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. A married worker has to file a joint return to claim it at all. On a separate return the deduction is zero (IRC 224(b)(4)). 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 — and, like the tips deduction, nothing at all on a married-filing-separately return (IRC 225(b)(4)). 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 at $175,000 for a single filer and, on a joint return, at $250,000 if one spouse is 65 or older or $350,000 if both are. A married taxpayer has to file a joint return to claim it — on a separate return it is zero (IRC 151(d)(5)(C)(v)), though the age-65 addition to the standard deduction still applies. 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 ≈ $3,580. Saving: roughly $2,160, 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.