New deductions for seniors, tipped workers and overtime, plus a tax hit on gamblers, have generated confusion, misinformation and outrage.
Misinformation about the One Big Beautiful Bill Act (OBBBA) was rampant even before President Donald Trump signed it into law on Thursday, July 4, 2025. Taxpayers and TikTokers posted articles mistakenly touting provisions that didnât make the final cut. (One dropped provision, for example, allowed Medicare Part A beneficiaries to contribute to Health Savings Accounts.) Worse, misinformation was spread by the government itselfâTrump falsely claimed the law âeliminatesâ taxes on Social Security benefits, and a misleading mass email from the Social Security Administration added to the confusion.
The problem is that OBBBA is an 800+ page bill with dozens of complicated tax and other provisionsâsome permanent and some temporary; some delayed and some retroactive; some familiar and some entirely new. There are phase outs, limits and gotchas that simply canât be explained in sound bites. Many of these complications are meant to either limit the cost of tax breaks or to prevent anticipated abuses. Warning: There are some answers that even tax lawyers like me canât be sure of, until the Treasury and IRS issue regulations.
Take the provision that supposedly fulfills Trumpâs âno tax on tipsâ campaign promise. Itâs retroactive to the start of the year, but only lasts through 2028. It protects up to $25,000 in tips from income tax (but not Social Security or Medicare taxes), if, that is, you work in a job that is traditionally tipped and donât earn too much. (Which jobs are covered? That awaits word from the IRS, though presumably servers, casino dealers and delivery drivers will qualify.)
The Joint Committee on Taxation (JCT) estimates that the tax cuts in OBBBA will reduce federal revenues by $4.475 trillion between 2025 and 2034. Some taxpayers assume that means that the cuts will offers lots of benefits to families across the board. Not exactly.
A Tax Policy Center analysis suggests the law distributes most of its benefits to high income households, with households making between $460,000 and $1.1 million getting a 4.4% boost to their after -tax incomes, compared with a 2.3% after-tax gain for middle-income households making between $67,000 and $119,000. Households earning less than $35,000 will get less than a 1% after-tax boost and will end up worse off, after taking into account the lawâs cuts to Medicaid, SNAP (food stamps), and Affordable Care Act health insurance subsidies.
One thing is true across the board: The new law contains enough changes and complexity to make planning and compliance in the short run more difficult for both individuals and businessesâand to make a lot of extra work for the IRS.
In addition to issuing guidance, the tax agency will have to revise form W-2 (to allow workers to claim a new break for overtime which lasts from 2025 through 2028) and create new withholding tables (to adjust for the tax breaks for tips and overtime). These administrative changes will coincide with preparations for the run-up to the next tax season, including reworking existing IRS software and tax forms. (Drafts of tax forms for the 2025 tax year, including Form 1040, are already available on the IRS website and will have to be revised.)
And all of that work? It will have to be done by an IRS workforce that has already been reduced by 25% (for more on reductions at the IRS, including a detailed breakdown of employee losses, click here). And it will all be overseen by a new IRS Commissioner who has little to no tax experience.
To help cut through the fogâand separate text from guesses (and occasionally, some truly terrible AI takes), our Forbes team has been combing through the new law to provide you with information you need (or want) to know about the individual tax cuts. The questions below are some of the top ones Iâve gotten on social media, via email, and in a Reddit Ask Me Anything session.
The $6,000 Senior Deduction
Q: The SSA email promises that 90% of social security recipients will pay no federal taxes on their Social Security income. Any truth to that?
A: Thatâs complicated. The email was misleading in that there is no separate provision in the new law that specifically relates to taxes on Social Security. Instead, under OBBBA, seniors aged 65 and older are eligible to claim a new, temporary deduction of $6,000 beginning in 2025âthe deduction would expire after 2028. The deduction would be available to taxpayers who itemize and those who claim the standard deduction. This is a stand-in for Trumpâs âno tax on Social Securityâ promise.
The new deduction is per qualifying senior, not per tax return, so a married couple could get an extra $12,000 deduction. Itâs also age-dependent, not benefits-dependent, so itâs possible that you could receive Social Security benefits (if you took them at, say, age 62) and not qualify for the deduction. The opposite is also trueâif you chose to delay your benefits until, say, age 67, and you are now 65, you would qualify for the deduction. Once you reach retirement age, whether your Social Security benefits are taxable depends on your filing status and how much other income you receive. If your only source of income is your Social Security check, your benefits are generally not taxable. You may not even need to file a return. That will NOT change with the new deduction.
