Breaking Down the OBBBA: FAQs from our 7/30 Webinar

Our July 30, 2025 tax webinar on the One Big Beautiful Bill Act (OBBBA) sparked an engaging Q&A session. It’s clear there’s strong interest and a real need for ongoing guidance on the OBBBA. That’s why we’ve put together this FAQ, based on questions from our webinar.

A. New “No Tax on Overtime” Deduction

Question 1. Does “No Tax on Overtime” mean overtime pay is now tax-free?

Answer 1. Not quite. When you earn overtime, the extra pay — the “overtime premium” — can be deducted from your taxable income when filing your tax return under the new law, which may reduce your income taxes. During the year, taxes are still withheld from your paycheck as usual, and payroll taxes like Social Security and Medicare still apply to all your overtime earnings.

Q-2. My union contract grants overtime after eight hours worked a day. Does this overtime qualify as tax-free under the new law?

A-2. The new law applies the overtime deduction to work covered under Section 7 of the Federal Labor Standards Act (FLSA), which follows the federal 40-hour workweek standard. Daily overtime rules from unions or state law may not qualify. The IRS will issue guidance to clarify which overtime qualifies. It will also address other questions to assist employees and employers in navigating this new deduction.

Q-3. Will employers have to change Form W-2s to show overtime separately?

A-3. Yes. The IRS requires employers to report qualified overtime separately on each employee’s Form W-2, making it clear how much the employee will be eligible to deduct. A new box or code will likely be added to the form specifically for this overtime amount. 

The IRS announced on August 7, 2025 that it won’t adjust 2025 tax forms for the new overtime or tips deductions. It will instead wait until the 2026 year to adjust its payroll forms. It instructed employees and employers to use any “reasonable method” to determine overtime compensation earned in 2025 for this new deduction. The IRS may issue further guidance on these provisions, but it will not impact 2025 tax forms. The timing of these changes is still uncertain.

Q-4. Is the “No Tax on Overtime” benefit reflected in each paycheck, or only when filing taxes?

A-4. The tax benefit is not applied to each paycheck. Instead, employees claim the overtime deduction when filing their individual income tax return. Employers may show overtime on pay stubs, but the income tax savings is recognized on the employee’s tax return when taking the overtime deduction (assuming they qualify).

Q-5. What guidance can you provide on “No Tax on Overtime” that we can then convey to our hourly workers?

A-5. The IRS is developing a detailed guidance on this new deduction to help employees and employers. It has already provided some general information but that’s all so far. More information can be found here.

Q-6. If overtime is paid at rates above what the law requires, will that additional overtime still qualify?

A-6. Our understanding is that overtime must be paid at least at time-and-a-half to qualify. If you’re paying above that rate, it may still qualify. But the IRS needs to provide more clarity. Employers and employees will need to follow whatever rules the IRS sets in its upcoming guidance.

Q-7. Will overtime still be subject to Social Security and Medicare taxes?

A-7. Yes. Both regular pay and overtime pay are subject to Social Security and Medicaire taxes and reported on the employee’s Form W-2. While the income tax deduction is then claimed on the worker’s individual income tax return, it does not reduce Social Security or Medicare taxes.

Q-8. Should overtime follow FSLA standards? Is it correct that overtime does not count after eight hours, but rather what is designated under the FSLA standard? 

A-8. Correct. The new law indicates that overtime is based on Section 7 of the Fair Labor Standards Act (FSLA), which is administered and governed by the Department of Labor (DOL). The IRS is developing guidance for this new overtime deduction, and that guidance will determine what qualifies. It may differ from how the Department of Labor defines overtime.

Q-9. Should the company then continue its usual payroll process, and the employee will address any excess tax paid on overtime when filing their taxes?

A-9. Yes, that’s correct. 

Q-10. Is “No Tax on Overtime” retroactive to January 1, 2025?

A-10. Yes. The new overtime deduction applies to overtime earned in 2025 through 2028. Employers must track and report all overtime employees earned starting January 1, 2025, and it should appear on their Form W-2 for the tax year. Employers can use any “reasonable method” to calculate overtime earned for payroll reporting, especially for overtime earned in 2025 prior to the enactment of OBBBA on July 4, 2025. 

Q-11. Does the new overtime deduction apply only to overtime defined under the FLSA, or does it also include overtime treated differently under a collective bargaining agreement (CBA)?

