is also subject to a phase-out. It begins the phase-out when the taxpayer’s modified adjusted gross income exceeds $100,000 for single filers or $200,000 for joint filers. Now, a qualified passenger vehicle for purposes of this deduction would include a car, a minivan, a van, perhaps an SUV, a pickup truck, or even a motorcycle. But each of them or any of them would have to be new. They cannot be used vehicles. They have to have final assembly in the United States. And the deduction, as was the case with the prior two deductions, is available both for itemizers and non-itemizers.

Now, let’s look at the requirement for qualified interest on our next slide. Qualified passenger vehicle loan interest means the interest paid or accrued during the tax year on a loan taken out after December 31, 2024 to buy a qualified passenger vehicle for personal use. Now, the loan itself must be secured by a first lien on the vehicle, and that is described in Internal Revenue Code Section 163(h)(4)(b)(i), and that was amended by the One Big Beautiful Bill Act.

Now, for this rule, the qualified debt could conceivably include any refinanced loan, but only up to the amount of the original loan. And also, it does not include any loan owed to a related person under Internal Revenue Code Section 267(b), 707(b)(1), or Internal Revenue Code Section 163(h). Also, the type of qualified interest for this deduction does not, I repeat, does not include any interest paid or incurred on loans to finance fleet sales on a loan for the purchase of a commercial vehicle that is not used for personal purposes. Qualified interest would not include any lease financing, nor would it include a loan to buy a vehicle with a salvage title, or a loan to buy a vehicle intended solely for scrap or parts.

Now, let’s look at a very important definition of qualified vehicle, and this is extremely important for those seeking to claim this new deduction. A qualified vehicle includes a car, minivan, van, SUV, pickup truck, or motorcycle, as I mentioned a moment ago, has to have a gross weight rating of less than 14,000 pounds, and very importantly, has to have undergone final assembly in the United States.

So, in other words, an applicable vehicle would include any vehicle, again, final assembly of which occurred in the U.S. The original use of that vehicle commences with the taxpayer, i.e. it’s a new vehicle for that taxpayer, for anyone. It is manufactured primarily for use on public roads, streets, highways, not including a vehicle operated exclusively on the rail or rails, has to have at least two wheels, once again, could be a car, a van, an SUV, a pickup truck, or a motorcycle, has to be treated as a vehicle for purposes of Title II of the Clean Air Act, and has to have a gross vehicle weight rating of less than 14,000 pounds. I just mentioned that.

Now, vehicles that are not qualified, once again, they include used vehicles, imported passenger vehicles. So, how are you going to determine if the vehicle has final assembly in the United States? Well, as you can see on this slide, you want to check the VIN, the vehicle identification number, and that’s the information label attached to the vehicle on the dealer’s premises. And remember that the interest for this new deduction qualifies only if the taxpayer lists the VIN, the vehicle identification number, on the new Schedule A of their tax return for the year. We’ll give you a snapshot later of the Schedule 1-A.

Now, additionally, let’s turn now to what is considered personal use of the vehicle to qualify for the new interest deduction. And this is a very important slide, again, and has an example. So, I’m going to go fairly slowly through this. You consider to be purchased a qualified vehicle for personal use. If at the time you incur a loan to purchase that vehicle, you expect or anticipate that the vehicle will be used for personal use more than 50% of the time that you or any combination of individuals who have a certain relationship to you. So, that could be your spouse, it could be you or your spouse’s children, your grandchild, your father, your mother, your brother or sister. It could also include an individual who has a main home for you and a member of a household. But collectively, 50% or more of the time expected to be used by that new vehicle manufactured in the IRS with the VIN has to be for personal use.

So, you can see an example here. You purchase a vehicle that you expect to use to earn income as a driver for a rideshare service, but only about 15% of the time you expect to own that vehicle. So, you expect to use the vehicle for personal use for the remaining 85% of the time. You’re considered to have purchased that vehicle for personal use more than 50%.

Now, let me turn now to the lender reporting requirements. Now, under the statute, there are requirements for lenders or other recipients of the qualified interest being paid, they will ultimately have to file information returns with the Internal Revenue Service, and then furnish statements to taxpayers showing the total amount of interest that they, the lender, or the other recipient of the interest received during the year. But as we’ve seen previously, for purposes also of this deduction, 2025 as a transition year. So those new information reporting requirements will not apply until the earliest of 2026.

So Kenji, I think it’s now time to pause for another polling question for our audience today.

I agree. Audience, here is your fifth opportunity towards earning CE credit. Which of these statements is false for the no tax on car loan interest deduction? Is it A, this deduction is available for tax years 2025 through 2028; B, this deduction is available to taxpayers that take the standard deduction as well as those that itemize; C, interest on loans to finance used vehicles are eligible for the deduction; or D, final assembly of the qualified vehicle must be in the United States. Take a moment to select your answer to the question or if the polling question did not pop-up, please enter only letters A, B, C or D that corresponds with your response in the Ask Question text box. Responses are timestamped. I’ll give you a few more seconds to make your selection and/or submit your answer in the Ask Question feature.

Okay. So, we’re going to stop the polling now, and let’s share the correct answer on the next slide. And the answer is C, interest on loans to finance used vehicles are eligible for the deduction is a false statement. And looks like 85% of you responded correctly. Audience, another impressive response rate. Rich, we’re ready whenever you are.

