New OBBBA Tax Deductions Available in 2026
Four of the most talked-about deductions in the 2025 One Big Beautiful Bill Act are available through 2028, unless Congress acts otherwise. These deductions, along with the extended standard and child tax credit deductions, could significantly reduce the tax liability for thousands of Pennsylvanians. However, tax deductions are usually not gifts. They typically come with a price.
At Phoenix Tax Consultants, we find ways to maximize gifts and minimize costs. We believe that all Americans should pay their fair share of taxes. We also believe that “fair” is a relative term. Furthermore, we know that the government, which collects over $5 trillion per year, does not need voluntary donations. These three guiding principles help us assist families and businesses throughout the Keystone State.
Overtime Pay Deduction
This provision is not technically a deduction. Instead, the OBBBA excludes from taxable income the portion of overtime pay that exceeds the regular rate of pay. Some key considerations include:
- The maximum annual overtime exclusion is $12,500 for individuals and $25,000 per year for married couples filing jointly (married filing jointly, or MFJ).
- Filers need not itemize to be eligible for this exclusion.
- Only the overtime premium (extra pay above the regular wage, such as the “half-time” portion of time-and-a-half) is eligible for this exclusion.
Additionally, an income phase-out begins when MAGI (modified adjusted gross income) exceeds $150,000 per year ($300,000 for MFJs). This exclusion is excellent news for nurses, first responders, and other individuals with relatively high incomes, primarily because of overtime pay.
Deduction for Tips Beginning in 2026
Traditionally, tip income and wage income were identical for tax purposes. The tip deduction effectively splits these income streams into two categories. Beginning in tax year 2026, most filers, regardless of marital or household status, can deduct up to $25,000 in qualified tips. “Qualified tips” are voluntary cash or charged tips for workers who, according to the IRS, regularly and customarily receive tips. These filers primarily include hospitality and food service, and possibly gig workers (e.g., Uber, DoorDash).
This exemption, like the overtime deduction discussed above, applies to all filers, whether or not they itemize. Additionally, the benefit phases out at similar income thresholds (about $150,000 for single filers and $300,000 for couples).
Auto Loan Interest Deduction
Congress ended this deduction way back in 1986. The 2025 OBBBA allows vehicle owners to deduct up to $10,000 of interest paid on a loan used to buy a qualified vehicle. This deduction basically places vehicle loan interest alongside student loan or home mortgage interest.
A qualified vehicle is a new (not used) personal (not business) vehicle that was assembled (not made) in the United States and purchased (not leased) on or after December 31, 2024. These provisions are nuanced, and additional rules apply. Income phase-outs begin at $100,000 for single filers and $200,000 for joint filers, regardless of whether they itemize.
Senior Adult Deduction
Given the growing elderly population in the United States, the senior adult deduction may be the most significant one.
Quite simply, taxpayers over 65 may add $6,000 ($12,000 MFJ) to their standard or itemized deductions. The amount is lower for taxpayers with MAGIs above $75,000 per year ($150,000 MFJ).
How These Temporary Deductions Fit into Long-Term Tax Planning
Together, these deductions reflect a broader shift toward targeted, temporary tax relief that rewards specific income types and life stages rather than across-the-board reductions. Understanding how these provisions interact with income limits, filing status, and future phaseouts is essential to making informed tax decisions in 2026 and beyond.
For more ways to reduce your tax liability in 2026 and beyond, contact us online or call 610-933-3507.