A-11. It’s currently uncertain if overtime paid under a CBA will qualify for this new deduction. While such overtime may align with the definition under Section 7 of the FSLA, we do not yet know how the IRS will interpret this. The IRS is developing guidance to determine eligibility, which may differ from how the Department of Labor defines overtime.

Q-12. If a unionized company pays overtime according to its CBA – for example, providing overtime for hours worked over eight per day rather than over 40 per week – will it need to manually recalculate overtime for each employee, weekly? Or, will the IRS recognize overtime calculations based on established CBAs?

A-12. It’s currently uncertain if overtime paid under a CBA will qualify for this new deduction. While such overtime may align with the definition under Section 7 of the FLSA, the IRS has not yet issued definitive guidance. The forthcoming IRS guidance will determine eligibility and may differ from the Department of Labor’s classification of overtime. The final IRS guidance may differ on what you consider overtime, due to how you calculate it. 

B. New “No Tax on Tips” Deduction

Q-13. Is the new tip deduction limited only to tips paid by credit card?

A-13. No. The enacted law specifies that the new tip deduction applies to both cash tips and tips paid by credit card. It also includes tips earned through tip-sharing arrangements among employees.  

Q-14. How will the tip deduction law apply to a self-employed individual working in a business such as esthetics or a salon?

A-14. The new law applies to self-employed individuals, not just employees. IRS guidance will be needed to address more specific details regarding sector or business type. However, the law indicates that the deduction cannot exceed the income from the self-employed individual’s business, meaning it cannot generate a loss for a self-employed individual. Again, watch for IRS guidance on the new tip deduction and information for employers, employees and self-employed individuals. 

Q-15. Will tips be reported on Form W-2?

A-15. Yes. Employers need to determine and report qualified tip income on each employee’s Form W-2 to ensure clarity on the eligible amount for deduction. The IRS is developing guidance for the new tip deduction. It’s expected that a new box or code will be added to Form W-2 to reflect this qualified tip amount. Additionally, a married couple must file a joint tax return to claim this deduction. This deduction is unavailable under married-filing-separately status.  

The IRS announced on August 7, 2025 that it won’t adjust its 2025 tax forms for the new tip deduction. It will instead wait until the 2026 year to adjust its payroll forms. It instructed employees and employers to use any “reasonable method” to determine tip income earned in 2025 for this new deduction. The IRS may issue further guidance on these provisions, but it will not impact 2025 tax forms.

C. New Senior Deduction

Q-16. What is the new Senior Deduction? Is there a “marriage penalty?”

A-16. Taxpayers age 65 or older can claim a $6,000 deduction per person — $12,000 for a married couple filing jointly. To claim the full $12,000, the couple must file a joint return. There is no marriage penalty under this provision. The deduction phases out for higher-income taxpayers: over $150,000 for joint filers and over $75,000 for others.

Q-17. What is the income phase-out schedule for the $6,000 Senior Deduction, and is it based on MAGI (Modified Adjusted Gross Income)?

A-17. For joint filers, the deduction begins to phase out at MAGI over $150,000 and is fully phased out at $350,000. For single filers, it phases out between $75,000 and $175,000. The phase-out rate is 6%.

D. New Interest Deduction for U.S.-Made Automobiles

Q-18. What is the auto loan interest deduction?

A-18. Starting January 1, 2025, taxpayers can deduct up to $10,000 per year in interest paid on loans used to finance the purchase of a new, U.S.-assembled vehicle. The vehicle must be for personal (non-commercial) use, weigh less than 14,000 pounds, and meet income eligibility requirements.

Q-19. What are the requirements for claiming the new vehicle loan interest deduction? Does the car need to be purchased after a certain date?

A-19. Yes. To qualify for the deduction, the vehicle must be purchased between 2025 and 2029, and it must be final assembled in the U.S. The loan must be a first-lien loan that originated after December 31, 2024. Interest paid on loans for vehicles acquired before 2025 does not qualify. More information can be found here.

E. Changes Made to Deduction for R&D Expenditures

Q-20. If a taxpayer is on extension for their 2024 returns, can they apply the new R&D rules without amending prior returns?

A-20. It depends. Small Businesses – those with average gross receipts of $31 million or less for tax years 2022 to 2024 – can elect to amend their 2022, 2023 and 2024 tax returns to expense R&D costs retroactively. If they don’t amend, or if they’re a large business (over $31 million in gross receipts), they can still catch up by deducting all unamortized research costs from 2022 to 2024. They can do so either entirely in 2025 or by spreading the deduction over 2025 and 2026.

