Trump's Tax Proposals For Tips, Overtime, And Social Security Are Skimpy

Proposed tax breaks for tips, overtime pay, seniors, and car loan interest, are stingier than the rhetoric Republican politicians have made about them would imply.

The proposed tax breaks for tips, overtime, Social Security, and car loan interest are skimpier than the political rhetoric from Trump and the GOP would suggest. All would be from 2025 to 2028 only. All require the taxpayer to have a Social Security number (which is designed to impose a penalty tax on immigrants not authorized to work).

Tips and overtime would still be subject to payroll taxes and state and local income taxes. There would be an above the line tax deduction for them on federal income tax returns for tips and overtime. For overtime, it would only cover the 1/2 hour per hour worked of additional overtime pay rates, not the full 1 and 1/2 hours of overtime pay per hour worked. The tip and overtime deductions are not allowed for taxpayers with incomes over $160,000 in a "cliff rule" rather than with a phase out. 

The employer tip credit against certain payroll taxes is expanded from the food and beverage industry to the beauty services industry.

The Social Security tax break is actually unrelated to Social Security. It would be an up to $4,000 added to the standard deduction for those who use the additional standard deduction for older taxpayers (age 65+) per senior, or an itemized deduction of up to $4,000 for taxpayers of that age who itemize (which can't be refunded and carried over). It starts to phase out at $150,000 for married couples and $75,000 for other taxpayers.

The above the line deduction of up to $10,000 for car loan interest would apply only to cars whose assembly was completed in the U.S. on purchase money car loans for cars purchased in 2025 or later. It starts to phase out at $200,000 for married couples and $100,000 for other taxpayers.

The anticipated total revenue impact of these tax breaks is quite modest, because the limitations keep the budget cost of the tax cuts much lower than they would have been otherwise.

The Tax Foundation summarizes these tax breaks, and some others for individual taxpayers, as follows:

The standard deduction and child tax credit just tweak the usual moving parts of the tax code. The above the line deduction for charitable deductions is, needless to say, modest. The tax credit for contributions to scholarship granting organizations is an expensive back door national school voucher program. The MAGA accounts for newborns is a gimmicky and unnecessarily complicated way to provide an extra $1,000 on time tax credit for newborns.

Some of the harsh provisions of the 2017 tax bill, like the limitation on the state and local tax deduction and the near elimination of the casualty loss deduction, are extended.

No Tax On Tips 

Trump initially promised to end taxes on tips while campaigning in June in the swing state of Nevada. The hospitality industry is huge in Nevada, making up more than 20% of jobs in the state. The pledge didn't make it into the draft bill but did make it into the chairman's amendment, introduced on Monday.

As proposed, tip income would be temporarily deductible—only for tax years 2025 through 2028—for individuals who work in what are considered “traditionally and customarily tipped industries.” (According to the proposal, that would only include industries that accepted tips on or before December 31, 2024—Treasury is directed to make a list of those that qualify.)

Some media and social media reports I've seen say that this is not allowed for non-itemizers, but the bill language states that it is an "above the line deduction" available to non-itemizers. But many tipped workers only pay FICA payroll taxes and state income taxes on tips anyway (due to the large standard deduction and the fact that many tipped workers work part-time).

Self-employed persons, like Uber and Lyft drivers, would also qualify for the break as currently written.

Highly compensated employees (those who make over $160,000 in 2025) would be excluded. And, in a nod to concerns that all of the sudden, clever tax lawyers, business owners and others could wiggle their way into a no-tax-on-tips zone, Treasury is directed to craft regulations or other guidance to “prevent reclassification of income as qualified tips... to prevent abuse of the deduction.”

It's important to note that this is a federal income tax deduction, not an exclusion. That means that tips would still be reportable—and taxable at the state and local level. It also means that tips would remain subject to payroll taxes, including Social Security and Medicare, for employees.

Employers will get a break, however, via a tip credit. The deduction, which has been in place since 1993 for restaurants, is known as the 45B credit and allows for a rebate on the entire employer side of FICA taxes on tips. The instructions for claiming the 45B credit made clear it covers tips to employers involved in "providing, delivering, or serving food or beverages for consumption." The result is that tips provided elsewhere—like in salons—are subject to payroll taxes for both employees and employers, even though not a penny goes to the salon.