If you received income from other sources, you may be paying tax on your benefits now. The quick formula: Add your adjusted gross income (AGI) + nontaxable interest + Âœ of your Social Security benefits. Your benefits wonât be taxed if that amount isnât more than the base amount: $32,000 for married taxpayers filing jointly; $25,000 for taxpayers filing as single, head of household (HOH), qualifying widow/widower with a dependent child, or married filing separately who did not live with their spouses at any time during the year; and $0 for married persons filing separately who lived together during the year.
If you owe tax on your Social Security benefits, typically up to 50% of your benefits will be taxable. No one pays federal income tax on more than 85% of their Social Security benefits.
Thatâs a long way of saying that most people already donât pay tax on their benefits. According to the White House, 64% of Social Security beneficiaries do not pay on their benefits currentlyâthatâs expected to increase to 88% under the new law.
Note that the new $6,000 deduction itself phases out for seniors with higher incomes. Up until $150,000 for joint filers ($75,000 for all other taxpayers), you would qualify for the full deduction. Then the deduction begins to shrink at a rate of 6% over those amountsâin other words, for every $100 extra you earn, you lose $6 of the deduction. That means the deduction completely disappears once income reaches $350,000 for joint filers or $175,000 for all other taxpayers.
The SALT Deduction
Q: Has the SALT cap been raised to $40,000 for single filers or just $40,000 for married filers?
A: Under OBBBA, if you itemize your deductions, you can deduct state and local income taxes or sales taxes, plus state and local property taxes up to a total (for both categories) of $40,000, often referred to as the SALT cap. Thatâs per return, not per taxpayer, so itâs the same amount for married taxpayers filing jointly and single filers (you donât get a bigger deduction if youâre married). However, if you file as married filing separately, the deduction is cut in half, to $20,000 on each return.
If that sounds a bit like a marriage penalty, it is (two single taxpayers living together will get a bigger tax break than one married couple filing a joint return). Thereâs another marriage penalty too. The benefit of the $40,000 deduction begins to phase out at the same $500,000 in income for a married couple filing jointly and a single. You can read more about some of OBBBAâs odd marriage incentives and disincentives here.
The Gambling Hit
Q: If I file a Schedule C for gambling, does the 90% for losses thing actually impact me, or is that only if I itemize?
A: This provision is getting a lot of attention. It limits the amount of losses gamblers can deduct from their taxes from 100% of winnings to 90% of winnings. In simple terms, this means that if you lose $100,000 at the craps tables but win back $100,000 in poker, you would have to report $100,000 in income but would only be able to deduct $90,000 (90% of $100,000) in losses. (Remember that you can normally only claim gambling losses up to your gambling winnings.)
The changes werenât included in the House bill, but they did make it into the Senate bill and later became law.
We havenât seen the guidance on this, but as written, the limitation would apply to both casual gamblers and professional gamblers. The latter claim their losses on Schedule C. The result is that you could now end up with taxable income from gambling even if you actually lost money overall.
That has, as you can imagine, made a lot of people very unhappy. Thereâs already a bill introduced in Congress to repeal the 90% loss limitationâRep. Troy Nehls (R-Texas) voted yes on OBBBA but is already on board for the FAIR BET Act, introduced by Rep. Dina Titus (D-NV) to repeal the gambling provision.
The Charitable Change
Q: Can you pick a particular change that is under the radar that you think deserves more attention? Something that you think will be a big deal that people arenât focused on right now?
Great question! I would say the charitable deduction. By the numbers (as opposed to the dollars), most people who donate to charity don’t itemize, which means they donât receive a tax benefit for their generosity. But, under OBBBA, the charitable donation deduction has been expanded to include a permanent deduction for taxpayers who do not itemize their deductions. Beginning in 2026, taxpayers who do not itemize can claim a deduction of up to $1,000 ($2,000 for married taxpayers filing jointly).
This is for cash donations only (not for contributions of goods) and you canât claim this new deduction for contributions to donor-advised funds.
âNo Tax On Overtime And Tipsâ
Q: What else do I need to know about âno tax on overtime and tipsâ? Iâm sure itâs not as clear cut as it seems.
A: Oh my gosh, yes! There are so many nuances here.
