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Key takeaways
- Middle-income families, tipped income workers, filers over 65, and workers who rely on overtime compensation are among those who could see the biggest boost from the new tax law.
- Some tax filers may be able to claim bigger auto loan interest deductions and state and local income tax deductions.
- Lower-income tipped workers and those who rely on the Supplemental Nutrition Assistance Program (SNAP) could see a reduction in benefits.
If you’re a middle-income family in a high-tax state, drive an American-made car, work overtime, and earn tips, under the new tax law you could qualify for deductions that could put more money back in your pocket. Bonus points if you’re over 65.
For others, especially lower-income tipped workers and those who rely on federal benefits, the picture is less rosy. Some could see smaller refunds or even lose access to key programs.
The One Big Beautiful Bill (OBBB), which passed in July 2025, will introduce some of the most significant tax changes in years, and make permanent some provisions that were introduced under the 2017 Tax Cuts and Jobs Act (TCJA).
Of the estimated 4 million who earn tipped income, it is higher-income earners (think fine-dining servers, bartenders, and concierges) who stand to benefit the most under the new law. Others who stand to benefit — including seniors over 65 and those who work overtime — may also see increases in tax savings as a result of the new law.
Read on to see an overview of how these changes might impact filers who are eligible.
What is the no tax on tips provision?
The new “no tax on tips” rule lets eligible workers deduct more of their tips this year. The deduction can be claimed when you file your 2025 taxes in 2026, though it may be possible to have the deductions withheld from your paycheck if you submit a new W-4 to your employer.
If you earn tips, you may qualify. You may be eligible if your job “regularly receives tips,” from food and beverage to hospitality, beauty, and transportation and delivery. The full deduction applies to those earning up to $100,000, and phases out completely at $150,000 in income.
Your filing status cannot be “married filing separately” if you want to claim this deduction. Tips are still subject to state taxes where applicable and payroll taxes (Social Security and Medicare), which will continue to show up as withholdings by your employer. This means that if you receive nontaxed tips, there will be a Treasury Tipped Occupation Code (TTOC) listed on your wage form. If you do not have that code, you may not be able to deduct tips from taxable income.
How does no tax on tips interact with other deductions and provisions?
If you plan to take the standard deduction
You can take the no-tax-on-tips deduction whether you itemize or take the standard deduction, which the OBBB made permanently higher.
If you earn overtime income
If eligible overtime is earned, it can also be claimed as a new deduction on the extra pay above your normal rate — up to $12,500 for those making under $150,000.
This provision is separate from the tipped income deduction, so you can stack both.
It only covers the premium portion of overtime compensation (the amount you earn above your regular hourly rate). For example, if you earn $25 per hour and are compensated at time-and-a-half for overtime, this deduction would only apply to the extra $12.50 per overtime hour. If you’re eligible for tax-free overtime, you’ll still see a deduction on your paycheck for FICA (Social Security and Medicare) for that amount of overtime.
If you’re a business owner
A new tax law made permanent is the much anticipated 20% Qualified Business Income (QBI) deduction for self-employed workers and qualifying small-business owners.
The deduction is applicable for “pass-through” structures like sole proprietorships, partnerships, and S-corporations. If you are filing as a self-employed individual, you can take the tips deduction if you work in a qualified industry, but the amount of your deduction cannot exceed your net income from the qualified business.
Other notable changes for the 2025 tax year
- Tax rates and brackets. The cuts to the tax rates in each of the seven brackets that the TCJA originally changed were made permanent, and will be adjusted for inflation beginning in tax year 2025. That means you can expect to see the lower rates holding for your 2025 return, and may see further savings in future years.
- Increased deduction for individuals over 65. The law introduced a temporary provision that allows seniors 65 years or older to deduct an additional $6,000, as long as their income is below $75,000 ($150,000 for joint filers).
- The end of personal and dependent exemptions, plus some itemized deductions. These exemptions were set to return in 2026, but are now permanently eliminated under the new tax law. The government aims to continue offsetting these eliminations with increases to SALT deduction limits and the Child Tax Credit (CTC).
- Auto loan interest deduction. Buy an American-made car? You may now deduct up to $10,000 in interest on new auto loans that originated after Dec. 31, 2024, unless you make more than $100,000 annually. Check the IRS guidelines to see if your car meets all the qualifications.
- Changes to state and local income tax (SALT) deductions. In addition to federal changes, the new tax law increased the limits on state and local income tax (SALT) deductions from $10,000 to $40,000 for individuals earning $500,000 or less. This provision is effective for the 2025 tax year, and will be adjusted for inflation through tax year 2029.
Who may see reduced tax credits or benefits
Data from The Budget Lab at Yale University shows that more than one third of tipped workers don’t make enough to owe federal income tax anyway — which means the deduction primarily benefits higher earners. Most tipped workers are in food service, and within that group, fine-dining servers earn about $56,000 a year before tips, according to Oysterlink, a restaurant job platform.
Some analysts fear that the new tax on tip deductions could unintentionally disqualify low-income tipped workers from other tax credits — such as the earned income tax credit (EITC) and the CTC — by effectively lowering their reported earned income.
Elimination of certain energy-efficient credits
Eco-conscious homeowners lose out too, as two popular energy incentives are expiring. The $7,500 New Clean Vehicle Credit ended on Sept. 30, 2025, and the Energy Efficient Home Improvement Credit, worth up to $3,200, sunsets at the end of 2025. Qualifying home upgrades made before Dec. 31 are still eligible, up to $1,200 for most improvements and up to $2,000 for heat pumps and biomass stoves/boilers.
SNAP restructuring
The law also tightens rules for Supplemental Nutrition Assistance Program (SNAP) participants, which could increase food insecurity for vulnerable groups. Among other changes, it:
- Caps annual funding reviews, limiting inflation adjustments.
- Adds stricter work requirements (effective July 2025).
- Eliminates exemptions for homeless individuals, veterans, and those 24 years old and younger who aged out of the foster care system.
Starting in fiscal year 2027 (Oct. 1, 2026), states will take on 75% of SNAP’s administrative costs — a shift experts say could lead to funding cuts and more restrictive benefits. The Congressional Budget Office (CBO) warns that close to 2.4 million people could lose access to the program as a result of these changes.
The new tax law may impact your paycheck
If your income has grown or you’re working extra hours, you may notice a slight boost in take-home pay. Those in lower brackets or dependent on federal assistance programs, however, could see smaller refunds or reduced benefits.
Understanding the new rules can help you keep more of what you earn – and it’s truly free to file when you file your taxes through Chime.