The most recent tax bill proposes to change that by extending the benefit to the beauty industry. Under the amendment, section 45B would be amended to include barbers and hair care, nail care, esthetics, and body and spa treatments. 

No Tax On Overtime

Trump also promised to eliminate taxes on overtime pay. That pledge was originally made in September 2024, during a speech in Tucson, Arizona. That break also didn't make it into the draft bill, but did make it into the chairman's amendment.

As proposed, workers who receive overtime would not have to pay taxes on that extra compensation. For purposes of the rule, overtime compensation is defined as the amount paid in excess of the employee’s regular rate—only the overtime compensation is part of the break. While taxpayers wouldn’t have to itemize to take advantage of the benefit, it would be temporary—only for tax years 2025 through 2028.

This tax break is also proposed as a deduction, not an exclusion. That means that overtime pay would still be reportable, and, as with tips, overtime pay would remain subject to payroll taxes, including Social Security and Medicare, for employees.

Quick Payroll Tax Primer

Confused about the employer versus employee sides of payroll taxes? For wage earners, Social Security and Medicare taxes are called FICA (Federal Insurance Contributions Act) and are taken out of your paycheck. Taxes on self-employment income are sometimes called SECA (Self-Employment Contributions Act) taxes since self-employed persons pay both the employee and employer contributions.

If you're employed, you pay Social Security tax at a rate of 6.2% as the employee, and your employer pays the same tax rate on your behalf. If you're self-employed, you are responsible for both parts.

Social Security taxes are subject to a wage cap. That means you pay Social Security taxes on your earnings until you hit the magic number. After that, your wages are no longer subject to Social Security taxes. For 2025, the magic number is $176,100. That means that whether you make $1,000 or $100,000, you will pay Social Security taxes on your income. But if you earn $176,101? You'll pay Social Security taxes on the first $176,100, but not on the extra dollar. And if you earn $1,176,100? Same result: you'll pay Social Security taxes on $176,100, but not on the extra million.

In contrast, all wages are subject to Medicare taxes. If you're employed, you pay Medicare tax of 1.45% as the employee, and your employer kicks in tax at the same rate. As before, if you're self-employed, you'll pay both portions, for a total tax rate of 2.9%.

High-income taxpayers are also subject to an additional Medicare tax of 0.9% tacked onto wages that exceed $200,000 for single filers—those thresholds are $125,000 for married taxpayers filing separately and $250,000 for married taxpayers filing jointly.

If you're a wage earner, your employer collects your Social Security and Medicare payments and remits both their portion and your share to the government. Self-employed persons pay the IRS directly. Retaining payroll taxes on tips and overtime may mean a bigger bite at tax time, but there is an upside: No matter who pays, these taxes are credited toward your retirement benefits. 

No Tax On Social Security

Last year, also on the campaign trail, Trump promised to exempt Social Security income from tax. The idea was popular, but likely because many people do not understand how Social Security income is taxed. The majority of people who get Social Security do not pay federal income tax on those benefits—according to the Social Security Administration, only about 48% of people pay federal income taxes on their benefits (though some studies suggest that the percentage is higher).

If your only source of income is your Social Security check, your benefits are generally not taxable. You may not even need to file a federal income tax return.

If you receive income from other sources, your benefits would not be taxed unless your combined income exceeds the base amount for your filing status, and then, the taxable amount is based on income. No one pays federal income tax on more than 85% of their Social Security benefits.

There is no language in the draft bill or the amendment that would further exempt Social Security from tax. However, the proposal does include a new—also temporary—deduction of $4,000 for the tax years 2025 through 2028.

The deduction would be available to taxpayers who itemize and those who claim the standard deduction. It would begin to phase out once income hits $150,000 for married taxpayers filing jointly and $75,000 for all other taxpayers (disappearing completely when modified adjusted income reaches $350,000 for married taxpayers and $175,000 for all other taxpayers).

To claim the deduction, you would have to have a Social Security number and, if married, your spouse would also have to have a Social Security number.