Well, thank you, Kenji. Now, let me review the fourth of the new deductions under the One Big Beautiful Bill Act. And this is the Enhanced Deduction for Seniors, Section 70103 of the legislation. For tax years beginning after December 31, 2024 and before January 1, 2029, in other words, between 2025 and 2028, a qualified individual can claim an additional $6,000 deduction on their tax return under Code Section 151(b)(5)(c), and that was added by the One Big Beautiful Bill Act. So, who is a qualified individual? Well, a qualified individual is any taxpayer who is age 65 or older by the end of the tax year. And for a joint return, for both spouses to qualify, they would only qualify both of them for the additional $6,000 maximum deduction if each is 65 or older.

Now, once again, there’s a phase-out, as was the case with the prior deductions. This senior deduction begins to phase out when the taxpayer’s Modified Adjusted Gross Income, or MAGI, exceeds $75,000 for single filers or $150,000 for joint filers. So you see that the phase-out begins at a lower threshold than for the other deductions. And that deduction, once you get into the phase-out range, is reduced by 6% of the amount by which the taxpayer’s Modified Adjusted Gross Income exceeds these income limits.

And, I’ve been mentioning MAGI, or Modified Adjusted Gross Income. Let me define it. That basically means adjusted gross income plus any amounts that are excluded from gross income if the taxpayer’s income allowed for the foreign earned income exclusion under Code Section 911, or perhaps income excluded for bona fide residents of American Samoa under Code Section 931, or possibly income excluded for bona fide residents of Puerto Rico under Code Section 933. But for most people, without those excludable income categories, it would be AGI, would be the same as Modified Adjusted Gross Income. Again, very important, a taxpayer cannot claim the senior deduction unless they include the Social Security Number of each qualified individual on the tax return.

Now, moving on to some additional requirements for this new deduction. As was the case with the prior three deductions, it’s available both for itemizers and non-itemizers. Once again, married filing separate are not eligible for the deduction. For couples who are considered married, they must file jointly to be potentially allowed this deduction.

What about the Social Security Number? Well, the Social Security Number must be issued in the United States, belong to a U.S. citizen or a person authorized to work in the United States, and that Social Security Number must be issued before the tax return due date. And if the taxpayer omits or provides an incorrect Social Security Number, the IRS will treat this as a mathematical or clerical error under Internal Revenue Code Section 6213(b). And what that would mean is that if it was an incorrect or admitted SSN, it would allow the IRS to assess any additional tax due without issuing a deficiency notice.

Now, as I mentioned previously, we have a new IRS Schedule 1-A to claim the four deductions that we just discussed. And let’s look at this schedule on the next two slides. And if you spend some time with this, it’s not that difficult, a new schedule. So, the first slide here has the front page of Schedule 1-A. It’s a two-part form, two-page form, I should say. The screenshot has Page 1. Schedule 1-A itself is entitled Additional Deductions, meaning the four deductions we’ve discussed, broken into six parts. So on this slide, you see Part I in small font at the top there. That’s where you calculate the MAGI. Part II is where you calculate the no tax on tips deduction. Part III is where you calculate the no tax on overtime.

And then moving on to the next slide, we’ll show Page 2 of the new Schedule 1-A. So here on Page 2, you have a Part IV, with a calculation of no tax on car loan interest. And here is where you’re going to enter that all-important VIN, vehicle identification number, if you’re seeking to claim the interest deduction for new cars manufactured in the U.S. Part V is the calculation of the enhanced deduction for seniors. And then at the bottom of Page 2 is Part VI, and this is where the deductions are all totaled and carried over to the 1040.

On the next slide, tee-up the 1040 itself. Now that we’re in tax season, I’m sure many, many among our large audience today are very familiar with the 2025 1040. So here you see Page 1 of the 1040 for 2025. But then I want to go to Page 2. And this is where we’ve incorporated a new line 13b on Page 2 of the 2025. And that’s where the total amount from Schedule 1-A will roll into Page 2, as you see here, line 13b. And this is the blue box, or the box in the upper right hand corner suggests, this is what we refer to as a below the line deduction, meaning it’s below the line for adjusted gross income.

Now, I’m going to pause, Kenji, and I think we’re ready, perhaps, for our final polling question.

Thanks, Rich. That is correct. This is our final polling question. So, audience, Rich just spoke about this. So this is the six-point question. So hopefully it is a breeze. For the New Enhanced Deduction for Seniors, which statement is accurate? Is it A, changes the taxability of Social Security benefits? B, requires that individuals 65 or older claim Social Security benefits? C, requires that both spouses be 65 or older to claim this deduction? Or is it D, is subject to a phase-out limitation based on the Modified Adjusted Gross Income, or the MAGI? If the poll popped up for you, select the radio button that best answers the question, or simply enter only letters A, B, C, or D in the Ask Question text box. Remember, the responses are timestamped. I’ll go ahead and give you a few more seconds to make your selection and/or submit your answer in the Ask Question feature.

