Key takeaways
- Four new deductions for tips, overtime, car loan interest and seniors apply for tax years 2025 through 2028.
- You claim them on the new Schedule 1-A whether you itemize or take the standard deduction.
- Each has income limits, and tips and overtime are still subject to Social Security and Medicare taxes.
The One Big Beautiful Bill Act, signed in July 2025, added four temporary deductions for tax years 2025 through 2028. The IRS created a new form, Schedule 1-A, to claim them. You can use these deductions whether you itemize or take the standard deduction.
No tax on tips
- Deduction: Up to $25,000 of qualified tips per return.
- Who qualifies: Workers in occupations that customarily received tips before 2025, as listed by the IRS. Both employees and some self-employed workers can qualify.
- Income limit: Phases out above $150,000 of modified adjusted gross income (MAGI), or $300,000 for joint filers.
- Rules: Tips must be reported. Married couples must file jointly. You need a valid Social Security number.
No tax on overtime
- Deduction: Up to $12,500, or $25,000 for joint filers.
- What counts: Only the “premium” part of overtime required by the Fair Labor Standards Act. If you earn $20 an hour and get $30 for overtime, only the extra $10 per hour counts.
- Income limit: Same as tips: phases out above $150,000 MAGI, or $300,000 joint.
- Tip: Check your W-2 or a separate statement from your employer showing qualified overtime.
Car loan interest
- Deduction: Up to $10,000 a year of interest on a qualifying auto loan.
- Who qualifies: Loans taken out after Dec. 31, 2024, to buy a new vehicle for personal use that had its final assembly in the U.S. Leases don’t count.
- Income limit: Phases out above $100,000 MAGI, or $200,000 joint.
- Rules: You’ll need the vehicle identification number (VIN) on your return.
Senior deduction
- Deduction: $6,000 per person age 65 or older ($12,000 if both spouses qualify).
- Income limit: Phases out above $75,000 MAGI, or $150,000 joint.
- Stacks with the regular additional standard deduction for people 65 and older.
What these deductions don’t do
- Payroll taxes still apply. Tips and overtime are still subject to Social Security and Medicare taxes.
- State taxes vary. Many states haven’t adopted these deductions.
- They reduce taxable income, not your tax bill dollar for dollar. Your savings depend on your tax bracket.
Also new: deduction for charitable gifts
Starting with 2026 returns, people who take the standard deduction can deduct up to $1,000 ($2,000 for married couples filing jointly) in cash donations to qualifying charities.
Plan ahead
If any of these apply to you, keep pay stubs, tip records and loan statements. You may also want to update your W-4 so less is withheld from each paycheck. See our W-4 guide.
WalletJolly may earn a commission from links on this page. Rates, prices and rules mentioned are current as of Oct. 28, 2026 and can change. This article is general information, not financial, tax, insurance or legal advice.