The deduction is not the same as a refundable credit. That means you will not receive a benefit if you have little to no taxable income—the case for most Social Security recipients. The deduction simply disappears. Realistically, the deduction won't help seniors with little to no other income sources outside of Social Security and will primarily benefit those with income in addition to Social Security. 

What Comes Next

You can see the original draft version of the bill before the markup here. The Smith amendment version is here.

The bill is still working its way through the House where Republicans hold a slim majority. Even if it's approved, the House bill must conform to the Senate version to be signed into law.

From Forbes.

The proposed car loan interest deduction (which Reagan eliminated in 1986) is explained, here, as follows (and may violate WTO rules):

Who could claim a $10,000 deduction on car-loan interest?

The bill also includes a deduction worth $10,000 on the interest on auto loans for vehicles, if that vehicle’s “final assembly” occurs in the United States. It’s a reflection of the Trump administration’s stated mission to nudge more manufacturing back to America — and then reward consumers for buying American-sourced products.

The deduction amount starts phasing out at the $100,000 mark for individuals and $200,000 for married couples filing jointly. It completely ends when modified adjusted gross income goes past $150,000 for individuals and $250,000 for couples.

Cars are expensive, though. People paid more than $47,000 on average in March for a new vehicle, according to Cox Automotive. So buyers who want to take advantage of the potential break would have to start planning a major purchase.

If the bill became law, the deduction on car-loan interest would be in place from tax years 2025 to 2028.

The exact bill language is below the fold (and could change before the final bill is passed, if it is passed).

PART 2—ADDITIONAL TAX RELIEF FOR AMERICAN FAMILIES AND WORKERS SEC. 110101. NO TAX ON TIPS. 

(a) DEDUCTION ALLOWED.—Part VII of subchapter B of chapter 1 is amended by redesignating section 224 as section 225 and by inserting after section 223 the following new section: ‘‘SEC. 224. QUALIFIED TIPS. 

‘‘(a) IN GENERAL.—There shall be allowed as a deduction an amount equal to the qualified tips received during the taxable year that are included on statements furnished to the individual pursuant to section 6041(d)(3), 6041A(e)(3), 6050W(f)(2), 6051(a)(18), or reported by the taxpayer on Form 4137 (or successor). 

‘‘(b) TIPS RECEIVED IN COURSE OF TRADE OR BUSINESS.—In the case of qualified tips received by an individual during any taxable year in the course of any trade or business of such individual, such qualified tips shall be taken into account under subsection (a) only to the extent that the gross receipts of the taxpayer from such trade or business for such taxable year (including such qualified tips) exceeds the sum of— ‘‘(1) cost of goods sold that are allocable to such receipts, plus ‘‘(2) other expenses, losses, or deductions (other than the deduction allowed under this section), which are properly allocable to such receipts. 

‘‘(c) QUALIFIED TIPS.—For purposes of this section— 

‘‘(1) IN GENERAL.—The term ‘qualified tip’ means any cash tip received by an individual in an occupation which traditionally and customarily received tips on or before December 31, 2024, as provided by the Secretary. 

‘‘(2) EXCLUSIONS.—Such term shall not include any amount received by an individual unless— ‘‘(A) such amount is paid voluntarily without any consequence in the event of nonpayment, is not the subject of negotiation, and is determined by the payor, ‘‘(B) the trade or business in the course of which the individual receives such amount is not a specified service trade or business (as defined in section 199A(d)(2)), 

‘‘(C) such individual is not a highly compensated employee (as defined in section 414(q)(1)) of any employer for the calendar year in which the taxable year begins, and does not receive earned income in excess of the dollar amount in effect under section 414(q)(1)(B)(i) for such calendar year, and 

‘‘(D) such other requirements as may be established by the Secretary in regulations or other guidance are satisfied. 

‘‘(d) SOCIAL SECURITY NUMBER REQUIRED.— 

‘‘(1) IN GENERAL.—No deduction shall be allowed under this section unless the taxpayer includes on the return of tax for the taxable year— ‘‘(A) such individual’s social security number (as defined in section 24(h)(7)), and ‘‘(B) if the individual is married, the social security number of such individual’s spouse. 

‘‘(2) MARRIED INDIVIDUALS.—Rules similar to the rules of section 32(d) shall apply to this section. 

