Introduction
In May 2025, Congress introduced the Tax Cuts and Jobs Act (TCJA) Update, officially dubbed the One Big Beautiful Act, marking one of the most significant tax overhauls in recent years. These changes affect workers, retirees, and consumers in multiple ways — from how tips are taxed to deductions for seniors and auto loans.
As your trusted CPA in Palm Desert, I’m here to break down how the new law compares to the previous rules and the initial House bill proposal, so you know exactly where you stand.
Side-by-Side Comparison: Old Law, Initial House Bill, and Final 2025 TCJA
| Category | Previous Law | Initial House Bill (May 2025) | Final 2025 TCJA |
|---|---|---|---|
| Taxation of Tips | Fully taxed as regular income. | Exempts qualified tips from federal income tax. | Maintains exemption for qualified tips up to $25,000 from federal taxes. State, local, and payroll taxes still apply. |
| Taxation of Overtime Pay | Fully taxed as regular income. | Fully deductible for qualified overtime (2025–2028). | Deduction up to $12,500 ($25,000 for joint filers) for qualified overtime pay from 2025–2028. |
| Auto Loan Interest | Not deductible. | Deduction up to $10,000 in interest. Phases out at $100,000 MAGI ($200,000 joint). | Same as House bill — $10,000 max deduction, phase-out at $100,000 MAGI ($200,000 joint). |
| Senior Deduction | $2,000 (single) / $1,600 per spouse (65+ or blind). Doubled if both qualify. | Increases to $4,000 for 65+, phased out at $75,000 single / $150,000 joint. | New $6,000 deduction per qualified senior (65+) from 2026–2028. Phase-out remains $75,000 single / $150,000 joint. |
Key Takeaways for Taxpayers
1. Tipped Workers
Under the final law, you can now exclude up to $25,000 in tips from your federal taxable income. However, state, local, and payroll taxes still apply, so you’ll still see withholdings on your paycheck.
2. Overtime Pay Relief
If you earn overtime, you may now deduct a portion of that income — up to $12,500 for single filers or $25,000 for joint filers — from 2025 through 2028. This is a partial win compared to the House bill’s full deduction, but it’s still a substantial tax break.
3. Auto Loan Interest Deduction
Car buyers and owners can now deduct up to $10,000 in auto loan interest, provided your income is under $100,000 ($200,000 for joint filers). This can be especially beneficial for those purchasing higher-value vehicles.
4. Bigger Senior Deduction
For 2026–2028, seniors aged 65 and older can deduct $6,000 each, up from the current $2,000–$1,600 amounts. This change could significantly reduce taxable income for retirees, but income phase-outs still apply.
What Should You Do Now?
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Tipped workers should track tips closely to ensure the $25,000 federal exemption is applied correctly.
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Employees earning overtime should review their payroll deductions starting in 2025 to ensure deductions are applied.
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Car owners should keep detailed records of loan interest payments.
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Seniors should prepare for a larger deduction in 2026–2028, possibly adjusting retirement income strategies.
Additional Change: Income Tax Rates Made Permanent
The 2025 TCJA also extends the income tax rate changes, making the previous TCJA’s temporary rate reductions permanent.
| Bracket | Rates Under TCJA | Rates if TCJA Expires |
|---|---|---|
| 1 | 10.0% | 10.0% |
| 2 | 12.0% | 15.0% |
| 3 | 22.0% | 25.0% |
| 4 | 24.0% | 28.0% |
| 5 | 32.0% | 33.0% |
| 6 | 35.0% | 35.0% |
| 7 | 37.0% | 39.6% |
✅ Extends income tax rate changes: The new law makes the TCJA’s temporary modification to the individual tax rates permanent, locking in lower rates for most brackets compared to pre-TCJA levels.
Need Expert Help Navigating the New Tax Law?
The new tax rules can be confusing, and the right planning can save you thousands. Whether you’re a worker, retiree, or business owner, Find a Good Accountant (FAGA) is here to make sure you maximize your deductions and comply with every new rule.
📞 Call today: 760-423-6226
📍 Visit us: 74333 Highway 111 Suite 103, Palm Desert, CA 92260
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