6.6 Other Adjustments & New OBBBA Deductions (Tips, Overtime, Auto Loan, Senior Bonus)
Key Takeaways
Moving expenses are deductible only for active-duty Armed Forces members who move due to a permanent change of station (PCS) — OBBBA made this TCJA rule permanent (2025 mileage rate 21¢/mile).
Penalty on early withdrawal of savings (CD forfeitures) is an above-the-line deduction on Schedule 1, Line 18.
OBBBA created four NEW temporary deductions (tax years 2025-2028): the qualified tip deduction (up to $25,000), qualified overtime premium deduction ($12,500 Single / $25,000 MFJ), qualified auto loan interest deduction (up to $10,000), and the $6,000 senior bonus deduction.
Tip and overtime deductions phase out at $100 per $1,000 or fraction thereof of MAGI over $150,000 (Single) / $300,000 (MFJ); MFS filers are not eligible for either.
Self-employed retirement plan limits for 2025: SEP IRA — lesser of 25% of compensation (20% net for self-employed) or $70,000; SIMPLE IRA elective deferral $16,500 (+$3,500 catch-up; super catch-up $5,250 ages 60-63).
Other Adjustments to Income
Moving Expenses (Armed Forces Only)
Under TCJA the moving expense deduction was suspended for civilians (2018-2025). OBBBA made the suspension permanent. Only active-duty Armed Forces members with a permanent change of station (PCS) can deduct moving expenses.
Deductible:
- Transportation and storage of household goods (within 30 days)
- Travel expenses (lodging, NOT meals)
- Vehicle mileage: 21 cents/mile for 2025 (Notice 2025-5)
Non-Deductible:
- Meals during the move
- Temporary housing
- House-hunting trips
Penalty on Early Withdrawal of Savings
When you withdraw from a CD before maturity:
- The penalty appears in Form 1099-INT, Box 2
- Deduct on Schedule 1, Line 18
- The deduction is allowed even if the penalty exceeds the interest earned
Jury Duty Pay Remitted to Employer
If your employer requires you to turn over jury duty pay:
- Report the jury pay as other income
- Deduct the same amount on Schedule 1, Line 24a
- Net effect: zero
Attorney Fees for Certain Awards
Deductible above-the-line on Schedule 1 (Line 24) for:
- Unlawful discrimination claims
- IRS / SEC whistleblower awards Limited to the amount of the award included in income.
Self-Employed Retirement Plans (2025 limits)
| Plan Type | 2025 Limit |
|---|---|
| SEP IRA | Lesser of 25% of compensation (20% of net SE earnings) or $70,000 |
| SIMPLE elective deferral | $16,500 |
| SIMPLE catch-up (age 50+) | +$3,500 |
| SIMPLE super catch-up (ages 60-63) | +$5,250 (instead of $3,500) |
| Solo 401(k) overall §415 limit | $70,000 (+$7,500 catch-up; $11,250 super catch-up 60-63) |
Self-employed health insurance: still 100% deductible above-the-line (no AGI limit), reported on Schedule 1.
Schedule 1 Part II — Quick Reference (2025)
| Line | Adjustment |
|---|---|
| 11 | Educator expenses ($300) |
| 13 | HSA deduction |
| 14 | Moving expenses (active-duty military only) |
| 15 | 50% of SE tax |
| 16 | SE retirement plan contributions |
| 17 | SE health insurance |
| 18 | Penalty on early withdrawal of savings |
| 19 | Alimony paid (pre-2019 divorces) |
| 20 | IRA deduction |
| 21 | Student loan interest |
| 24 | Other adjustments (attorney fees, jury duty, etc.) |
Schedule 1-A Deductions After AGI for 2025–2028
The One Big Beautiful Bill Act (signed July 4, 2025) created four new deductions effective for tax years 2025 through 2028. For the 2026–2027 SEE, apply their 2025 eligibility and phaseout rules. All four sunset on December 31, 2028.
1. Qualified Tip Income Deduction (“No Tax on Tips”)
A deduction after AGI on Schedule 1-A of up to $25,000 of qualified tip income per filer.
Eligible workers: Employees and self-employed taxpayers in occupations that customarily and regularly receive tips (Treasury publishes the list — generally food service, beauty/personal care, hospitality, gaming, etc.).
Important: Tips must still be reported as wages on Form W-2 or as gross income on Form 1099/Schedule C. The benefit is a separate deduction after AGI on Schedule 1-A — it is NOT an exclusion from wages, and tips remain subject to Social Security, Medicare, and SE tax.
Phase-out: Deduction reduced by $100 for every $1,000 or fraction thereof of MAGI over $150,000 (Single) or $300,000 (MFJ); fully phased out at $400,000 / $550,000 respectively (since maximum $25,000 ÷ $100 × $1,000 = $250,000 phase-out range).
Other rules:
- MFS filers are NOT eligible.
- Each spouse claiming a deduction for their qualified tips must have an employment-valid SSN issued by the return due date, including extensions.
- Sunsets December 31, 2028.
2. Qualified Overtime Premium Deduction (“No Tax on Overtime”)
A deduction after AGI on Schedule 1-A of the FLSA-required overtime premium — the "half" portion of time-and-a-half (i.e., the excess over the regular rate).
