Trump's One Big Beautiful Bill: Key Tax Deductions for Overtime Pay and Car Loan Interest

Trump's One Big Beautiful Bill, signed into law on July 4, 2025, introduces comprehensive tax reforms designed to boost American savings through targeted deductions. The legislation, effective from 2025 to 2028 according to the Internal Revenue Service (IRS), establishes new tax benefits for overtime pay and car loan interest, alongside other provisions aimed at reducing the tax burden on qualifying taxpayers.

Overtime Pay Tax Deduction

The legislation allows taxpayers to deduct qualified overtime pay that exceeds their regular wage rate. The deduction structure provides different limits based on filing status:

The deduction applies specifically to the portion of overtime wages paid above an employee's normal hourly rate. For example, an employee earning $20.00 per hour regularly but receiving $30.00 per hour for overtime can deduct the $10.00 differential per overtime hour worked.

Eligibility Requirements for Overtime Deduction

Qualifying overtime must meet specific criteria established by federal labor standards:

• Federal Compliance: Overtime must be paid according to Section 7 of the Fair Labor Standards Act of 1938 (FLSA)
• Work Hours: Applies to employees working over 40 hours per week
• Documentation: Can be reported using Form 1099, Form W-2, or other official statements
• Social Security Number: Taxpayers must have a valid SSN
• Income Limits: Deduction phases out for modified adjusted gross income over $150,000 (individual) or $300,000 (joint filers)

Notably, overtime paid under state law or contractual agreements does not qualify unless it satisfies FLSA definitions. Overtime wages remain subject to standard payroll taxes including Medicare and Social Security.

Car Loan Interest Deduction

The legislation introduces a new deduction for interest paid on qualifying vehicle loans for personal use. This benefit targets loans originated after December 31, 2024, with specific parameters:

Car Loan Deduction Eligibility

The car loan interest deduction includes several important restrictions and qualifications:

• Original Use: Vehicle must be originally used by taxpayer for personal purposes
• Loan Security: Debt must be secured by a lien on the vehicle
• Refinancing: Interest on refinanced amounts typically remains eligible
• Lease Exclusion: Lease payments do not qualify for the benefit
• Income Thresholds: Deduction phases out for modified adjusted gross income over $100,000 (individual) or $200,000 (joint filers)

Additional Legislative Provisions

The One Big Beautiful Bill encompasses broader tax policy changes beyond overtime and car loan deductions:

• Senior Citizen Benefit: Additional $6,000 deduction for taxpayers aged 65 years or older
• Tips Tax Elimination: No taxes required on tip income
• SALT Cap Adjustment: State and local tax deduction cap increases
• Energy Credit Changes: Phase-out of credits for solar and wind projects
• Program Modifications: Cuts to Medicaid and Supplemental Nutrition Assistance Program (SNAP)

The comprehensive nature of this legislation reflects a significant shift in federal tax policy, with provisions taking effect on January 1, 2025, including the expiration of the Energy Efficient Home Improvement Credit for properties. The bill's implementation through 2028 provides a defined timeframe for taxpayers to utilize these new deduction opportunities while planning their financial strategies accordingly.