New Tax Law “One Big Beautiful Bill” Brings Changes

A substantial tax law known as “One Big Beautiful Bill” (OB3) is instigating significant shifts within the US tax system. Tax experts are advising individuals to closely review the details of this nearly 900-page legislation, which was recently signed into law. The bill includes various provisions that touch on social security, overtime pay, vehicle loan interest, and education savings accounts.

Tulsa tax attorneys Ashley Hall and Marylandstead discussed the implications of the bill on a news outlet, highlighting the importance of understanding its complexities.

Impact on Social Security Benefits

It’s a misconception that this new law eliminates taxes on social security benefits. According to Lundstedt, the confusion has arisen due to political statements and some misleading communications from the Social Security Agency.

In reality, social security income remains subject to federal taxation under the same established rules. However, OB3 introduces a temporary “bonus” deduction for taxpayers aged 65 and older, available by 2028, though this is not specific to social security.

Misunderstanding this aspect could result in expensive errors. For instance, if retirees believe their benefits are tax-exempt, they might inadvertently convert pre-tax retirement funds into taxable accounts, potentially pushing their taxable income into a higher bracket.

Changes in Overtime Payment Tax

This law permits the deduction of specific overtime wages from taxable income, but not all overtime is eligible. Only the “premium” portion—what you earn above your regular hourly rate—can be deducted. For example, if you earn $20 per hour and receive $30 for overtime, only the $10 difference is applicable.

The deduction is capped at $12,500 per individual annually, or $25,000 for joint filers. This provision is retroactive to January 1, 2025, but guidance from the IRS on reporting is still awaited. Hall stresses that both employees and employers should keep thorough records, as many payroll systems haven’t yet adapted to these changes.

New Deductions for Car Loan Interest

OB3 allows for the deduction of interest paid on certain personal vehicle loans, provided the vehicle was assembled in the U.S. and is for personal rather than business use.

Eligible vehicles include new cars, vans, SUVs, pickups, and motorcycles under 14,000 pounds. The deduction is limited to $10,000 annually, and there’s no cap on the number of loans that can qualify. However, the benefits phase out for individuals with adjusted gross incomes over $100,000 ($200,000 for joint filers), and this provision is effective from 2025 to 2028 unless extended by Congress.

Expansion of 529 Educational Savings Plan

The law significantly broadens the types of expenses covered under the 529 plan. Starting 2026, the limit for annual K-12 tuition withdrawals will increase from $10,000 to $20,000 per student.

Newly eligible expenses encompass:

• Individualized instruction from licensed educators
• Standardized test fees (e.g., ACT, SAT, AP)
• College courses offered in conjunction with high schools
• Support for students with disabilities (occupational, behavioral, etc.)
• Tuition for vocational training programs (like HVAC or nursing)
• Fees for certification exams (e.g., CPA, Nursing)
• Continuing education for professional qualifications

Hall mentioned that these adjustments will benefit not just traditional students but also those pursuing technical careers.

The Bottom Line for Taxpayers

While “One Big Beautiful Bill” introduces numerous taxpayer-friendly changes, experts caution against misunderstandings, particularly regarding Social Security taxes, which could lead to significant financial errors.

Before making any financial decisions under OB3, Hall and Lundstedt advise consulting a qualified tax professional to confirm eligibility and avoid unintended tax implications.