Tip and overtime taxes. Two of the provisions that have received the greatest hype are the “no tax on tips” and “no tax on overtime.” It is important to note that neither eliminates the taxation of tips or overtime; instead, it creates a limited deduction from total taxable income equal to the amount of qualified tips or overtime earned.
- The "no tax on tips" deduction cap is $25,000 and phases out after income exceeds $150,000 for individual filers, $300,000 for joint filers.
- The "No tax on overtime" deduction cap is $12,500 for individuals and $25,000 for joint filers, phasing out at the same point as the no-tax-on-tips cap.
Both provisions will expire after the 2028 tax year.
Senior deduction. OBBBA provides a $6,000 deduction for seniors age 65 and older, with a phase-out for individuals whose modified adjusted gross income exceeds $75,000 for individuals and $150,000 for joint filers. The senior deduction is effective for five years, starting in tax year 2025 through to (and ending in) tax year 2029.
Read more about the temporary senior deduction on CCH® Answerconnect, powered by Expert AI (subscription or free trial may be required).
Automobile interest deduction. Purchasers of new automobiles will be eligible, with certain conditions, to deduct up to $10,000 of interest paid on the purchase of a qualified vehicle. The vehicle must have been purchased after 2024, and the interest must have been paid from 2025 through 2028. There are income limits that apply to the automobile deduction.
New OBBBA Business Provisions
The One Big Beautiful Bill Act (OBBBA) includes several significant tax provisions that will directly impact large corporations. From capital investment incentives to international tax reforms, here are some of the more significant changes.
Bonus depreciation. Originally in the TCJA, 100% bonus depreciation was resurrected and made permanent, effective tax year 2025.
Research and experimental expenditures (formerly research and development). Domestic research and experimental expenditure costs are now deductible for tax years beginning after 2024.
Qualified business income deduction is now permanent.
Green energy. OBBBA also eliminated several green energy tax credits established by the Inflation Reduction Act of 2022.
Read more about the business implications of the One Bill Beautiful Bill Act (OBBA) on CCH® Answerconnect, powered by Expert AI (subscription or free trial may be required).
Direct File eliminated
In 2025, the tax filing program operated by the Internal Revenue Service was eliminated. Direct File allowed filers of simple tax returns to prepare and file their returns through the IRS website (including importing W-2 and other data directly from IRS databases). The program, launched with the Inflation Reduction Act, was in Republican crosshairs since its inception and formally eliminated in 2025.
Direct File was available in 25 states during the 2025 tax filing season and supported returns that included taxpayers claiming: the Earned Income Tax Credit, the Child Tax Credit, and the Credit for Other Dependents, as well as for the Child and Dependent Care Credit, the Premium Tax Credit, the Credit for the Elderly and Disabled, multiple Retirement Savings Contribution Credits, and health savings accounts deductions.
The program appeared to be gaining some traction with taxpayers, with year-over-year usage increasing over the two years it was in place. It was poised to grow further as the previous administration laid a foundation for the continued expansion of the pool of taxpayers eligible for the service.
However, the new administration and the GOP-led Congress had no interest in further investment or availability. Direct File could not get past GOP opposition from its inception and failed to change any minds once the program went live. A focus on reducing costs ultimately led to its demise once Republicans took over Congress and the White House.
Leadership at the IRS
While much of the attention in 2025 was focused on the passage and implementation of OBBBA, underlying it was the revolving door of leadership at the IRS. There were six commissioners, one confirmed and the rest appointed as acting commissioners, before the Treasury Department appointed Social Security Administration Commissioner Frank Bisignano to the newly created position of chief executive officer. His role is similar to that of a commissioner, as he oversees the agency’s day-to-day operations.
Commentary: The appointment has received pushback from Congressional Democrats because it bypasses their role in the vetting process in a leadership position that generally requires Senate approval. A change in leadership in the Senate during the 2026 midterms could turn this into a key issue going forward.
Phasing out of paper checks
At the end of September, the IRS began phasing out paper checks in accordance with Executive Order 14247. Post September 30, 2025, refunds will primarily be delivered through direct deposit or other secure digital methods. According to the IRS, individuals without a bank account can use IRS-provided alternatives, such as prepaid debit cards or digital wallets.
Taxpayers are encouraged to prepare early for the upcoming tax season by updating their banking details or considering low-cost account options available through resources like FDIC.gov/GetBanked and MyCreditUnion.gov.
Commentary: The paper check phase-out has received pushback, particularly from industry associations that point out the pitfalls of eliminating paper checks, but so far, the agency is moving forward with the plan.
Beneficial Ownership Information reporting
The Beneficial Ownership Information (BOI) reporting saga appeared to have come to a close for the time being when the Department of the Treasury announced in March 2022 that it would “not enforce any penalties or fines against U.S. citizens or domestic companies or their beneficial owners after the forthcoming rule changes take effect.” BOI information is required under the Corporate Transparency Act.
The Financial Crimes Enforcement Network (FinCEN) ultimately issued proposed rules that narrowed BOI's scope to require beneficial ownership information only from foreign companies. The announcement came weeks after FinCEN announced mandatory BOI reporting was back in effect. However, it would not issue any fines or penalties or take other enforcement action against those who do not report.
Read more about BOI reporting on CCH® Answerconnect, powered by Expert AI (subscription or free trial may be required).
Taxation of digital assets
Legislation surrounding the taxation of digital assets remains an ongoing issue. However, with bipartisan support, the House and Senate did overturn an IRS digital asset reporting rule, “Gross Proceeds Reporting by Brokers that Regularly Provide Services Effectuating Digital Asset Sales.” It was suggested in a hearing leading up to Congressional action that the rule would result in additional paperwork and overburden taxpayers while providing the IRS with data of little value to tax administration. Legislative leadership from both sides of the aisle have expressed interest in making the taxation of digital assets a priority in 2026.
AI at the IRS
In 2025, the IRS lost about a quarter of its workforce due to actions taken by the Department of Government Efficiency. Even before the extent of cuts and offered early retirement packages were known, Treasury Secretary Scott Bessent said during a May House Ways and Means Committee hearing that the then-current employment level was “bloated” and that the agency would rely more on artificial intelligence. He identified collection activity enhancements specifically as areas where the AI use would increase. The scope of its usage is likely to be an oversight point in 2026 and beyond.
In conclusion
The 2025 tax year ushered in the remarkable One Big Beautiful Bill Act, which introduced permanent enhancements to essential tax provisions and established new deductions, particularly benefiting seniors and those earning tips or overtime. These and other changes represent a significant shift in the tax landscape, aiming to alleviate financial pressures for numerous taxpayers. Ultimately, the effectiveness of these initiatives will hinge on their implementation and the broader implications they hold for the future of tax policy.