Okay. So, we’re going to stop the polling now, and let’s share the correct answer on the next slide. And the correct answer is D, the New Enhanced Deduction for Seniors is subject to a phase-out limitation based on the Modified Adjusted Gross Income, or MAGI. And looks like 91% of you responded correctly. Job well done. Rich, I’ll go ahead and hand it back over to you.

Well, that’s particularly gratifying, Kenji, because it appears everyone knows that this New Enhanced Deduction for Seniors does not have any relevance to the taxability of Social Security benefits, nor is it dependent upon whether the individual 65 or older who meets the other requirements claims Social Security. So that’s very gratifying.

And audience, before I get into the other individual tax provisions, I want to encourage you to stay with us. We’re very fortunate later on to have four of the most qualified individuals in the Internal Revenue Service, who’ve been working these four deductions to handle many of the questions that are coming in from today’s attendees. So stay with us.

Now, I’m going to pivot to a number of other individual provisions that were impacted by the One Big Beautiful Bill. First one is that lower tax rates, which came into being with the passage of 2017 legislation that was known as the Tax Cuts and Jobs Act, or as you see here, TCJA. Those current income tax brackets, they were due to expire at the end of 2025, but the One Big Beautiful Bill Act kept those brackets now going forward permanent. So that’s good news for most taxpayers.

Also beginning in 2025, the standard deduction, for those who take the standard deduction, that will permanently increase, as you see on the slide, to $15,750 for individuals, $23,625 for Head of Household, and $31,500 for married filing joint. And that will be indexed for inflation appropriately in coming years. Also, there are no more personal exemptions. The $4,050 personal and dependency exemption, those were temporarily eliminated under TCJA. Now under OBBBA, they’re permanently eliminated for all tax years after 2025.

And for those taxpayers who itemize on Schedule A, let’s now look at two significant changes for Schedule A filers. The first one is the home mortgage interest deduction. So the reduced dollar limit for home mortgage interest deduction on Schedule A, that is now permanent, meaning you can deduct qualified interest on acquisition debt for your home only up to $750,000 of acquisition debt, or half of that, $375,000 if married filing separate. Also, the temporary suspension under prior law of the deduction for home equity loan interest, that suspension is now made permanent. And then beginning with tax years after 2025 and 2026, taxpayers can again deduct mortgage insurance premiums as home mortgage interest.

Now, the second bullet you see here, the second change on Schedule A, the change to the State and Local Tax, or SALT, deduction limit. This is also very favorable for taxpayers. So those who itemize deductions and want to claim state and local taxes, that is temporarily increased for years 2025 through 2029. So in 2025, the maximum deduction for State and Local Tax on Schedule A goes up to $40,000. Previously, it was capped at $10,000. For couples filing separately, for 2025, it’s half of that, $20,000. And then in 2026, it’s going to be indexed for inflation and will go up to $40,400, or actually will go up by $200 next year for married filing separate to $20,200. And then that will increase, that maximum deduction will increase by a percentage point each year through 2029.

Now, one thing to keep in mind though, there is a cap on this. Once you get above an MAGI threshold of $500,000 of modified adjusted gross income, then the SALT deduction is limited. It’s reduced by 30% of the amount by which the taxpayer’s MAGI exceeds that threshold. So for couples filing jointly and other taxpayers, it’s $500,000. Once you hit that MAGI threshold, you start to lose the full benefit of the SALT deduction, if your SALT taxes are more than $40,000.

Moving on to other provisions that are impacting families. Beginning in 2025, the child tax credit now increases to a maximum of $2,200 for each qualifying child under the age of 17. And that credit will be adjusted annually for inflation after 2025. And also, some other rules for these credits were made permanent. There is, as you probably know, a $500 credit for other dependents. Now that’s made permanent.

The income phase-out thresholds for the child tax credit will be at $400,000 for joint filers, $200,000 for single filers. So once your AGI gets above those thresholds, the maximum credit starts to phase-out. There is a refundable portion. It’s limited to $1,400 of the additional child tax credit. That’s referred to as the refundable portion of the overall $2,200 child tax credit. And to start to get some of that refundable additional child tax credit, you have to have at least $3,000 of earned income. That’s the threshold for the calculation.

Now, the taxpayer cannot claim the child tax credit beginning in 2025 if the return does not include the Social Security Number of each qualifying child and the Social Security Number of the taxpayer, or if it’s a couple filing jointly, at least one spouse has to have a Social Security Number. And once again, that SSN has to be issued, be valid for work and issued before the return’s due date.

Child and dependent care credit. So beginning in 2026, the maximum credit for the child and dependent care credit, that can increase to up to 50% of qualified expenses for those at the lower income level. That credit rate of 50% would decrease by each percentage point for every $2,000 of AGI, adjusted gross income, above $15,000. But it will never fall below 35% until higher income levels are reached. And so, this change is very beneficial for those who are working or looking for work at the very lower income range.

Flexible savings accounts for dependent care. Very popular offering for some employers. Starting in 2026, taxpayers can contribute up to $7,500 per year to a dependent care flexible savings account. And if the taxpayer is filing married filing separate, they can contribute half of that, up to $3,750 per year.

