Definition
The One Big Beautiful Bill Act (OBBBA), signed into law in 2026, created four new above-the-line deductions that reduce federal income taxable income for withholding purposes:
1. Tip income exclusion: Up to $25,000 of annual tip income is excluded from federal income tax. 2. Overtime pay exclusion: Up to $12,500 of annual overtime pay is excluded from federal income tax. 3. Senior bonus deduction: Taxpayers age 65 or older receive an extra $6,000 deduction. 4. Auto loan interest deduction: Up to $10,000 of auto loan interest paid is deductible above-the-line.
Importantly, none of these deductions reduce FICA taxes — they only reduce federal income tax withholding.
How this affects your W-4
Enter your OBBBA deductions in the '2026 OBBBA Deductions' section of this calculator (between Step 3 and Step 4). Each deduction reduces your taxable income before bracket calculations are applied, lowering your per-paycheck withholding.
The calculator shows a before/after comparison of your withholding with and without OBBBA deductions so you can see exactly how much more take-home pay you should be receiving.
See how obbba deductions affects your withholding
Use the free W-4 calculator to calculate your exact withholding with your specific situation.
Open the W-4 Calculator →Related terms
Tip Income Exclusion
An OBBBA 2026 provision excluding up to $25,000 of tip income from federal income tax.
Overtime Exclusion
An OBBBA 2026 provision excluding up to $12,500 of overtime pay from federal income tax.
Above-the-Line Deduction
A deduction taken from gross income to arrive at AGI — available whether or not you itemize.