4 New IRS Deductions Worth Up to $72,000 — Claim Them on Schedule 1-A
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Congress added four new tax deductions for 2025 through 2028: up to $25,000 for tips, up to $12,500 for overtime ($25,000 for joint filers), up to $10,000 for car loan interest, and $6,000 for seniors 65 and older ($12,000 for a qualifying couple). All four are claimed on one new form, Schedule 1-A, and they work whether you take the standard deduction or itemize. A household that qualified for all four could deduct up to $72,000. If you already filed your 2025 return without Schedule 1-A, you can generally still fix it with an amended return. Your 2026 return is due April 15, 2027.
The tax law signed on July 4, 2025 — the One, Big, Beautiful Bill, Public Law 119-21 — added four deductions most taxpayers have never claimed, because the form to claim them did not exist until the IRS created Schedule 1-A in March 2026. The IRS issued the final rules for the tips deduction on April 10, 2026, five days before the filing deadline for 2025 returns. That timing is the opportunity. If you filed early, you probably missed one of these. If you have not yet filed for 2026, you still have time to get them right. All four deductions expire after December 31, 2028, so there are four tax years in total, and the first is already filed.
What actually changed
The four deductions cover tips, overtime pay, car loan interest, and an extra amount for seniors. They apply to tax years 2025 through 2028. The IRS built a single new form for them, Schedule 1-A, and the total from that form goes on Form 1040, line 13b. Two facts about that form matter more than the rest. First, you can claim these deductions whether you take the standard deduction or itemize — the choice that usually locks people out of deductions does not apply here. Second, they are below-the-line deductions: they lower your taxable income, but they do not change your adjusted gross income. That distinction matters if other tax breaks you use depend on your AGI.
Every one of the four has an income limit. The limit is measured by modified adjusted gross income, and the IRS calculates it in Part I of Schedule 1-A. If your income is above the limit, the deduction shrinks. The limits are different for each deduction, and they are in the table further down this page.
The four deductions, at their maximums (single filer)
Joint filers: overtime up to $25,000, senior up to $12,000. The tips maximum is $25,000 per return. Bars are scaled to the $25,000 tips maximum. Source: IRS Fact Sheet FS-2025-03 and FS-2026-04.
1. No tax on tips — up to $25,000
This is the largest of the four, and the one with the most rules attached. You can deduct up to $25,000 of qualified tips per return. Qualified tips are voluntary cash or charged tips from customers, including tips shared through a tip pool. The IRS published a list of more than 70 occupations that qualify, grouped into eight categories from food service to transportation, in final regulations issued April 10, 2026. If your job is not on that list, the deduction does not apply to your tips, even if tipping is common in your line of work.
Three conditions catch people out. First, your tips must be reported on a Form W-2, a Form 1099, or Form 4137 if you report them yourself. Second, you must include your Social Security number on the return, and if you are married you must file jointly to claim it. Third, self-employed workers in a specified service trade or business are not eligible, and neither are employees whose employer is in one. The IRS has said it will not enforce that exclusion until January 1 of the year after it issues SSTB-specific final regulations (IRS Notice 2025-69), so workers in a listed occupation can generally claim the deduction in the meantime. The deduction starts to shrink when modified adjusted gross income goes over $150,000 ($300,000 for joint filers), falling by $100 for each $1,000 above the threshold.
One more thing the name gets wrong: this is not tax-free tips. Your employer still withholds tax from your paychecks as usual, including Social Security and Medicare tax on your tips. The deduction only cuts your federal income tax, and you claim it when you file. A server who earned $18,000 in tips and sits in the 22% bracket would cut $3,960 off the federal income tax bill ($18,000 × 22%). At the $25,000 maximum, the same bracket saves $5,500.
2. No tax on overtime — up to $12,500 ($25,000 joint)
The overtime deduction covers only the premium portion of overtime pay — the extra half of time-and-a-half — and only overtime required under the Fair Labor Standards Act. If you earn $20 an hour and get $30 for overtime hours, the deductible part is the $10 premium, not the full $30. The pay must be reported on a Form W-2, a Form 1099, or another statement your employer gives you.
