What the tax gossip has gotten wrong
Heading into 2025, expectations of tax law changes were high, and the year did not disappoint. On July 4, the 2025 Tax Act, often referred to as the One Big Beautiful Bill Act, was signed into law. Since then, a flurry of confused misinformation has circulated online about the changes.
Let’s look at the new tax bill together and see what the tax gossip has gotten wrong.
“No tax on tips” has been one of the most talked about provisions. The new law does not eliminate tax on all tips. Instead, an individual can deduct up to $25,000 of qualified tips from taxable income per year. This deduction is subject to limitations if modified adjusted gross income is above $150,000 (or $300,000 for joint filers). The tips must be properly reported to the IRS and earned in occupations that typically received tips before 2025.
This tip deduction is a temporary one that is only available for tax years 2025 through 2028. Businesses must separately report designated cash tips and the recipient’s occupation on Form W-2.
Similarly, “no tax on overtime” does not apply to all overtime earned by a taxpayer. Rather, it allows taxpayers to deduct up to $12,500 per year of qualified overtime compensation ($25,000 for joint filers), subject to limitations if modified adjusted gross income is above $150,000 (or $300,000 for joint filers). Qualified overtime must be properly reported to the IRS on Form W-2.
Businesses may use reasonable methods to report qualifying amounts until the IRS releases guidance. Qualified overtime is defined as overtime pay required under Section 7 of the Fair Labor Standards Act that is in excess of the regular rate. This overtime deduction is also temporary, effective 2025 through 2028.
Another popular tidbit, “no tax on car loan interest,” does not convey the true picture of the tax law provision. While there is a deduction for car loan interest available in the new tax law, the eligibility requirements are restrictive.
Individuals can deduct up to $10,000 of certain car loan interest per tax year, subject to limitations if modified adjusted gross income is over $100,000 (or $200,000 for joint filers). The vehicle must be purchased after Dec. 31, 2024. It needs to be a new vehicle and for personal use. The vehicle must be under 14,000 pounds, and the final assembly of the vehicle has to occur in the United States. The taxpayer should report the VIN on their tax return to claim the deduction. This deduction is temporary for the tax years 2025 through 2028.
There is no tax law change regarding the taxability of Social Security benefits, but there is a new deduction available to seniors.
Taxpayers aged 65 and older can claim a deduction of $6,000, subject to limitations if adjusted gross income is over $75,000 (or $150,000 for joint filers). This is another temporary benefit that is available for tax years 2025 through 2028.
There were a few changes to charitable contribution deductibility. A taxpayer using the standard deduction will be able to claim a charitable deduction up to $1,000 ($2,000 for a joint return) for cash contributions made to a public charity. On the other hand, a taxpayer who itemizes instead of using the standard deduction will face a limitation on the amount of charitable contribution deduction allowed. Only charitable contributions in excess of 0.5% of the taxpayer’s contribution base (generally adjusted gross income) will be deductible.
Likewise, at the level of a corporation, a charitable deduction will only be allowed if charitable contributions exceed 1% of the corporation’s taxable income for the tax year. All three of these new provisions begin with tax year 2026.
Business owners will be happy to hear that 100% bonus depreciation is back for property acquired after Jan. 19. It has now been made permanent, so it will not phase out in future years. Also of note, the reporting threshold for 1099s is increasing from $600 to $2,000 for payments made after Dec. 31. This will lessen the reporting burden for business owners.
We recommend consulting with your CPA if you believe any of these changes may be relevant to you or if you are interested in other changes featured in the 2025 Tax Act.
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Porter, Katie S. (Posted online September 26, 2025). What the tax gossip has gotten wrong. Springfield Business Journal. Sept. 29-Oct. 5, 2025 / Vol. 45, No. 11.
Katie S. Porter is a CPA and manager at Elliott, Robinson & Co. LLP. She can be reached at kporter@ercpa.com.