Now, let me move on to some other OBBBA changes to individual provisions. So charitable donations, and first on this slide, I want to make two points about these changes to both charitable donations and miscellaneous deductions. These are provisions that begin this year, on January 1, 2026. So, these are not applicable to the 2025 tax returns. So for charitable contribution deductions, beginning in 2026, the 60% limit on cash charitable contributions made by an individual to a public charity, that 60% limit is now made permanent.

Also, beginning in 2026, an individual who does not itemize deductions on Schedule A may still be able to claim a qualified charitable deduction of up to $1,000, or double that, $2,000 for joint filers for cash donations made during the tax year. So, you’ll want to look at changes next year on the 2026 1040 for that deduction. And this deduction for non-itemizers who make qualified charitable deductions beginning in 2026, that’s claimed when calculating taxable income. It is not an above the line deduction in determining AGI. But again, that’s all for 2026 returns.

Also, beginning in 2026, back to those who itemize deductions on Schedule A, they’re going to have a limitation. They will have to apply half a percentage point floor to their overall charitable contributions. In other words, they’ll lose the benefit of the first half percentage point of their charitable contributions. And that calculation presumably will be on the 2026 Schedule A.

Miscellaneous itemized deductions under TCJA passed all the way back in 2017. There was a temporary repeal of miscellaneous itemized deductions subject to the 2% AGI limit. Now that elimination of that miscellaneous deduction, that is made permanent. And this has been the case temporarily for the past few years, but now it’s permanent. They cannot claim miscellaneous deductions on Schedule A for things like job related expenses or tax preparation fees. However, and you see this on the slide, teachers, or we’ll call them under the statute, eligible educators, they still will be able to deduct certain work related expenses for books, supplies, computer equipment, and other materials used for instruction.

Who is an eligible educator? Well, beginning as defined under OBBBA, beginning in 2026, that would be a teacher, an instructor, it could be a counselor, the principal, could be aides working in kindergarten through grade 12. It could also include interscholastic sports administrators and coaches who work at least 900 hours during the school year. So that’s all for 2026. For 2025, those of you who do tax returns for teachers, educators, you’re probably familiar with the above the line deduction of up to $300 for classroom expenses. That still is here. So some changes coming down the pike in the future for eligible educators to claim deductions.

Now, let me move on to Section 529 plans, which as you know, I’ve been around for ages, for decades. The maximum amount of qualified higher education expenses that may be used from a qualified tuition program also referred to as a 529 plan for elementary or secondary school enrollment, that maximum amount increases to $20,000 per student per year. And that would include students studying abroad. And the definition of qualified higher education expenses, now it also includes qualified post-secondary credentialing expenses and other types of education costs that qualify for tax-free distributions in 529 plans. Now, remember, these changes that we’re looking now begin in 2026. So we can anticipate more IRS guidance coming later this year.

Now, let’s look at a change for 2025 for the adoption credit. And this is fairly significant, very favorable. Beginning with tax years after 2024, up to $5,000 of the adoption credit is refundable. This amount will be adjusted for inflation for tax years beginning after 2025. Now, the refundable portion of the adoption credit, it cannot be carried forward to future years. Only the non-refundable portion may be carried forward.

Indian Tribal Governments. Indian Tribal Governments now under the One Big Beautiful Bill Act have the same authority as any of the states to decide whether or not a child has special needs for purposes of the adoption credit. And this is a beneficial change to Indian Tribal Governments, because it will allow them to recognize children with special needs and make them eligible for the full adoption credit, similarly to the determinations made by any of the states. And the maximum amount of the credit, or if it’s provided through an employer-sponsored plan and exclusion, the maximum amount overall goes up to $17,280 per child. And that $17,280 would include both the refundable and the non-refundable portion. But there is a phase-out. This amount begins to phase-out if you have modified AGI in excess of $259,190. And then it’s completely phased out at modified AGI of $299,190.

Now, let me move on to briefly to some individual changes involving disaster losses. The One Big Beautiful Bill Act extended the special rules for claiming qualified disaster-related personal casualty losses. They were created back in COVID legislation back in 2020, called the Taxpayer Uncertainty and Disaster Relief Act. So these rules under OBBBA, they cover disasters declared between January 1, 2020 and September 2, 2025. And the temporary rule limiting personal casualty and theft loss deductions to federally declared disasters, it’s made permanent, so that’s good, but it’s also expanded to include certain state-related disasters.

Now, let’s look at some changes to energy credits. You may recall under prior legislation, there were certain energy credits. The first one was what’s referred to as the clean vehicle credits. These have expired now. There was a credit under Internal Revenue Code 30D, up to $7,500 for purchasing a qualified new clean vehicle. That’s gone, that terminated for any vehicles acquired after September 30, 2025. And then there was separately a previously owned clean vehicle credit under 25D. That also terminated as of September 30, 2025. And we get to the fact sheet, which is referenced here for more details. Fact sheet 2025-05.

Now, let’s move on to some changes to certain home energy credits. The Energy Efficient Home Improvement Credit under 25C, that has ended for any qualified property placed in service after December 31, 2025. So, you could still see this credit being claimed on 2025 returns, but not for any improvements beginning in 2026. Similarly, for the Residential Clean Energy Credit, which is Code Section 25D that also ended for any expenditures after December 31, 2025. However, the credit remains at 30% of the qualified expenditures that were made before 2026, before this year, if the property was placed in service after 2021. So, I’ll refer you to the instructions for those credits.