The IRS is expected to issue guidance soon on how to apply these transition rules, including procedures for amended returns and claiming this deduction in 2025 and 2026.

Q-21. If a taxpayer on extension for 2024 wants to expense R&D in 2024 without amending 2022 and 2023 tax returns, but plans to accelerate those earlier years’ deductions in 2025, is that permitted?

A-21. No, not under current expectations. A small business can elect to amend its 2022, 2023 and 2024 returns to expense R&D costs. But the election must apply to all three years.

The IRS is expected to issue guidance clarifying how to apply these rules. This guidance will likely cover the amendment procedures, catch-up deductions for 2025 to 2026, and any Form 3115 (Change of Accounting Method) requirements.

Q-22. Will the IRS release amended instructions for expensing R&D in 2024 before the September 15, 2025 deadline?

A-22. The IRS is expected to issue guidance soon on how to apply these new R&D transition rules, but it’s unclear if this will happen before September 15. The AICPA and other organizations have requested that the IRS issue instructions promptly to support taxpayers and preparers handling 2024 filings.

When issued, the guidance will likely include procedures for amending returns, claiming this deduction in 2025 or over 2025 to 2026, and any Form 3115 requirements.

F. SALT (State and Local Taxes) Deduction

Q-23. Is the passthrough (PTE) deduction ending in 2025?

A-23. No. The PTE deduction for state tax and local (SALT) workarounds remains available in 2025. Although Congress considered limiting or phasing out this workaround in 2026 during OBBBA deliberations, those proposals were not part of the final law.

G. Charitable Contributions

Q-24. Is the following interpretation of the updated law on charitable deductions floors correct? Starting in the 2026 tax year, itemizers can only claim a deduction on donations over 0.5% of their adjusted gross income (AGI). For example, a married-filing-jointly couple with an AGI of $300,000 can only deduct from donations over $1,500. Additionally, C corporations can only deduct from donations over 1% of their AGI.

A-24. Yes, this is correct. Additionally, starting in 2026, there is a deduction for taxpayers that do not itemize: a married-filing-jointly couple could deduct $2,000 of their contributions, and single tax filers can deduct $1,000.

Q-25. Do colleges looking to expand qualify under the new SGO provision?

A-25. No. The new Scholarship Grant Organization (SGO) provision supports scholarships for low-income individuals in K–12 education only. It does not apply to college tuition or expansion efforts.

H. Return of 100% Bonus Depreciation

Q-26. What is bonus depreciation?

A-26. Bonus depreciation lets businesses accelerate tax deductions for qualifying capital expenditures like machinery, equipment and certain other property (excluding real estate). Introduced about 20 years ago, it’s available to business of all sized and industries.

The 100% rate, enacted by the Tax Cuts and Jobs Act in 2017, began phasing down in 2023 and was set to reach 40% in 2025. However, it has now been permanently restored to 100% for property acquired after January 19, 2025, with no scheduled expiration.

Q-27. If equipment was placed in service after January 19, 2025, but was under contract before that date – with potential changes to quantity or price – what bonus depreciation rate applies? 

A-27.  Equipment placed in service after January 19, under a binding pre-existing contract generally qualifies for 40% bonus depreciation, with the remaining 60% depreciated under MACRS (Modified Accelerated Cost Recovery System). It wouldn’t qualify for the new 100% bonus depreciation. 

Pending IRS guidance may clarify how the binding contract provisions apply, especially in cases involving:

• Contract modifications or separately acquired components 
• Self-constructed assets, including third-party construction
• Partial acquisitions after January 19

Legal interpretation and a careful review of contract terms, applicable law and IRS regulations are essential.

Q-28. Do you have to be an owner-operator to qualify for bonus depreciation on the structure, or can a landlord claim the deduction if the tenant is a manufacturer?

A-28. You’re likely referring to the new provisions for Qualified Production Property (QPP).  For traditional bonus depreciation (now at 100%), landlords can generally claim the deduction. Several grouping elections for self-rental of real estate or other property may apply, but eligibility depends on careful review of regulations, guidance and specific circumstances. Consult a tax advisor.

The new QPP deduction under the OBBBA allows full expensing of a new manufacturing facility when placed in service, but appears limited to the manufacturer. Final IRS guidance is pending.

I. New “Trump Accounts”

Q-29. Is the $5,000 contribution considered a gift or a deductible expense by the employer?

A-29. A $5,000 contribution to a Trump Account — such as one made by parents for their child — is treated as a gift. It falls below the 2025 annual gift tax exclusion of $19,000 per recipient and is not deductible by the parents.

