OBBBA P.L. 119-21 created three new deductions that did not previously exist (each is subtracted from AGI under §63(b), not taken above the line): a deduction for qualified tips, a deduction for qualified overtime pay, and a deduction for interest on qualified auto loans. It also created a new savings vehicle called Trump Accounts for minor children. These are in addition to OBBBA's other major changes (CTC increase, SALT cap raise, R&D restoration, estate tax permanence). Each new deduction has specific eligibility rules, income limits, and definitional requirements.
Qualified tips: Deduction (subtracted from AGI under §63(b)(5)) for tips received in a tipped occupation. Income limit applies. Employer reporting requirements on Form 1099-NEC being finalized.
Qualified overtime: Deduction (subtracted from AGI under §63(b)(6)) for overtime compensation (pay above regular rate under FLSA). Income limit applies. Applies to W-2 overtime, not self-employment income.
Auto loan interest: Deduction for interest paid on a qualified auto loan for a new US-manufactured vehicle. Income limit applies. Annual cap of $10,000 per taxpayer.
Trump Accounts: New IRA-type savings account for children under 18. $5,000 annual contribution limit (indexed after 2027). One-time $1,000 federal pilot program contribution for eligible US citizen children born from 2025 through 2028. Funds are invested in index funds of primarily US equities.
OBBBA creates a deduction for cash tips received in a customarily and regularly tipped occupation. The IRS is developing a list of qualifying occupations (Treasury Tipped Occupation Codes - TTOCs). The deduction is subtracted from AGI under §63(b)(5) (it does not reduce AGI) and is available whether or not the taxpayer itemizes. An income phase-out applies - the deduction phases out above a threshold for higher earners. Tips remain subject to FICA payroll taxes; only the income tax is affected by the deduction.
OBBBA creates a deduction for overtime compensation received by W-2 employees - meaning the premium portion of overtime pay (the extra 50% or more paid under FLSA for hours over 40). The deduction is subtracted from AGI under §63(b)(6), not taken above the line. It does not apply to self-employment income, S-corp distributions, or guaranteed payments to partners. An income phase-out applies. For 2025, the IRS issued Notice 2025-62 providing penalty relief for employers who did not separately report qualified overtime on Form W-2 - full compliance required starting with 2026 W-2s.
OBBBA creates a new deduction for interest paid on a loan secured by a new passenger vehicle assembled in the United States. The vehicle must be purchased new (not used). An annual cap of $10,000 per taxpayer applies. An income phase-out applies. The deduction is subtracted from AGI under §63(b)(7), not taken above the line. This is a temporary provision designed to incentivize domestic auto manufacturing. An applicable passenger vehicle must have had its final assembly within the United States (IRC §163(h)(4)(D)), and the taxpayer must report the vehicle identification number on the return.
OBBBA creates a new savings account (IRC §530A) for children who have not reached age 18 by the end of the calendar year. A US citizen child born from 2025 through 2028 may receive a one-time $1,000 federal pilot program contribution (IRC §6434, by election). Annual contributions up to $5,000 (indexed after 2027) are allowed and are not deductible. Funds must be invested in index funds of primarily US equities. No distributions are allowed before the calendar year in which the beneficiary turns 18; after that the account is generally treated under the IRA distribution rules. The account structure is administered through the Treasury and is separate from 529 plans and Coverdell accounts.