Now, moving on to some more individual provisions before we get into our Q&A. Big change coming up in 2026 for gambling losses. Beginning with tax years after 2025, taxpayers can deduct only up to 90% of their gambling losses and only to the extent that those losses do not exceed gambling winnings for the year. Previously, you could deduct up to 100% of your gambling losses against your gambling winnings, but that changes to only 90% of the deduction in 2026 against the gambling winnings. Also, the legislation makes permanent the rule that this term gambling losses from wagering transactions, that includes any deduction normally allowed in calculating federal income tax that is incurred while conducting wagering activities under code Section 165(d).

So this new deduction, which begins in 2026, it could mean in certain circumstances, the 90% limit could result in taxable income to that gambler, even when there’s no actual gain throughout the year. So for example, if a taxpayer wins $100,000, loses $100,000, beginning in 2026, that gambler can only deduct $90,000 of those losses. It would create $10,000 of taxable income, even though the taxpayer broke even for the year. That’s under the Big Beautiful Bill Act.

Saver’s Credit for ABLE accounts. Well, first of all, if you have a 529 plan, you can roll over amounts in the 529 plan into an ABLE account if the ABLE account owner is the same person as a designated beneficiary of the 529 plan, and the ABLE account owner is a family member, or I should say, the ABLE account owner is a family member of the 529 plan. ABLE stands for Achieving a Better Life Experience to help those with disabilities setup accounts that enjoy tax-deferred earnings.

And now, as you see on the slide, there is a Saver’s Credit that will allow extra contributions to an ABLE account. That’s made permanent. It existed in prior law, but now it’s permanent, subject to certain limits. And the contributions into the ABLE account are eligible for a separate credit referred to as the Retirement Savings Contribution Credit, i.e. the Saver’s Credit. So, beginning in 2026, the maximum Saver’s Credit increases to $2,100.

Two other OBBBA changes on our next slide. These are more narrowly focused. Military combat zones, beginning in 2026, qualified hazardous duty areas are permanently treated the same as combat zones for tax purposes. So, what this means is that members of the U.S. Armed Forces serving in qualified hazardous duty areas, they’re going to receive the same tax benefits as those serving, I should say, in official combat zones. And you see two country examples there of hazardous duty areas. One would be Kenya, the other would be Mali. Others permanently designated are the Sinai Peninsula, Egypt, Kenya, Burkina Faso, and Chad. So, these service members would qualify for excludable combat zone pay from their income.

Student loan discharge due to death or disability, beginning in 2026, the exclusion from gross income from discharged student loan applies only to loans discharged either due to the student’s death or their total or permanent disability. So, this rule now is permanent, and there’s no time limit, I should say, on when the discharge can occur. However, if this loan was to be discharged and excluded from gross income, it would only apply if the taxpayer includes the Social Security Number on the tax return for the year in which the discharge occurs.

Now, let me pivot to three changes for health savings accounts. Under the One Big Beautiful Bill Act, it expanded access to health savings accounts through several changes. The legislation makes permanent the ability to receive telehealth and other remote care services before meeting the high-deductible health plan or HDHP deductible, while remaining eligible to contribute to an HSA. Remember, an HSA is a savings vehicle to put money aside to have it earn income in an account, and then the goal is to pull it out for healthcare expenses, but you have to align it with a high-deductible health plan. So, for tax years beginning on or after January 1, 2025, the individual can receive telehealth or other remote care services and still be eligible to contribute to an HSA, and they might not have generally been able to do that in the past.

On our next slide, some other changes to HSAs. Beginning this year in 2026, anyone enrolled in what’s referred to as a bronze or catastrophic health insurance plan that is obtained on the individual market, they may treat that plan as an HSA-compatible high-deductible health plan, and this applies even if the plan does not meet otherwise traditional high deductible health plan requirements. So, this is going to expand potentially the individuals who can contribute to HSAs if they’re only covered under a bronze or catastrophic health insurance plan, and these are plans that are bought on the individual market, but they could be bought on the individual market, but if they’re not bought on the individual market, they’re only eligible to be treated as high-deductible health plans if they are identical to a plan that’s available on a state-based market.

And then our next slide, I should say, is the third change to health HSAs. Again, beginning in 2026, an otherwise eligible individual enrolled in direct primary care service arrangements, they can contribute to a health savings account, and they may also use their health savings account withdrawals tax-free to pay periodic direct primary care payments that are required by the primary care provider. On December 9, 2025, we issued Notice 2026-05, which you see referenced in the news release on this slide. We’re asking for comments through March 6th, and then we’ll issue final guidance.

Upcoming in future years, let’s turn now to a new tax credit, I should say, a tax credit for donations to qualified Scholarship Granting Organizations. Now, this one I’m going to go through quickly, because it really does not apply until 2027, so it’s really more for your awareness, and you can certainly anticipate more guidance from IRS this year, later this year. Beginning after 2026, individuals may be able to claim a tax credit for qualified contributions. That maximum credit would be up to $1,700 per year to something a new designation referred to as a Scholarship Granting Organization, or an SGO. So they don’t exist yet, but they will come into existence once this provision is implemented following future guidance. And then, scholarship amounts received by the taxpayer from an SGO, they would be excluded under Related Code Section 139A.