‘‘(e) REGULATIONS.—The Secretary shall prescribe such regulations or other guidance as may be necessary to prevent reclassification of income as qualified tips, including regulations or other guidance to prevent abuse of the deduction allowed by this section. 

‘‘(f) TERMINATION.—No deduction shall be allowed under this section for any taxable year beginning after December 31, 2028.’’. 

(b) DEDUCTION ALLOWED TO NON-ITEMIZERS.— Section 63(b) is amended by striking ‘‘and’’ at the end of paragraph (3), by striking the period at the end of paragraph (4) and inserting ‘‘and’’, and by adding at the end the following new paragraph: ‘‘(5) the deduction provided in section 224.’’. 

(c) OMISSION OF CORRECT SOCIAL SECURITY NUMBER TREATED AS MATHEMATICAL OR CLERICAL ERROR.—Section 6213(g)(2), as amended by the preceding provisions of this Act, is amended by striking ‘‘and’’ at the end of subparagraph (V), by striking the period at the end of subparagraph (W) and inserting ‘‘, and’’, and by inserting after subparagraph (W) the following new subparagraph: ‘‘(X) an omission of a correct social security number required under section 224(d) (relating to deduction for qualified tips).’’. 

(d) EXCLUSION FROM QUALIFIED BUSINESS INCOME.—Section 199A(c)(4) is amended by striking ‘‘and’’ at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting ‘‘, and’’, and by adding at the end the following new subparagraph: ‘‘(D) any amount with respect to which a deduction is allowable to the taxpayer under section 224(a) for the taxable year.’’. 

(e) EXTENSION OF TIP CREDIT TO BEAUTY SERVICE BUSINESS.—Section 45B(b)(2) is amended to read as follows: 

(1) IN GENERAL.— ‘‘(2) APPLICATION ONLY TO CERTAIN LINES OF BUSINESS.—In applying paragraph (1) there shall be taken into account only tips received from customers or clients in connection with the following services: ‘‘(A) The providing, delivering, or serving of food or beverages for consumption, if the tipping of employees delivering or serving food or beverages by customers is customary. ‘‘(B) The providing of any of the following services to a customer or client if the tipping of employees providing such services is customary: ‘‘(i) Barbering and hair care. ‘‘(ii) Nail care. ‘‘(iii) Esthetics. ‘‘(iv) Body and spa treatments.’’. 

(2) CREDIT DETERMINED WITH RESPECT TO MINIMUM WAGE IN EFFECT.—Section 45B(b)(1)(B) is amended— (A) by striking ‘‘as in effect on January 1, 2007, and’’, and (B) by inserting ‘‘, and in the case of food or beverage establishments, as in effect on January 1, 2007’’ after ‘‘without regard to section 3(m) of such Act’’. 

(f) REPORTING REQUIREMENTS.— 

(1) RETURNS FOR PAYMENTS MADE IN THE COURSE OF A TRADE OR BUSINESS.— 

(A) STATEMENT FURNISHED TO SECRETARY.— Section 6041(a) is amended by inserting ‘‘(including a separate accounting of any such amounts properly designated as tips and whether such tips are received in an occupation described in section 224(c)(1))’’ after ‘‘such gains, profits, and income’’. 

(B) STATEMENT FURNISHED TO PAYEE.— Section 6041(d) is amended by striking ‘‘and’’ at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting ‘‘, and’’, and by inserting after paragraph (2) the following new paragraph: 

‘‘(3) in the case of compensation to non-employees, the portion of payments that have been properly designated as tips and whether such tips are received in an occupation described in section 224(c)(1).’’. 

(2) RETURNS FOR PAYMENTS MADE FOR SERVICES AND DIRECT SALES.— (A) STATEMENT FURNISHED TO SECRETARY.— Section 6041A(a) is amended by inserting ‘‘(including a separate accounting of any such amounts properly designated as tips and whether such tips are received in an occupation described in section 224(c)(1))’’ after ‘‘amount of such payments’’. (B) STATEMENT FURNISHED TO PAYEE.— Section 6041A(e) is amended by striking ‘‘and’’ at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting ‘‘, and’’, and by inserting after paragraph (2) the following new paragraph: ‘‘(3) the portion of payments that have been properly designated as tips and whether such tips are received in an occupation described in section 224(c)(1).’’. 