The maximum is $12,500 per individual, or $25,000 for a married couple filing jointly. The same $150,000 single / $300,000 joint income threshold applies, with the same $100 reduction for each $1,000 above it. The arithmetic is easy to check before you file: 300 overtime hours at a $10 premium is $3,000 of deductible pay, which saves $660 of federal income tax in the 22% bracket. People who worked heavy overtime in 2025 and 2026 are the ones most likely to have a real number here — and the ones most likely to have missed it, because the form is new.
3. No tax on car loan interest — up to $10,000
For the first time, interest on a personal car loan is deductible, up to $10,000 a year. The loan must have been originated after December 31, 2024, and used to buy a new vehicle for personal use — a car, minivan, van, SUV, pickup truck, or motorcycle under 14,000 pounds gross vehicle weight, with final assembly in the United States. The loan must be secured by a lien on the vehicle, and you must put the vehicle identification number on your return. Lease payments do not qualify, and neither does a used car, since the original use must start with you. If you refinanced a qualifying loan, interest on the refinanced amount is generally still eligible.
The income limit is lower here than for tips and overtime: the deduction starts to shrink when modified adjusted gross income goes over $100,000 ($200,000 for joint filers). Your lender must send you a statement of the interest you paid during the year. Someone who paid $10,000 in qualifying interest and sits in the 22% bracket saves $2,200 of federal income tax.
Car loan deduction — 5 tests, all must pass
☐ Loan originated after December 31, 2024 ☐ New vehicle — original use starts with you ☐ Personal use, not business ☐ Secured by a lien on the vehicle ☐ Final assembly in the United States. Miss one and the interest is not deductible.
4. The senior deduction — $6,000 ($12,000 for a couple)
If you were 65 or older on the last day of the tax year, you can claim an additional $6,000 deduction. If both spouses qualify on a joint return, the amount is $12,000. This is on top of the additional standard deduction for seniors that already exists in the tax code — it stacks, it does not replace it. The income limit is the lowest of the four: the deduction starts to shrink when modified adjusted gross income goes over $75,000 ($150,000 for joint filers). You must include the qualifying person's Social Security number, and married couples must file jointly to claim it. A couple claiming the full $12,000 in the 22% bracket saves $2,640.
All four at a glance
| Deduction | Maximum (single) | Maximum (joint) | Phaseout starts (MAGI) | Good through |
|---|---|---|---|---|
| Tips | $25,000 | $25,000 per return | $150,000 / $300,000 | Tax year 2028 |
| Overtime (premium only) | $12,500 | $25,000 | $150,000 / $300,000 | Tax year 2028 |
| Car loan interest | $10,000 | $10,000 | $100,000 / $200,000 | Tax year 2028 |
| Senior (age 65+) | $6,000 | $12,000 | $75,000 / $150,000 | Tax year 2028 |
Phaseout figures are single / joint modified adjusted gross income. All four are claimed on Schedule 1-A and work whether you take the standard deduction or itemize. Source: IRS Fact Sheet FS-2025-03 and FS-2026-04.
What is it actually worth?
A deduction is not a refund. It lowers the income your tax is calculated on, so what you save equals the deduction times your marginal tax rate. At the 22% bracket, the maximum tips deduction is worth $5,500, the maximum overtime deduction is worth $2,750, the maximum car loan deduction is worth $2,200, and the maximum senior deduction for a couple is worth $2,640. At the 12% bracket, the same $25,000 tips deduction is worth $3,000. That is also why the phaseout matters: a deduction that shrinks to half its size is worth half as much, and the form makes you run the income calculation in Part I before you touch the rest.
| Maximum deduction | Worth at 12% bracket | Worth at 22% bracket |
|---|---|---|
| Tips — $25,000 | $3,000 | $5,500 |
| Overtime — $12,500 | $1,500 | $2,750 |
| Car loan interest — $10,000 | $1,200 | $2,200 |
| Senior, couple — $12,000 | $1,440 | $2,640 |
The combined ceiling is the number that gets attention. A household that qualified for all four — tips, overtime on a joint return, car loan interest, and the senior deduction for both spouses — could deduct $25,000 + $25,000 + $10,000 + $12,000, or $72,000. At the 22% bracket that is $15,840 of federal income tax. Very few households will qualify for all four at the maximum. The ceiling is useful as a check on what is at stake, not as a promise. The realistic case is one or two of the four, claimed in full, which is still thousands of dollars for a working household.