So, I’m going to leave it at that. I want to turn now to some 2026 changes impacting education. Employer Student Loan Help. For many years, employers can give up to $5,250 tax-free per year towards their employee education expenses. And more recently, they could give up to $5,250 tax-free to student loan payments if that employee is repaying student loans. Now that is made permanent, so that’s a good provision for employees who work for that type of employer. For the Education Credits claimed on Form 8863, that would include the American Opportunity Credit, the Lifetime Learning Credit. You have to now include a valid Social Security Number and a school ID beginning in 2026.

And then, I want to pivot now to the new Trump accounts, which are authorized under the One Big Beautiful Bill Act. Now, this is just for awareness purposes. We’re not doing a deep dive into the Trump accounts, because we have not issued final regulations on these, but these are getting some attention throughout the country. They were created under Section 70204 of the One Big Beautiful Bill Act. These allow a one-time payment under a pilot program by the Treasury Secretary into a Trump account for an eligible child. Eligible child for purposes of the $1,000 one-time payment would be a child born between 2025 and 2028. And there was no prior election by anyone else other than the qualified individual who’s setting up the Trump account to accept that money into the Trump account. And that child has to be a U.S. citizen. Separately, annual contributions to Trump accounts will be limited to $5,000 per year.

More information on Trump accounts on this next slide, as I just mentioned, $5,000 per year. Employers potentially can contribute up to half of that $5,000, $2,500, for an employee or the dependent of an employee into a Trump account without it being included as taxable income for that employer. There are limitations on the investments under the statute. They’re limited to certain investments and certain types of mutual funds or exchange-traded funds that track the U.S. stock index, for example, the Standard & Poor’s 500.

And then on our final slide here for Trump accounts, money has to stay into the Trump accounts generally until before the year the child turns 18, after which point the child is treated, or the account, I should say, is treated as an IRA. I encourage you to take a look at the new Form 4547 and its instruction for further guidance.

And now, before we get into our Q&A, just to wrap it up, we have plenty of resources for you. On my final three slides here, you go to IRS.gov, roll down and you’ll see a whole section on the One Big Beautiful Bill Act. All of the resources that I’ve been referencing today are there. The 2025 instructions for the 1040 have some OBBBA material. On our next slide, you see some examples, some of which I mentioned earlier. News releases throughout the year, we’ve been very, very active with news releases, many of which guide to the more technical guidance that our colleagues and Chief Counsel have been working on and from whom you’ll hear in a moment.

And then finally, on my last slide here before I turn it back to Kenji, we have yet some more guidance, including the notices for relief from lenders for information reporting on the no tax on tips and overtime, the occupations that customarily and regularly receive tips and some information on the Trump accounts, all accessible at IRS.gov. So that should be bookmarked by you for any information currently from the IRS on OBBBA and forthcoming.

And with that, Kenji, I’m going to turn it back over to you to facilitate our Q&A.

Amazing job, Richard. Hello again, it’s me, Kenji, and I’ll be moderating the Q&A session. Before we start, I want to thank everyone for attending and staying engaged during today’s presentation, understanding the One Big Beautiful Bill: Individual Tax Provisions. We are now joined by an all-star of subject matter experts. Going from left to right, I would like to introduce each SME that has graciously agreed to join us today.

First, we have Mikhail Zhidkov, Senior Technician Reviewer for Employee Benefits, Exempt Organizations and Employment Taxes. Mikhail joined the IRS Office of Chief Counsel in 2017 as an attorney with the Employment Tax Branch 2. He was appointed as Senior Technician for this branch in 2022. Mikhail has reviewed and helped draft guidance relating to the deduction for qualified overtime. Prior to joining Chief Counsel, Mikhail was a revenue agent for the IRS.

Next is Robin Tuczak. Robin is a Special Counsel with Income Tax and Accounting, IRS Office for Chief Counsel. Ms. Tuczak has worked in Chief Counsel and IRS for over 25 years in a number of offices, including Procedure and Administration, Counsel to the National Taxpayer Advocate, IRS Collection Policy, IRS Affordable Care Act Office, Senior Attorney Advisor to IRS Chief of Staff, IRS Office of Appeals, and for the last 7 years, Counsel, Income Tax and Accounting. Ms. Tuczak has a Bachelor of Science from the United States Military Academy, a J.D. from North Carolina Central University, and an LL.M. from Georgetown University.

On our bottom left, we have Laura Daly. Laura is a Special Counsel, Income Tax and Accounting. Ms. Daly has been with the IRS for over 20 years. In Income Tax and Accounting, she focuses on individual income tax issues and personal credits. However, during her career in Office of Chief Counsel, she specialized in procedural collection and estate and gift tax issues. She briefly left Office of Chief Counsel to join the IRS Taxpayer Advocate Service and Taxpayer Experience Offices. Prior to joining Chief Counsel, Ms. Daly served as an associate at Poyner Spruill, LLP in Raleigh, North Carolina, and a Senior Associate at PricewaterhouseCoopers in San Francisco, California. She received her undergraduate and law degrees from the University of Florida and her LL.M. in taxation from Golden Gate University.

