Under the One Big Beautiful Bill Act (OBBBA) of 2025, several tax changes were enacted that could affect take-home pay for millions of hardworking Americans. With a better understanding of these tax changes and what they could mean for your own income in 2026 and beyond, you can plan and budget accordingly.
1. Tax Deductions for Tipped Income
One of the most notable changes under OBBBA is a new deduction allowance for tipped wages. More specifically, for tax years 2025 through 2028, workers can deduct up to $25,000 in qualified tips from their taxable income. It is important to note, however, that this deduction is only permitted to those who work in occupations where tipped wages are considered customary; the IRS published a list of these occupations in September 2025, with categories including:
- Beverage and food service occupations
- Home services occupations
- Entertainment and event occupations
- Transportation and delivery occupations
In addition to falling into a qualified occupation, eligibility for the deduction requires that tipped wages meet the following criteria:
- Paid in cash or an “equivalent medium” (check, credit card, debit card, etc.)
- Received from customers or through a tip pool
- Paid voluntarily (not an automatic service charge, for example)
If you work in a tipped occupation that meets these criteria, you could significantly boost your take-home pay simply by taking advantage of this tax deduction.
2. Tax Deductions for Overtime Income
If you work in a role where you receive overtime income, you might also be eligible for special tax deductions for the 2025 through 2028 tax years under OBBBA. More specifically, overtime workers may be able to deduct up to $12,500 (for single filers) or $25,000 (for married couples filing jointly), provided that they meet certain requirements for adjusted gross income (AGI). More specifically, deduction amounts are gradually phased out for individuals with a modified adjusted gross income (MAGI) of more than $150,000 and $300,000 for joint filers. The deduction completely phases out for individuals earning $275,000 (and joint filers earning $500,000).
Other eligibility requirements are also in place for claiming the overtime deduction. For example, taxpayers claiming the deduction must:
- Work more than 40 hours per week
- Be nonexempt employees earning overtime wages under the Fair Labor Standards Act (FLSA)
It's also worth noting that workers claiming this deduction are only permitted to deduct the amount of compensation that exceeds their regular pay rate. In other words, you'll need to subtract your regular hourly rate from your overtime rate to determine how much you can deduct.
3. Increased Deduction for State and Local Tax (SALT)
Finally, under OBBBA, some workers may be eligible for an increased deduction on State and Local Tax (SALT). Previously, under the Tax Cuts and Jobs Act of 2017, this deduction was capped at $10,000. In 2025, this cap was increased to $40,000 for some taxpayers—with an additional increase of 1% per year beginning in 2026 and continuing through 2029.
Many working Americans will be eligible for this tax break, although it is worth noting that the deduction begins to phase out for taxpayers whose MAGI exceeds $500,000.
Meanwhile, while the SALT deduction is available to taxpayers who itemize and taxpayers who take the standard deduction, the amount of tax savings you can expect will vary greatly depending on your income, your deductions and other factors. Generally, this tax policy change will most benefit middle-class taxpayers, as high-income earners may have their deductions reduced to the previous limit of $10,000.
What Else Could Affect Your Taxes in 2026 and Beyond?
If any of these tax changes could impact you, now could be a good time to review your W-4 form with your employer. By claiming these deductions on your updated W-4, you could start bringing home bigger paychecks. On the other hand, if you fail to update your W-4 form, you'll still be eligible for these deductions when it comes time to file your taxes. In the meantime, however, you'll be missing out on that additional income and essentially giving the federal government an interest-free loan until you file.
Stay Informed and Optimize Your Earnings
While only time will tell whether these deductions will extend beyond the next few years, eligible taxpayers should take advantage of them while they last by updating their W-4 forms and claiming deductions when it comes time to file their returns.
If you have any additional questions about how these changes could affect your earnings and taxes in the coming years, be sure to consult with a tax professional sooner rather than later. And if you need to update your W-4 with your employer, don't forget to reach out to your human resources department.
If you have any questions or would like additional information, please contact our tax services team.