Four new deductions, all temporary (2025 through 2028)
The OBBBA, signed July 4, 2025, added four "above-the-line-style" deductions you can claim even if you take the standard deduction. They apply to tax years 2025–2028 and all phase out at higher incomes. None of them are automatic — you must claim them on your return (the IRS added Schedule 1-A for this purpose).
1. No tax on tips — up to $25,000
Workers in occupations that customarily receive tips (the IRS published the official occupation list) may deduct up to $25,000 of qualified tip income ($12,500 if married filing separately). Tips must be voluntary, reported on your W-2, 1099, or Form 4137 — mandatory service charges don't count. The deduction phases out at 10% of MAGI above $150,000 (single) / $300,000 (joint). Important: tips remain subject to Social Security and Medicare tax, and you still report them as income first, then deduct.
2. No tax on overtime — up to $12,500 ($25,000 joint)
You may deduct the premium portion of FLSA-required overtime — the "half" in time-and-a-half. Work 100 overtime hours at $30 base ($45 OT rate): the deductible amount is 100 × $15 = $1,500, not the full $4,500. Caps are $12,500 single / $25,000 joint, with the same phase-out as tips. Your W-2 (box 12/14 reporting was updated for 2026) shows the qualified amount; for 2025 returns employers could use reasonable methods to report it.
3. The $6,000 senior deduction (age 65+)
Taxpayers who turn 65 by year-end may claim an extra $6,000 deduction per qualifying person ($12,000 for a joint return where both spouses qualify) — on top of the regular additional standard deduction for age, and available to both itemizers and standard-deduction filers. It phases out at 6% of MAGI above $75,000 (single) / $150,000 (joint), disappearing entirely around $175,000 / $250,000. While it doesn't literally "end tax on Social Security," for most middle-income retirees it offsets some or all of the tax on benefits.
4. Car loan interest — up to $10,000
Interest on a loan for a new personal-use vehicle with final assembly in the United States is deductible up to $10,000 per year, for loans originated after December 31, 2024. Used vehicles, leases, and business vehicles don't qualify. Phase-out: 20% of MAGI above $100,000 (single) / $200,000 (joint). Your lender reports interest paid; the VIN determines assembly location.
Worked example: a serving professional
A single restaurant server earns $48,000 in 2026: $30,000 base wages plus $18,000 in reported tips. Taxable income before the tips deduction: $48,000 − $16,100 standard deduction = $31,900. The tips deduction removes the full $18,000 → taxable income $13,900 → federal income tax ≈ $1,420 instead of ≈ $3,818. Saving: roughly $2,400 — but FICA on the tips is still due, and the tips must be reported to count.
Claim checklist
- Tips: confirm your occupation is on the IRS list; ensure all tips run through payroll reporting.
- Overtime: only the FLSA premium qualifies; check your W-2's qualified-overtime box.
- Seniors: claim per qualifying spouse; watch the MAGI phase-out before doing Roth conversions.
- Car loans: verify U.S. final assembly via the VIN before you buy if the deduction matters to you.