Last but certainly not least, we have Andrew Holubeck, Senior Counsel for Employee Benefits, Exempt Organizations, and Employment Taxes. Andrew joined the IRS Office of Chief Counsel in 2011 as an attorney with Employment Tax Branch 2. He was appointed as a Senior Counsel for this branch in 2018. Andrew reviewed and helped draft guidance relating to the deduction for qualified tips. Prior to joining the IRS, Andrew worked as an urban planner for the cities of San Antonio and Austin, Texas.

One thing before we start, we know that there’s no way we can answer all these questions submitted, but we’ll answer as many as time allows. Our SMEs have been actively looking at the chat and have selected many of your questions they would like to answer. So with that being said, let’s go ahead and get started.

First question here, it looks like this one, if a server, a single filer receives $32,000 in tips and has an MAGI of $180,000, how much can they deduct? And I think this question is for Andrew.

Yeah, that sounds like it’s for me. So as mentioned earlier, the deduction’s limited to $25,000 a year. And it’s also reduced by $100 for every $1,000 by which taxpayers’ modified adjusted gross income exceeds $150,000 for single filers and then $300,000 for married filers jointly. So, I think you said the server receives $32,000 in tips, so already that’s limited just to the $25,000 maximum limit. Also, I think the income was $180,000, so that also exceeds the point at which the phase-out starts. So, by about $30,000, so if you do some math, I think the server can deduct about $22,000 in that case.

Great. Thank you for that, Andrew. Next question, looks like it’s on overtime. So that would go to Mikhail, if I’m not mistaken, this is a two-part question, Mikhail. So, the first question is, does the deduction apply to all overtime wages?

The deduction only applies to the premium portion, so generally the extra pay above the regular wages.

Okay, and then the second part of that question is, if an employee earns $18,000 in overtime pay, how do they determine the deductible amount?

So for 2025, they must calculate the premium portion using payroll records or pay stubs. If the employer doesn’t report it separately on Box 14. So more information is available on Notice 2025-69, and there’s also some discussion of its substance and the instructions to the Form 1040 regarding some reasonable methods that might apply.

Thank you for that. Next topic here, let’s pick a senior deduction one. Laura, the question is, how much is the enhanced senior deduction, and is it the same as the existing higher standard deduction for taxpayers ages 65 or older?

The enhanced senior deduction is up to $6,000 per qualifying senior, and yes, it is in addition to the existing higher standard deduction for taxpayers age 65 or older.

Thank you. Next question, let’s go on no tax on tips. I believe, Andrew, that’s your realm. Can a bartender deduct tips that were pooled and redistributed?

Okay. So yes, actually, they can. Qualified tips, they include voluntary cash or charged tips that are either received directly or also that are received through tip-sharing arrangements, like, for instance, a tip pool.

Great. Thank you. Let’s try a car loan interest question. Robin, I think that’s your section. This question is a three-part. So the first part is, when is the deduction available?

That’s available for tax years 2025 through 2028. That is unless Congress extends it at some point.

And does the deduction require itemizing?

It does not. Like a lot of the other deductions we talked about today, both standard deduction filers and itemizers can take this deduction if they’re otherwise qualified.

And the last part of that question is, what is the annual deduction dollar limit?

It’s an annual deduction of up to $10,000 per year. And that can even include interest on multiple cars if the loans qualify.

Thank you. Let’s jump now to the enhanced senior deduction. So, Laura, this is a two-part question. So the first part is, can a married couple claim $12,000?

Yes, if both spouses meet the age and Social Security Number requirements and then file a married filing jointly tax return.

Okay. And the second part of that is, does a senior need to itemize?

No, the deduction is available whether they itemize or claim the standard deduction.

Great. Thank you. Let’s jump over to no tax on tips. Andrew, if an employer doesn’t separately report tip totals on an employee’s Form W-2 in 2025, can the employee still claim the deduction?

Yes, the employee definitely can. For 2025, there’s relief available so that the tip amount isn’t separately reported. The employee still can claim the deduction. In Notice 2025-69, it provides some ways for employees to calculate their qualified tips, and they can use their Form 4070, which is the employee’s report of tips to employer, or whatever form they’re using to monthly report tips. They can use that to determine to help calculate their qualified tip amounts. Or taxpayers can also use Box 7 on Form W-2. That’s the box for Social Security tips. That can also be used for calculating qualified tips in 2025.

Perfect. Thank you. And let’s go ahead and next question is on overtime. So, Mikhail, can union overtime paid under a contract qualify?

Only to the extent it meets the federal definition of qualified overtime compensation. So, if the contract provides for, say, 2 times overtime for every hour worked over 40, only half of that amount might be deductible.

Great. Thank you. For the senior deduction, so this is for Laura. What happens if a senior’s MAGI exceeds $75,000 if single, or the $150,000 if it’s married filing jointly?

Then the deduction will phase-out if their MAGI is above those thresholds.

Thank you. Now, let’s go back to Robin. Let’s get a car loan deduction question here. So, for this one, for a married couple with two vehicle loans, is the deduction dollar limit per vehicle or per return?

That limit is per return. So, for this particular couple, regardless of the number of vehicles, they can deduct up to $10,000 of qualified vehicle loan interest.