Employers may contribute up to $2,500 to a Trump Account for an employee or the employee’s child. This amount is not taxable to the employee due to a special exemption. However, it’s unclear whether the employer can deduct this contribution. IRS guidance is still pending.

Q-30. Is a $2,500 employer contribution to an employee’s (or their child’s) Trump account tax-deductible for the employer, and is it taxable income to the employee?

A-30. A $2,500 contribution made by family to a Trump Account would not be deductible by the parents. Further, an employer’s $2,500 contribution to a Trump Account for an employee or the employee’s child would not be taxable to the employee, due to a special rule that exempts it from the income. However, it’s unclear whether the employer can deduct this contribution. Further IRS guidance is needed on this and other aspects of the new Trump Account.

Q-31. Since Trump Accounts will be treated like traditional IRAs, does this mean basis must be tracked to help offset income from distributions or Roth conversions?  

A-31. Yes. Trump Accounts are funded with after-tax dollars and contributions are not deductible, so taxpayers must track their basis. Once the beneficiary turns 18, the account is treated like a traditional IRA and may be eligible for full or partial conversion to a Roth IRA. Reviewing forthcoming IRS guidance will be essential since these accounts are new.

Q-32. Are the contributions to a Trump account tax-deductible?

A-32. Contributions to a Trump Account can come from various sources, including friends and family, employers, a tax-exempt organization (subject to specific rules), and the Government Pilot Program, which provides a one-time $1,000 contribution for newborns.  Based on current information – and pending further guidance – most, if not all, of these contributions will not be tax-deductible. Final IRS guidance will clarify this issue.

Q-33. How does a Trump Account differ from a Section 529 Account, including advantages and disadvantages of each?

A-33.  

Section 529 Plan:

Advantages:

• A Section 529 Plan is a tax-free savings vehicle designed to fund college education or other qualifying education costs for a child.
• Recent changes under the OBBBA have expanded the definition of qualifying education costs.
• Earnings within a Section 529 Plan grow tax-free.
• There is no federal limit on contributions to a Section 529 Plan.
• Funds can be withdrawn tax-free if used for qualified education expenses, such as tuition and other eligible college costs.

Disadvantages:

• Contributions to a Section 529 Plan are not tax-deductible.
• Because Section 529 Plans are state-operated, individual states may impose annual contribution limits.
• Contributions exceeding the annual gift tax exemption ($19,000 for 2025) may trigger gift tax consequences and filing requirements.
• If funds are used for non-qualified purposes, the earnings portion of the distribution is subject to income tax.

Trump Account:

Advantages:

• A Trump Account functions more like a universal savings account and is not limited to education-related expenses.
• It has a $5,000 annual contribution limit, which will be indexed for inflation.
• Once the beneficiary reaches age 18, the Trump Account transitions into an IRA-like structure.
• Distributions made after age 18 for qualified purposes will be partially taxed, depending on the nature of the distribution and the breakdown between post-tax contributions and taxable earnings.

Disadvantages:

• Contributions to a Trump Account are not tax-deductible.
• The $5,000 annual contribution cap may limit the amount that can be saved each year.
• Distributions after age 18 are partially taxed, depending on the nature of the withdrawal and the mix of post-tax contributions and earnings.
• The IRS is expected to issue further guidance on the rules and treatment of Trump Accounts, so some aspects remain uncertain.

J. Deduction for Meals

Q-34. Are meals and entertainment expenses still 50% deductible?

A-34. Entertainment expenses are no longer deductible — a change made by the Tax Cuts and Jobs Act (TCJA) effective in 2018, and not altered by the OBBBA.

Meals remain generally 50% deductible, including those tied to client entertainment. The OBBBA did not significantly change meal deductibility rules. However, employer-provided meals — such as subsidized cafeterias or meals offered for the employer’s convenience — are no longer deductible under the OBBBA. Further IRS guidance is expected to clarify these changes.

Q-35.  Does the 50% deduction for meals and entertainment still apply to corporations and LLC/LLPs?

A-35. Entertainment expenses are no longer deductible. However, meals used for business purposes remain 50% deductible under the Tax Cuts and Jobs Act (TCJA), effective since 2018. The OBBBA introduced changes that disallow deductions for meals provided for the employer’s convenience or through an on-site eating facility. Meal expense deductions are subject to nuanced tax treatment and may vary depending on specific circumstances.