Tips first. Tip income is temporarily deductibleâonly for tax years 2025 through 2028âfor individuals in traditionally and customarily tipped industries (Treasury is supposed to provide a list of these).
The deduction is available regardless of whether you itemize and is limited to $25,000 of reported tips.
It’s important to note that this is a federal income tax deduction, not an exclusion, which means that payroll taxes (Social Security and Medicare) still apply. It also means that tips are reportableâand taxableâat the state and local level.
If you think you can just put a tip line on your invoice to avoid paying taxes on compensation, think again. Tips must be paid voluntarily (service charges don’t count towards the deduction). Plus, sole proprietors and passthrough companies who would otherwise qualify for the Section 199A deduction are excluded. That includes businesses which provide professional services like doctors, lawyers, consultants, athletes and brokersâtypically, any business whose success depends on the reputation or skill of its employees.
And donât let those social media threads on âcash only tipsâ throw youâthe deduction applies to cash or cash-equivalent tips (including those tips on credit cards).
Now, overtime. Workers who receive overtime will be eligible for a deduction for qualified overtime pay of $12,500 ($25,000 for married taxpayers filing jointly). As with tips, this is a deduction, not an exclusion. The deduction would apply to taxpayers regardless of whether they itemize and would also be temporary, only for tax years 2025 through 2028.
For purposes of the rule, overtime compensation is defined as the amount paid in excess of the employeeâs regular rateâonly the overtime compensation is part of the break. Thatâs the âhalfâ portion of âtime and a halfâ thatâs eligible for the deduction, not the entire amount. The employee would still be taxed at normal rates on their regular rate of pay.
The overtime deduction phases out for taxpayers with income over $150,000 ($300,000 for married taxpayers filing jointly)âthat means the maximum deduction would disappear at $275,000 for single filers.
You can read more questions and answers on overtime and tips, including details on the phase-out of the tips deduction, here.
Phaseouts
Q: Can you explain phaseouts? For example, with respect to the overtime deduction, you mention $150,000 and $275,000 for single filers. Whatâs the picture look like when part of, say, $250,000 is overtime?
A: A phaseout means that the benefit decreases as your income increases. For a single person, the maximum overtime deduction is $12,500âyou can claim the maximum benefit so long as your income is under $150,000. When your income goes over that amount, the amount of the deduction scales accordingly. The law is written so that the benefit of the deduction is reduced by $100 for each $1,000 by which a single personâs modified adjusted gross income (MAGI) exceeds $150,000. So, if your income was $250,000, thatâs $100,000 over the thresholdâwhich means that the deduction is reduced by $10,000 ($100 x 100), leaving you with a maximum overtime deduction of $2,500. The deduction disappears completely once your income hits $275,000.
An Overtime Break For The Self-Employed?
Q: If Iâm self-employed through my S-Corp, is there anything preventing me from just lowering my hourly wage, and giving myself a bunch of overtime to save on taxes and end up with the same weekly pay?
A: Gosh, wouldnât that be great? Unfortunately, there is something preventing you from doing that. While itâs unclear what kinds of brakes the IRS will be able to put on recharacterizing salaried work as hourly and including overtime, we expect Regulations (IRS guidance) to address this. In fact, that bit is in the new law, which says, âThe Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or other guidance to prevent abuse of the deduction allowed by this section.â
The phaseouts may also play a role in reducing abuse. The deduction begins to phase out for taxpayers with income over $150,000 ($300,000 for married taxpayers filing jointly)âthat means the maximum deduction would disappear at $275,000 for single filers.
Final Thoughts
If youâre picking up on a theme, itâs that many of these provisions require guidance from the IRS, while others require patience (new forms, remember?).
So I donât recommend that taxpayers cancel or reduce any withholding just yet. The numbers are fact- and circumstance-dependent and will vary for each taxpayer, depending on age (you must be 65 or older to claim the senior deduction) and the type and amount of income (there is a phaseout for many provisions). For many taxpayers, itâs likely better to file early in 2026 and receive a refund rather than trying to make changes in withholding at the end of this year.
One more thing: Itâs worth noting that these questions are geared towards individual taxpayers. Weâll be doing another question and answer piece for business owners soonâwatch for it.
You can read a summary of the new law, including what it could mean for your business here.
Weâve answered additional reader questions here and on social media (we recently hosted an AMA on Reddit). If you donât see your own question addressed, I will be continuing to answer questions. Here’s how to ask yours.
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