Okay. And, Robin, another question. Are married taxpayers filing jointly with the modified adjusted gross income of more than $210,000 eligible for this deduction?

Yes, but they may be partially phased-out. For married filing jointly taxpayers, the deductible amount of interest begins to phase-out at a modified adjusted gross income that exceeds $200,000. So, they’re just above the limit there, but they could still deduct a good portion of that interest. But they start to phase-out at $200,000.

Got it. Thank you. Let’s take a no-tax-on-tip question. I’ve got two questions here, Andrew. First one, do mandatory service charges qualify as tips for purposes of the deduction?

No. The answer to that is no. Only voluntary tips qualify. So, if it’s a mandatory service charge, like in a restaurant or parties of a certain size, there’s a mandatory service charge. Those do not qualify as qualified tips for purposes of the deduction.

And can a self-employed hairstylist deduct more tips than their net business income?

No. For self-employed individuals, the deduction is limited. It can’t exceed their net income from the trade or business in which they’re receiving those tips.

Okay. Thank you. Let’s jump now to no tax on overtime question. Mikhail, if a worker has multiple employers, do all overtime amounts count from each employer?

They could. If each of them meets the qualified overtime compensation definition, which is required under federal law, then those amounts can be combined. But the combined total can’t exceed $12,500 for single taxpayers or $25,000 for taxpayers filing jointly. And those are subject to the modified adjusted gross income limits of $150,000 and $300,000, depending on filing status.

Mikhail, on that same note, are employers required to change W-2 reporting for 2025?

No. IRS transition guidance states forms remain unchanged for 2025.

Thank you. Laura, let’s pick a question from the senior deduction topic. Can a senior without a valid Social Security Number claim the deduction?

No. A Social Security Number valid for employment and issued before the return due date, including extensions, is required.

Okay. If only one spouse is age 65, can they claim the deduction? So, for example, one spouse is 64 years old and the other is 65.

Yes. The deduction is calculated per qualifying individual, as I said previously. So, the one spouse who’s 65 and has a Social Security Number valid for employment and issued before the due date of the return could claim up to $6,000, provided the spouse is filed jointly. And then the spouse who’s age 64 doesn’t qualify and cannot claim the enhanced senior deduction on their part of the joint return.

Does claiming the enhanced senior deduction affect the eligibility for other credits?

It could. Claiming the credit reduces taxable income, which may indirectly affect credit calculations.

Okay. Let’s go to a car loan interest question. Robin, is interest paid on a loan originated in December 2024 eligible?

No. The statute requires that the loan has to originate after December 31, 2024 to qualify.

Now, if a taxpayer used a home equity loan or a home equity line of credit to purchase a car, is the interest paid on that loan eligible to be deducted as a qualified car loan interest?

No. Actually, interest has to be deductible under this section. It has to be paid on a loan that is secured by a first lien on a purchased vehicle. Interest paid on loans secured by the taxpayer’s home are not eligible to be deducted as qualified car loan interest under 163(h)(4).

Okay. Let’s go for a tax tip question. Andrew, can tips reported on the Form 4137, Social Security and Medicare tax on unreported tip income still qualify?

Yeah, they can. So, for employees who report their tips directly to the IRS on the Form 4137, and you include that in their income, yes, those amounts are qualified as qualified tips.

Okay. Now, if a worker changed jobs mid-year, do tips from multiple employers count?

Yeah. So, qualified tips received across all sources are eligible for deduction, of course, subject to the $25,000 limit and all the other applicable limitations.

Okay. And last question here, does the deduction apply to FICA taxes on tips?

No. The deduction is only for federal income tax only. So, the FICA taxes, Social Security, Medicare, those taxes still apply to tips.

Great. Thank you. So, audience, that is all the time we have for questions. I want to thank Richard Furlong for such a comprehensive presentation, along with the members of council, for answering your questions and sharing their knowledge and expertise.

Before we close the Q&A session, Rich, what key points do you want the attendees to remember from today’s webinar?

Well, thank you, Kenji. So, I think as we’ve seen today, the One Big Beautiful Bill Act extends many of the individual provisions of the Tax Cuts and Jobs Act of 2017. However, it’s also eliminated certain individual home energy and clean vehicle credits that were enacted under prior legislation. And your one-stop resource for all IRS guidance on the legislation is IRS.gov/OBBB.

Remember that new Schedule 1-A, Additional Deductions, is where you’ll calculate the no tax on tips, no tax on overtime, no tax on car loan interest, and the enhanced deduction for seniors. And as we’ve emphasized throughout today’s session, these deductions may be claimed both by itemizers and non-itemizers.

So, I want to thank everyone. I hope you found the session beneficial. And let me turn it back to Kenji to wrap up.

Thanks, Rich, for those key points. Audience, watch for announcements on future webinars. To register for any upcoming webinar, please visit IRS.gov, keyword search webinars, and select the webinars for tax practitioners or webinars for small businesses. When appropriate, we will offer certificates and CE credit for upcoming webinars. We invite you to visit the IRS YouTube page at www.youtube.com/irsvideos. There you can view available recorded versions of our webinars and other key video messaging once posted. Again, continuing education credits or certificates of completion are not offered if you view an archived version of any of our webinars.

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