Caps: $12,500 (Single) / $25,000 (MFJ).
Important: Only the federally required FLSA premium qualifies. State-mandated premium pay above FLSA and purely contractual overtime do NOT qualify. The full overtime wages still appear on the W-2; the deduction is for the premium portion only.
Phase-out: Reduced by $100 per $1,000 or fraction thereof of MAGI over $150,000 (Single) / $300,000 (MFJ).
Other rules:
- MFS filers are NOT eligible.
- Each spouse claiming a deduction for their qualified overtime must have an employment-valid SSN issued by the return due date, including extensions.
- Sunsets December 31, 2028.
3. Qualified Auto Loan Interest Deduction
A deduction after AGI on Schedule 1-A of up to $10,000 of interest paid on a qualifying personal vehicle loan.
Vehicle requirements (all must be met):
- New vehicle (not used)
- Final assembly in the United States (verified via VIN)
- Personal use (not business)
- Loan secured by a lien on the vehicle
- Loan originated after December 31, 2024 to purchase a qualifying new vehicle; only interest deducted in 2025–2028 is within this temporary deduction
VIN required on the return.
Phase-out: Reduced by $200 per $1,000 or fraction thereof of MAGI over $100,000 (Single) / $200,000 (MFJ); fully phased out at $150,000 / $250,000.
Sunsets December 31, 2028.
4. Senior Bonus Deduction
An additional $6,000 per qualifying individual age 65 or older (so $12,000 on a joint return if both spouses are 65+).
Phase-out: Reduced at 6% of MAGI over $75,000 (Single/HoH) / $150,000 (MFJ); fully phased out at $175,000 / $250,000.
Key features:
- Available to both itemizers AND standard-deduction filers
- Stacks on top of the existing additional standard deduction for age 65+ ($2,000 Single/HoH; $1,600 MFJ per spouse)
- MFS filers are NOT eligible
- Sunsets December 31, 2028
All four deductions are calculated on Schedule 1-A and carried to Form 1040 after AGI. They are available to eligible itemizers and standard-deduction filers, but do not reduce AGI. Unlike tips, overtime and the senior deduction, qualifying car-loan interest can be claimed by MFS filers; the $100,000 MAGI threshold applies.
Summary: Four OBBBA Temporary Deductions (2025-2028)
| Deduction | Cap | Phase-out start (Single / MFJ) | Phase-out rate | MFS allowed? |
|---|---|---|---|---|
| Tip income | $25,000 | $150K / $300K | $100 per $1,000 | No |
| Overtime premium | $12,500 / $25,000 | $150K / $300K | $100 per $1,000 | No |
| Auto loan interest | $10,000 | $100K / $200K | $200 per $1,000 or fraction | Yes, if otherwise eligible |
| Senior bonus (65+) | $6,000 per person | $75K / $150K | 6% of MAGI excess | No |
EA Exam Tips
- Civilian moving expenses remain non-deductible — OBBBA made the TCJA suspension PERMANENT
- Early withdrawal penalty reduces AGI on Schedule 1, Line 18
- Military moves: 21¢/mile for 2025; no distance/time test for active-duty PCS moves
- Tip & overtime deductions are claimed after AGI on Schedule 1-A, capped, phase out at $150K/$300K MAGI, MFS not eligible, sunset 2028
- Auto loan interest requires NEW, U.S.-final-assembled vehicle, personal use, lien on vehicle, VIN on return
- Senior bonus $6,000 stacks with the existing additional standard deduction; phases out 6% above $75K/$150K
An active-duty soldier drove 1,200 miles for a PCS move in 2025. Using the standard mileage rate, what amount is deductible for vehicle costs (excluding lodging)?
$252
$792
$840
$0
Tom's 2025 Form 1099-INT shows $420 of interest and $380 of early withdrawal penalty. How does he report this on his return?
$420 interest income; $380 deduction on Schedule 1, Line 18
$40 net interest income only
$420 income; no deduction
$380 income only
Sara is a single restaurant server in 2025. Her W-2 reports $45,000 of wages including $18,000 of reported tip income. Her MAGI is $48,000. Under the OBBBA “No Tax on Tips” deduction, what amount can she claim?
$0
$18,000
$25,000
$45,000
Which of the following is required for a vehicle loan to qualify for the OBBBA auto loan interest deduction?
The vehicle must be used in a sole proprietorship
The loan must be unsecured
The vehicle must be new and have its final assembly in the United States
The taxpayer must itemize deductions
Mark and Lisa file MFJ in 2025. Both are 67 years old, and their MAGI is $140,000. How much OBBBA senior bonus deduction may they claim?
$0
$6,000
$12,000
$24,000
Which statement about the OBBBA tip and overtime deductions is TRUE for tax year 2025?
Tips are excluded from W-2 wages entirely
Both deductions are available to MFS filers
Both deductions phase out at $100 per $1,000 or fraction thereof of MAGI over $150,000 Single / $300,000 MFJ and sunset December 31, 2028
The overtime deduction covers all overtime, including state-mandated and contractual OT
Sections you finish are checked off in the contents.