(3) RETURNS RELATING TO THIRD PARTY SETTLEMENT ORGANIZATIONS.— (A) STATEMENT FURNISHED TO SECRETARY.—Section 6050W(a) is amended by striking ‘‘and’’ at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting ‘‘and’’, and by adding at the end the following new paragraph: ‘‘(3) in the case of a third party settlement organization, the portion of reportable payment transactions that have been properly designated by payors as tips and whether such tips are received in an occupation described in section 224(c)(1).’’. 

(B) STATEMENT FURNISHED TO PAYEE.— Section 6050W(f)(2) is amended by inserting ‘‘(including a separate accounting of any such amounts that have been properly designated by payors as tips and whether such tips are received in an occupation described in section 224(c)(1))’’ after ‘‘reportable payment transactions’’. 

(4) RETURNS RELATED TO WAGES.—Section 6051(a) is amended by striking ‘‘and’’ at the end of paragraph (16), by striking the period at the end of paragraph (17) and inserting ‘‘, and’’, and by inserting after paragraph (17) the following new paragraph: ‘‘(18) the total amount of tips reported by the employee under section 6053(a).’’. 

(g) CLERICAL AMENDMENT.—The table of sections for part VII of subchapter B of chapter 1 is amended by redesignating the item relating to section 224 as relating to section 225 and by inserting after the item relating to section 223 the following new item: ‘‘Sec. 224. Qualified tips.’’. 

(h) PUBLISHED LIST OF OCCUPATIONS TRADITIONALLY RECEIVING TIPS.—Not later than 90 days after the date of the enactment of this Act, the Secretary of the Treasury (or the Secretary’s delegate) shall publish a list of occupations which traditionally and customarily received tips on or before December 31, 2024, for purposes of section 224(c)(1) (as added by subsection (a)). (i) WITHHOLDING.—The Secretary of the Treasury (or the Secretary’s delegate) shall modify the tables and procedures prescribed under section 3402(a) to take into account the deduction allowed under section 224 (as added by this Act). (j) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2024. 

SEC. 110102. NO TAX ON OVERTIME. (a) DEDUCTION ALLOWED.—Part VII of subchapter B of chapter 1, as amended by the preceding provisions of this Act, is amended by redesignating section 225 as section 226 and by inserting after section 224 the following new section: ‘‘SEC. 225. QUALIFIED OVERTIME COMPENSATION. ‘‘(a) IN GENERAL.—There shall be allowed as a deduction an amount equal to the qualified overtime compensation received during the taxable year. ‘‘(b) QUALIFIED OVERTIME COMPENSATION.— ‘‘(1) IN GENERAL.—For purposes of this section, the term ‘qualified overtime compensation’ means 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. ‘‘(2) EXCLUSIONS.—Such term shall not include— ‘‘(A) any qualified tip (as defined in section 224(c)), or ‘‘(B) any amount received by an individual during a taxable year if such individual is a highly compensated employee (as defined in section 414(q)(1)) of any employer for the calendar year in which the taxable year begins, or receives earned income in excess of the dollar amount in effect under section 414(q)(1)(B)(i) for such calendar year. 

‘‘(c) SOCIAL SECURITY NUMBER REQUIRED.— ‘‘(1) IN GENERAL.—No deduction shall be allowed under this section unless the taxpayer includes on the return of tax for the taxable year— ‘‘(A) such individual’s social security number (as defined in section 24(h)(7)), and ‘‘(B) if the individual is married, the social security number of such individual’s spouse. ‘‘(2) MARRIED INDIVIDUALS.—Rules similar to the rules of section 32(d) shall apply to this section. 

‘‘(d) REGULATIONS.—The Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section. 

‘‘(e) TERMINATION.—No deduction shall be allowed under this section for any taxable year beginning after December 31, 2028.’’. 

(b) DEDUCTION ALLOWED TO NON-ITEMIZERS.— Section 63(b), as amended by the preceding provisions of this Act, is amended by striking ‘‘and’’ at the end of paragraph (4), by striking the period at the end of paragraph  (5) and inserting ‘‘and’’, and by adding at the end the following new paragraph: ‘‘(6) the deduction provided in section 225.’’. 

