OB3 Act: Questions and Answers
Many common questions since the law's enactment have clear answers
There is much confusion about some basic issues related to the new One Big Beautiful Bill Act (OB3 Act). Here are the questions or issues I have heard about in the last two weeks and the answers to those questions with appropriate citations.
What is the actual name of the new law?
The Senate Democrats stripped “The One Big Beautiful Bill Act” from the act’s text, so the title is technically “An Act To provide for reconciliation pursuant to title II of H. Con. Res. 14.” However, the same was done to the Tax Cuts and Jobs Act, which everyone still calls the Tax Cuts and Jobs Act.
In Fact Sheet 2025-03, the IRS’s first guidance on the new law uses the One Big Beautiful Bill Act, so expect that name to continue to be used.
Are the new 2025 deductions (tips, overtime, senior, and car loan interest) above-the-line deductions (i.e., reduce adjusted gross income (AGI))?
These deductions do not reduce AGI; they reduce taxable income, similar to existing §199A. They were above-the-line deductions in the House version, but not in the final Senate version. §63(b), as amended by the law, reads as follows:
In the case of an individual who does not elect to itemize his deductions for the taxable year, for purposes of this subtitle, the term “taxable income” means adjusted gross income, minus—
(1) the standard deduction,
(2) the deduction for personal exemptions provided in section 151,
(3) the deduction provided in section 199A,
(4) the deduction provided in section 170(p),
(5) the deduction provided in section 224 [new tips deduction],
(6) the deduction provided in section 225 [new overtime deduction], and
(7) so much of the deduction allowed by section 163(a) as is attributable to the exception under section 163(h)(4)(A) [new car loan interest deduction].
The new senior deduction was added to §151, which is included in §63(b)(2).
§62, which outlines which deductions are above-the-line and reduce AGI, was not amended by the OB3 Act. In addition, all of the new deductions are phased out based on a taxpayer’s modified AGI (AGI plus §911, §933, and §935 amounts); if they were above-the-line adjustments to income, it would create a circular calculation nightmare.
What overtime amount is eligible for the deduction?
Under new §225(c)(1), qualified overtime compensation is
overtime compensation paid to an individual required under section 7 of the Fair Labor Standards Act of 1938 that is in excess of the regular rate (as used in such section) at which such individual is employed.
A plain reading of the statute indicates the amount eligible for the deduction is not all of the overtime pay, but only the amount that exceeds their normal rate (i.e., the “half” in “time and a half.”) The IRS in its initial Fact Sheet on the new law confirmed this interpretation, and stated the following:
Effective for 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay — such as the “half” portion of “time-and-a-half” compensation — that is required by the Fair Labor Standards Act (FLSA) and that is reported on a Form W-2, Form 1099, or other specified statement furnished to the individual.
Was the Form W-2G threshold increased to $2,000?
The §6041(a) general information return threshold was increased from $600 to $2,000 for payments made after December 31, 2025, and the threshold will be inflation-adjusted in future tax years. The statutory provision will read as follows:
All persons engaged in a trade or business and making payment in the course of such trade or business to another person, of rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income (other than payments to which section 6042(a)(1), 6044(a)(1), 6047(e), 6049(a), or 6050N(a) applies, and other than payments with respect to which a statement is required under the authority of section 6042(a)(2), 6044(a)(2), or 6045), of $2,000 or more in any taxable year…
Certain information returns are not tied to §6041; this change will not increase their threshold. For example, Form 1099-C, Cancellation of Debt, reporting will remain $600 per §6050P(b).
Treas. Reg. §1.6041-10 establishes a $1,200 threshold for most reportable gambling winnings; this is higher than the current statutory $600 amount. Since Form W-2G, Certain Gambling Winnings, falls under §6041 reporting, its threshold appears to increase to $2,000; however, Treasury will need to update the relevant regulation.
The statute authorizes the IRS to issue regulations to determine the form, manner, and extent of reporting. While the statutory limit is now $2,000 and will increase going forward, Treasury can set higher (but not lower) reporting thresholds for specific transactions by regulation, like it did for gambling winnings previously.
How can I make the research and experimental expenditure election to apply the new law retroactively?
A taxpayer cannot make this election until the IRS releases a procedure to do so. §70302(f)(1)(A) of the OB3 Act states the following:
An election made under this subparagraph shall be made in such manner as the Secretary may provide and not later than the date that is 1 year after the date of the enactment of this Act [July 4, 2025]. The taxpayer shall file an amended return for each taxable year affected by such election.
For taxpayers who have not filed returns for tax years 2022, 2023, and 2024, the only current options are to (1) wait to file them or (2) file them now and amend them later.
Did the existing additional standard deduction for seniors go away?
The new senior deduction is in addition to the additional standard deduction amounts.
For 2025, the additional standard deduction for single filers and heads of households age 65 and over is $2,000. The additional standard deduction for married couples age 65 and over filing jointly is $1,600 per qualifying spouse.