A major U.S. tax overhaul, officially titled the “One Big Beautiful Bill” (OB3), is set to change the way millions of Americans manage their finances. Signed into law earlier this year, the nearly 900-page legislation introduces adjustments to Social Security taxation, overtime pay deductions, vehicle loan interest write-offs, and 529 education savings accounts.
Legal experts Ashlee Hall and Mary Lundstedt highlight the key provisions taxpayers need to understand — and the pitfalls to avoid.
Social Security Taxes – Benefits Not Fully Tax-Free
Despite political promises and misleading online claims, OB3 does not eliminate federal taxes on Social Security benefits. The standard taxation rules remain in place.
What’s new is a temporary “bonus” deduction for Americans aged 65 and older, available through 2028. This deduction is not exclusive to Social Security recipients — any qualifying taxpayer in that age group can use it.
Tax professionals warn that misinterpreting this change could be costly. For example, assuming benefits are now tax-free might encourage a retiree to convert pre-tax retirement funds into a Roth account, potentially increasing taxable income and raising their marginal tax rate beyond 40%.
Overtime Pay Deductions – Only the Extra Counts
For the first time, certain overtime wages are deductible from taxable income — but only the premium portion qualifies.
Example: If your base pay is $20/hour and your overtime rate is $30/hour, only the $10 difference can be deducted.
- Deduction cap: $12,500 for single filers, $25,000 for joint filers
- Effective date: Retroactive to January 1, 2025
- Pro tip: Keep detailed pay records this year, as payroll systems may not yet reflect the change.
Car Loan Interest Deduction – New Personal Use Rules
OB3 introduces a new deduction for interest paid on personal-use car loans, with several conditions:
- Vehicle must be assembled in the U.S.
- Applies to new passenger cars, vans, SUVs, pickup trucks, and motorcycles under 14,000 lbs
- Deduction limit: $10,000/year
- Phases out for incomes over $100,000 (single) or $200,000 (joint)
- Available from 2025 to 2028, unless extended by Congress
529 Education Plans – More Ways to Use Your Savings
Starting in 2026, the annual cap for K–12 tuition withdrawals from 529 plans will double from $10,000 to $20,000 per student.
Expanded eligible expenses will include:
- Licensed tutoring
- Standardized test fees (ACT, SAT, AP)
- Dual-enrollment college courses
- Therapies for students with disabilities
- Tuition for vocational and technical programs (HVAC, coding, nursing)
- Certification exams (CPA, bar, nursing boards)
- Continuing education to maintain professional credentials
This update broadens access beyond traditional college pathways, benefiting students pursuing trade schools and technical careers.
Bottom Line – Opportunity with Caution
The One Big Beautiful Bill offers valuable new tax benefits, but misinterpreting its details — especially concerning Social Security — could lead to costly errors.
Before making major financial moves such as Roth conversions, large purchases, or education withdrawals, tax attorneys strongly advise consulting a qualified tax professional to ensure you’re eligible and to avoid unintended tax consequences.