K. Misc. Questions

Q-36. Can construction project costs be deducted in one year instead of over 39 years?

A-36. Yes. Under the new QPP provision, businesses can immediately expense the cost of constructing a new facility used for manufacturing, refining, agricultural production or chemical production.

Previously, commercial buildings were depreciated over 39 years using straight-line depreciation. With QPP, immediate expensing is available for qualifying property if:

• Construction begins between January 20, 2025, and December 31, 2028
• The property is placed in service between July 5, 2025, and December 31, 2030

Only the portion of the facility used for qualified production activities is eligible. Areas used for office space, sales, research, and other non-production functions must still be depreciated over a longer period.

IRS guidance on QPP is expected soon.

Q-37. If ABC Company builds a new facility, can it be fully written off in one year if started now and had a certificate of occupancy by December 31, 2025? Is this new provision permanent? If not, what tax year does this sunset? Is there a cap on the expense that can be written off in one year?

A-37. Under the new QPP rules, if ABC Company’s new building is used for manufacturing, and construction starts now (after July 4, 2025) with a certificate of occupancy by December 31, 2025, it could be fully expensed in the 2025 calendar year. Portions of the building used for office or sales space (non-manufacturing areas) would be depreciated under existing rules based on the asset’s useful life. The QPP provision applies to projects started by January 1, 2029, and placed in service by January 1, 2031.

Q-38. Are there income limits for individual taxpayers related to the Energy Tax Credits that are expiring? 

A-38. It depends on the specific energy tax credit. Many credits do not have an income limitations, but some do. Below is a summary of commonly claimed energy tax credits by individual taxpayers that are set to expire under the OBBBA:

1. Energy Efficient Home Improvement Credit (IRC 25C)
   • Credit amount: 30% of qualified home improvements (e.g., doors, windows, insulation, heat pumps, energy audits)
   • Income Limits: None
   • Expiration Date: December 31, 2025
2. Residential Clean Energy Credit (IRC 25D)
   • Credit amount: 30% credit for solar, wind, geothermal and battery storage installations
   • Income Limits: None
   • Caps: No annual or lifetime cap
   • Expiration Date: December 31, 2025
3. Clean Vehicle Credits (IRC 30D for New; 25E for Used)
   • Credit Amount: Up to $7,500 (or $3,750 if only one sourcing requirement is met)
   • Income Limits:
     • $150,000 (Single)
     • $300,000 (Married Filing Jointly)
     • $225,000 (Head of Household)
   • MSRP Caps: Apply based on vehicle type
   • Expiration Date: September 30, 2025
   • Used Clean Vehicles (IRC 25E)
   • Credit Amount: Up to $4,000 or 30% of the purchase price
   • Income Limits:
     • $75,000 (Single)
     • $150,000 (Married Filing Jointly)
     • $112,500 (Head of Household)
   • MSRP Cap: $25,000
   • Expiration Date: September 30, 2025

Q-39. Does the Opportunity Zone (OZ) enhancement window span from January 1, 2027 to January 1, 2037?

A-39. The new OZs reset every ten years beginning January 1, 2027. The existing OZ rules will remain in effect until December 31, 2026. Then, the new OBBBA rules will apply. Additional guidance is expected from the IRS regarding both the new OZ provisions and as the existing rules. 

Q-40. If a gift exceeds the annual gift tax exclusion limit (e.g., $19,000), but the total lifetime gift amount given to an individual doesn’t exceed the lifetime exemption, is there no penalty? Why does it need to be reported annually? 

A-40. Gifts that exceed the annual gift tax exclusion – $19,000 for 2025, indexed for inflation – apply against the donor’s lifetime gift/ estate tax exemption. Any excess reduces the available lifetime gift/ estate exemption, which will rise to $15,000,000 in 2026.

Such gifts must be reported annually on Form 709, the gift tax return. The gift tax filing tracks the cumulative amount gifts exceed the exclusion over time. The total excess ultimately reduces the donor’s remaining gift/ estate tax exemption.

Find all of our OBBBA coverage here.

About our Authors

Tom Bayer, CPA, CExP, has specialized expertise in the areas of business succession planning, tax planning and compliance, and business advisory. He has deep experience providing a range of accounting, tax, and business advisory services to commercial clients across industries.

Jim Brandenburg, CPA, MST, possesses extensive experience and knowledge in corporate and partnership tax law, mergers and acquisitions, and tax legislation. His expertise includes working with owners of closely held businesses to identify tax planning opportunities and assist them in implementing these strategies.