(c) REQUIREMENT TO INCLUDE OVERTIME COMPENSATION ON W-2.—Section 6051(a), as amended by the preceding provision of this Act, is amended by striking ‘‘and’’ at the end of paragraph (17), by striking the period at the end of paragraph (18) and inserting ‘‘, and’’, and by inserting after paragraph (18) the following new paragraph: ‘‘(19) the total amount of qualified overtime compensation (as defined in section 225(b)).’’. 

(d) OMISSION OF CORRECT SOCIAL SECURITY NUMBER TREATED AS MATHEMATICAL OR CLERICAL ERROR.—Section 6213(g)(2), as amended by the preceding provisions of this Act, is amended by striking ‘‘and’’ at the end of subparagraph (W), by striking the period at the end of subparagraph (X) and inserting ‘‘, and’’, and by inserting after subparagraph (X) the following new subparagraph: ‘‘(Y) an omission of a correct social security number required under section 225(c) (relating to deduction for qualified overtime).’’. 

(e) CLERICAL AMENDMENT.—The table of sections for part VII of subchapter B of chapter 1, as amended by the preceding provisions of this Act, is amended by redesignating the item relating to section 225 as an item relating to section 226 and by inserting after the item relating to section 224 the following new item: ‘‘Sec. 225. Qualified overtime compensation.’’. 

(f) WITHHOLDING.—The Secretary of the Treasury (or the Secretary’s delegate) shall modify the tables and procedures prescribed under section 3402(a) to take into account the deduction allowed under section 225 (as added by this Act). (g) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2024. 

SEC. 110103. ENHANCED DEDUCTION FOR SENIORS. 

(a) IN GENERAL.—Section 63(f) is amended by adding at the end the following new paragraph: ‘‘(5) BONUS ADDITIONAL AMOUNT FOR SENIORS.— ‘‘(A) IN GENERAL.—In the case of any taxable year beginning after December 31, 2024, and before January 1, 2029, the dollar amount in effect under paragraph (1) shall be increased by $4,000. ‘‘(B) LIMITATION BASED ON MODIFIED ADJUSTED GROSS INCOME.—In the case of any taxpayer for any taxable year, the $4,000 amount in subparagraph(A) shall be reduced (but not below zero) by 4 percent of so much of the taxpayer’s modified adjusted gross income as exceeds $75,000 ($150,000 in the case of a joint return). 

‘‘(C) MODIFIED ADJUSTED GROSS INCOME.—For purposes of this paragraph, the term ‘modified adjusted gross income’ means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933. 

‘‘(D) SOCIAL SECURITY NUMBER REQUIRED.— ‘‘(i) IN GENERAL.—Subparagraph (A) shall not apply unless the taxpayer includes on the return of tax for the taxable year— ‘‘(I) such individual’s social security number (as defined in section 24(h)(7)), and ‘‘(II) if the individual is married, the social security number of such individual’s spouse.  

‘‘(ii) MARRIED INDIVIDUALS.—Rules similar to the rules of section 32(d) shall apply to this section. 

‘‘(E) COORDINATION WITH INFLATION ADJUSTMENT.—Subsection (c)(4) shall not apply to any dollar amount contained in this paragraph. 

‘‘(F) ALLOWANCE TO SENIORS WHO ELECT TO ITEMIZE.—In the case of a taxpayer who elects to itemize deductions for any taxable year beginning after December 31, 2024, and before January 1, 2029, there shall be allowed as a deduction the aggregate increase which would be determined under subparagraph (A) (determined after the application of subparagraphs (B), (D), and (E)) with respect to such taxpayer for such taxable year if such taxpayer did not so elect to itemize deductions for such taxable year.’’. 

(b) OMISSION OF CORRECT SOCIAL SECURITY NUMBER TREATED AS MATHEMATICAL OR CLERICAL ERROR.—Section 6213(g)(2), as amended by the preceding provisions of this Act, is amended by striking ‘‘and’’ at the end of subparagraph (X), by striking the period at the end of subparagraph (Y) and inserting ‘‘, and’’, and by inserting after subparagraph (Y) the following new subparagraph: ‘‘(Z) an omission of a correct social security number required under section 63(f)(5)(D) (relating to bonus additional amount for seniors).’’. 