Two windows: fix 2025, set up 2026
If you already filed your 2025 return without Schedule 1-A, the fix is an amended return, Form 1040-X, with Schedule 1-A attached. You generally have three years from the date you filed the original return, or two years from the date you paid the tax, whichever is later, to claim a refund that way (26 U.S.C. § 6511; IRS Topic No. 308, Amended Returns). That window is generous, but the refund clock does run out, and the longer you wait the more of the four tax years slip past.
For 2026, the return is due April 15, 2027, unless you get an extension. Three things to check before then: your W-2 should show your tips and overtime pay in the right places, because the deduction is capped at what is reported; your lender should send you a statement of the car loan interest you paid; and if you turned 65 during 2026, the senior deduction is yours for the full year, since the test is your age on December 31. For a closer look at the rest of your 2026 tax picture, see our 2026 tax brackets and year-end moves guide and the Child Tax Credit rules for 2026.
Before April 15, 2027 — 3 checks
1. W-2 shows your tips and overtime pay. 2. Lender statement shows the car loan interest you paid. 3. You were 65 by December 31, 2026, for the senior deduction. Then attach Schedule 1-A.
Three mistakes that cost people this money
Treating "no tax" as "don't report." The tips deduction does not make tips disappear from your return. You still report them, your employer still reports them, and the deduction is claimed on Schedule 1-A. People who stop reporting tips lose the deduction and create a mismatch with the W-2.
Deducting the whole overtime paycheck. Only the premium — the extra half of time-and-a-half — counts. If you put the full overtime amount on Schedule 1-A, the number is wrong and the IRS has the W-2 to check it against.
Filing separately, or forgetting the paperwork. Married couples must file jointly to claim the tips, overtime, and senior deductions. The car loan deduction needs the vehicle identification number on the return, and the tips deduction needs an occupation on the IRS list. Each of these is a one-line miss that zeroes out a deduction worth thousands.
FAQ
Do I have to itemize to claim these?
No. Schedule 1-A works whether you take the standard deduction or itemize. The total goes on Form 1040, line 13b, and comes off your taxable income after adjusted gross income.
Does "no tax on tips" mean my tips are tax-free?
No. Social Security and Medicare tax still apply to your tips, and your employer still withholds them. The deduction only cuts your federal income tax, and only for qualified tips in an occupation on the IRS list.
I already filed my 2025 return. Can I still claim these?
Yes, in most cases. File an amended return, Form 1040-X, with Schedule 1-A attached. You generally have three years from your filing date, or two years from when you paid the tax, whichever is later, to claim the refund.
What if my income is above the phaseout threshold?
The deduction shrinks rather than disappearing at once. Run the income calculation in Part I of Schedule 1-A first — that is the number every one of the four deductions depends on. The car loan and senior deductions phase out at lower incomes than tips and overtime, so check those two first if your income is near $100,000.
Sources
- IRS Fact Sheet FS-2025-03: One Big Beautiful Bill Act — Tax deductions for working Americans and seniors (July 14, 2025): the $25,000 tips, $12,500 overtime, $10,000 car loan, and $6,000 senior deductions; phaseout thresholds; 2025–2028 effective period.
- IRS Fact Sheet FS-2026-04: Schedule 1-A, Additional Deductions (March 2026): the form, the four deductions, claimable with the standard deduction or itemized, total on Form 1040 line 13b.
- IRS News Release IR-2026-49: Final regulations listing occupations that receive tips (April 10, 2026): more than 70 qualifying occupations in eight categories; qualified tips must be voluntary.
- TurboTax: IRS Schedule 1-A Explained: 2026 returns due April 15, 2027; Schedule 1-A deductions are below-the-line and do not change adjusted gross income.
- PayrollOrg: One Big Beautiful Bill Act: phaseout reduction of $100 for each $1,000 of income above the threshold; employers still withhold tax on tips and overtime.
- How to file an amended return, Form 1040-X: three years from filing or two years from payment to claim a refund (26 U.S.C. § 6511; IRS Topic No. 308, Amended Returns).
Next step: pull your 2025 return and check whether Schedule 1-A is attached. If it is not, the number on Form 1040, line 13b is zero — and the W-2 your employer already sent is the document that decides how much of that zero you can turn back into a deduction.
This article is general information, not personal tax or financial advice. Confirm the deductions that apply to you with the IRS or a licensed tax professional before you file.
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