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 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.) |
NEW OBBBA Adjustments for 2025-2028
The One Big Beautiful Bill Act (signed July 4, 2025) created four new deductions effective for tax years 2025 through 2028. Each is highly testable on the 2026-2027 EA SEE. All four sunset on December 31, 2028.
1. Qualified Tip Income Deduction (“No Tax on Tips”)
An above-the-line deduction 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 above-the-line deduction on Schedule 1 — 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 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.
- Both filers on a joint return must have a valid SSN (similar to the OBBBA CTC SSN requirement).
- Sunsets December 31, 2028.
2. Qualified Overtime Premium Deduction (“No Tax on Overtime”)
An above-the-line deduction 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 of MAGI over $150,000 (Single) / $300,000 (MFJ).
Other rules:
- MFS filers are NOT eligible.
- Both filers on a joint return must have a valid SSN.
- Sunsets December 31, 2028.
3. Qualified Auto Loan Interest Deduction
An above-the-line deduction 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 between 2025 and 2028
VIN required on the return.
Phase-out: Reduced by $200 per $1,000 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
Although the senior bonus is technically presented with the standard deduction (Ch. 7), it is administratively similar to an above-the-line adjustment because it is allowed regardless of itemizing.
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 | Limited (vehicle/loan must qualify) |
| 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 above-the-line, 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)?
Tom's 2025 Form 1099-INT shows $420 of interest and $380 of early withdrawal penalty. How does he report this on his return?
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?
Which of the following is required for a vehicle loan to qualify for the OBBBA auto loan interest deduction?
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?
Which statement about the OBBBA tip and overtime deductions is TRUE for tax year 2025?