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2024. 

SEC. 110104. NO TAX ON CAR LOAN INTEREST. 

(a) IN GENERAL.—Section 163(h) is amended by redesignating paragraph (4) as paragraph (5) and by inserting after paragraph (3) the following new paragraph: 

‘‘(4) SPECIAL RULES FOR TAXABLE YEARS 2024 THROUGH 2028 RELATING TO QUALIFIED PASSENGER VEHICLE LOAN INTEREST.— 

‘‘(A) IN GENERAL.—In the case of taxable years beginning after December 31, 2024, and before January 1, 2029, for purposes of this subsection the term ‘personal interest’ shall not include qualified passenger vehicle loan interest. 

‘‘(B) QUALIFIED PASSENGER VEHICLE LOAN INTEREST DEFINED.— 

‘‘(i) IN GENERAL.—For purposes of this paragraph, the term ‘qualified passenger vehicle loan interest’ means any interest which is paid or accrued during the taxable year on indebtedness incurred by the taxpayer after December 31, 2024, for the purchase of, and that is secured by a first lien on, an applicable passenger vehicle for personal use. 

‘‘(ii) EXCEPTIONS.—Such term shall not include any amount paid or incurred on any of the following: 

‘‘(I) A loan to finance fleet sales. 

‘‘(II) A personal cash loan secured by a vehicle previously purchased by the taxpayer. 

‘‘(III) A loan incurred for the purchase of a commercial vehicle that is not used for personal purposes. 

‘‘(IV) Any lease financing. 

‘‘(V) A loan to finance the purchase of a vehicle with a salvage title. 

‘‘(VI) A loan to finance the purchase of a vehicle intended to be used for scrap or parts. 

‘‘(C) LIMITATIONS.—  

‘‘(i) DOLLAR LIMIT.—The amount of interest taken into account by a taxpayer under subparagraph (B) for any taxable year shall not exceed $10,000. 

‘‘(ii) LIMITATION BASED ON MODIFIED ADJUSTED GROSS INCOME.— 

‘‘(I) IN GENERAL.—The amount which is otherwise allowable as a deduction under subsection (a) as qualified passenger vehicle loan interest (determined without regard to this clause and after the application of clause (i)) shall be reduced (but not below zero) by $200 for each $1,000 (or portion thereof) by which the modified adjusted gross income of the taxpayer for the taxable year exceeds $100,000 ($200,000 in the case of a joint return). 

‘‘(II) MODIFIED ADJUSTED GROSS INCOME.—For purposes of this clause, the term ‘modified adjusted gross income’ means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933. ‘‘(D) APPLICABLE PASSENGER VEHICLE.— The term ‘applicable passenger vehicle’ means any vehicle— 

‘‘(i)(I) which is manufactured primarily for use on public streets, roads, and highways, 

‘‘(II) which has at least 2 wheels, and 

‘‘(III) which is a car, minivan, van, sport utility vehicle, pickup truck, or motorcycle, 

‘‘(ii) which is an all-terrain vehicle (designed for use on land), or 

‘‘(iii) any trailer, camper, or vehicle (designed for use on land) which— 

‘‘(I) is designed to provide temporary living quarters for recreational, camping, or seasonal use, and 

‘‘(II) is a motor vehicle or is designed to be towed by, or affixed to, a motor vehicle. Such term shall not include any vehicle the final assembly of which did not occur within the United States.  

‘‘(E) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of this paragraph— 

‘‘(i) ALL-TERRAIN VEHICLE.—The term ‘all-terrain vehicle’ means any motorized vehicle which has 3 or 4 wheels, a seat designed to be straddled by the operator, and handlebars for steering control. 

‘‘(ii) FINAL ASSEMBLY.—For purposes of subparagraph (D), the term ‘final assembly’ means the process by which a manufacturer produces a vehicle at, or through the use of, a plant, factory, or other place from which the vehicle is delivered to a dealer or importer with all component parts necessary for the mechanical operation of the vehicle included with the vehicle, whether or not the component parts are permanently installed in or on the vehicle. 

