The four new deductions
The One, Big, Beautiful Bill Act, signed in July 2025, created four temporary deductions that run from tax year 2025 through 2028. You can claim them whether you take the standard deduction or itemize.
| Deduction | Maximum | Phase-out starts (MAGI) |
|---|---|---|
| Qualified tips | $25,000 | $150,000 single, $300,000 joint |
| Qualified overtime | $12,500 ($25,000 joint) | $150,000 single, $300,000 joint |
| Seniors 65+ | $6,000 per person | $75,000 single, $150,000 joint |
| Car loan interest | $10,000 | $100,000 single, $200,000 joint |
No tax on tips
Workers in occupations that customarily received tips can deduct up to $25,000 of qualified tips a year. Tips must be voluntary cash or charged tips, and must be reported on a W-2, 1099 or Form 4137. The deduction shrinks once modified adjusted gross income passes $150,000 ($300,000 for joint filers). You need a valid Social Security number, and married couples must file jointly.
No tax on overtime
You can deduct the extra part of overtime pay required by the Fair Labor Standards Act, meaning the premium above your regular rate (the "half" in time-and-a-half), not the whole overtime paycheck. The limit is $12,500, or $25,000 for joint filers, with the same income phase-out as tips.
Extra deduction for seniors
Each person aged 65 or older by the end of the year can deduct an extra $6,000, or $12,000 for a married couple where both qualify. It is on top of the regular standard deduction and the existing additional deduction for age, and phases out above $75,000 of income ($150,000 joint).
Car loan interest
You can deduct up to $10,000 a year of interest on a loan taken out after December 31, 2024 to buy a new vehicle for personal use, if its final assembly was in the United States. Used vehicles and leases do not qualify, and you must report the vehicle identification number (VIN) on your return. The deduction phases out above $100,000 of income ($200,000 joint).
How to claim them
Your W-2 or other income statements should show qualified tips and overtime. Tax software asks about each deduction during the interview and applies the limits for you. Compare the best tax software.
FAQ
Can I claim these deductions if I take the standard deduction?
Yes. All four are available to itemizers and non-itemizers.
Are tips and overtime now tax-free?
Not entirely. They remain subject to Social Security and Medicare tax, and the deduction has limits and income phase-outs.
How long do the new deductions last?
They apply to tax years 2025 through 2028 unless Congress changes the law.
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Not advice: General information only, not tax, legal or financial advice. Consult a qualified tax professional. Dates and rules can change; check irs.gov for your situation.