‘‘(iii) TREATMENT OF REFINANCING.—Indebtedness described in subparagraph (B) shall include indebtedness that results from refinancing any indebtedness described in such subparagraph, and that is secured by a first lien on the applicable passenger vehicle with respect to which the refinanced indebtedness was incurred, but only to the extent the amount of such resulting indebtedness does not exceed the amount of such refinanced indebtedness. 

‘‘(iv) RELATED PARTIES.—Indebtedness described in subparagraph (B) shall not include any indebtedness owed to a person who is related (within the meaning of section 267(b) or 707(b)(1)) to the taxpayer.’’. 

(b) DEDUCTION ALLOWED WHETHER OR NOT TAXPAYER ITEMIZES.—Section 62(a) is amended by inserting after paragraph (21) the following new paragraph: 

‘‘(22) QUALIFIED PASSENGER VEHICLE LOAN INTEREST.—So much of the deduction allowed by section 163(a) as is attributable to the exception under section 163(h)(4)(A).’’. 

(c) REPORTING.—Subpart B of part III of subchapter A of chapter 61 is amended by adding at the end the following new section: 

‘‘SEC. 6050AA. RETURNS RELATING TO APPLICABLE PASSENGER VEHICLE LOAN INTEREST RECEIVED IN TRADE OR BUSINESS FROM INDIVIDUALS. 

‘‘(a) IN GENERAL.—Any person— ‘‘(1) who is engaged in a trade or business, and ‘‘(2) who, in the course of such trade or business, receives from any individual interest aggregating $600 or more for any calendar year on a specified passenger vehicle loan, shall make the return described in subsection (b) with respect to each individual from whom such interest was received at such time as the Secretary may provide. 

‘‘(b) FORM AND MANNER OF RETURNS.—A return is described in this subsection if such return— 

‘‘(1) is in such form as the Secretary may prescribe, and 

‘‘(2) contains— ‘‘(A) the name and address of the individual from whom the interest described in subsection (a)(2) was received, ‘‘(B) the amount of such interest received for the calendar year, ‘‘(C) the amount of outstanding principal on the specified passenger vehicle loan as of the beginning of such calendar year, 

‘‘(D) the date of the origination of such loan, 

‘‘(E) the year, make, and model of the applicable passenger vehicle which secures such loan (or such other description of such vehicle as the Secretary may prescribe), and 

‘‘(F) such other information as the Secretary may prescribe. 

‘‘(c) STATEMENTS TO BE FURNISHED TO INDIVIDUALS WITH RESPECT TO WHOM INFORMATION IS REQUIRED.—Every person required to make a return under subsection (a) shall furnish to each individual whose name is required to be set forth in such return a written statement showing— 

‘‘(1) the name, address, and phone number of the information contact of the person required to make such return, and 

‘‘(2) the information described in subparagraphs (B), (C), (D), and (E) of subsection (b)(2) with respect to such individual (and such information as is described in subsection (b)(2)(F) with respect to such individual as the Secretary may provide for purpoeses of this subsection). The written statement required under the preceding sentence shall be furnished on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made. 

‘‘(d) DEFINITIONS.—For purposes of this section— 

‘‘(1) IN GENERAL.—Terms used in this section which are also used in paragraph (4) of section 163(h) shall have the same meaning as when used in such paragraph. 

‘‘(2) SPECIFIED PASSENGER VEHICLE LOAN.— The term ‘specified passenger vehicle loan’ means the indebtedness described in section 163(h)(4)(B) with respect to any applicable passenger vehicle. 

‘‘(e) REGULATIONS.—The Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or other guidance to prevent the duplicate reporting of information under this section.’’. 

(d) CONFORMING AMENDMENTS.— (1) Section 56(e)(1)(B) is amended by striking ‘‘section 163(h)(4)’’ and inserting ‘‘section 163(h)(5)’’. (2) The table of sections for subpart B of part III of subchapter A of chapter 61 is amended by adding at the end the following new item: ‘‘Sec. 6050AA. Returns relating to applicable passenger vehicle loan interest received in trade or business from individuals.’’. 

(e) EFFECTIVE DATE.—The amendments made by this section shall apply to indebtedness incurred after December 31, 2024.