All four are claimed on Schedule 1-A, a new IRS form attached to Form 1040, and you can generally claim them whether you take the standard deduction or itemize.
Qualified tips
Employees and self-employed individuals may deduct qualified tips received in occupations that the IRS lists as customarily and regularly receiving tips, up to $25,000 per return. The tips must be reported on a Form W-2, Form 1099, another statement or directly on Form 4137. The deduction phases out at higher incomes: for modified AGI above $150,000 ($300,000 for joint filers). It does not eliminate Social Security and Medicare taxes on the tips.
Qualified overtime compensation
You may deduct the premium portion of overtime pay required under the Fair Labor Standards Act — for example, the “half” in time-and-a-half — up to $12,500 ($25,000 for joint filers). It phases out for modified AGI above $150,000 ($300,000 joint). You and your spouse need valid SSNs, and married people generally must file jointly to claim it. Overtime that isn’t FLSA-required (such as some contractual premiums) may not count.
Car loan interest
You may deduct up to $10,000 of interest on a loan for a qualifying passenger vehicle bought for personal use. The vehicle must be new, have final assembly in the United States, and meet weight limits; it must be purchased in 2025 or later. Lease payments do not qualify. The deduction phases out for modified AGI above $100,000 ($200,000 joint). A vehicle identification number is reported on Schedule 1-A.
Enhanced deduction for seniors
Taxpayers who reach age 65 by the end of the tax year may claim an additional deduction of up to $6,000 each ($12,000 if both spouses qualify), phasing out for modified AGI above $75,000 ($150,000 joint). This is in addition to the existing extra standard deduction for age 65 and older. Valid SSNs are required, and married couples generally file jointly.
| Deduction | Maximum | Phase-out starts (single / joint MAGI) |
|---|---|---|
| Qualified tips | $25,000 | $150,000 / $300,000 |
| Qualified overtime | $12,500 ($25,000 joint) | $150,000 / $300,000 |
| Car loan interest | $10,000 | $100,000 / $200,000 |
| Senior deduction | $6,000 per person | $75,000 / $150,000 |
What these deductions do not do
- They do not eliminate payroll taxes (Social Security and Medicare).
- They do not automatically reduce your paycheck withholding; many people see the benefit when they file. You can adjust your W-4 if you expect large deductions.
- They do not apply to all income labeled “tips” or “overtime.” Only qualifying amounts count.
- States have their own rules; some have enacted similar deductions and others have not. Check your state agency.
How to claim
Complete Schedule 1-A with the amounts from your forms, and carry the totals to Form 1040. Tax software will walk you through it. Keep your pay stubs, W-2, and records of tips and overtime.
Where to verify
The IRS has dedicated pages describing each deduction and the occupations list. Because guidance and forms were new, check IRS.gov for any updates before you file.
Frequently asked questions
Is there really no tax on tips and overtime?
Not entirely. Qualified amounts up to specified limits are deductible for federal income tax for 2025–2028, but payroll taxes still apply and the deductions phase out at higher incomes.
How do I claim the new deductions?
On Schedule 1-A attached to Form 1040. You can claim them even if you take the standard deduction.
Does the senior deduction replace the extra standard deduction for 65+?
No. The $6,000 senior deduction is in addition to the existing extra standard deduction.
Official sources
- IRS: Schedule 1-A (new deductions) explained
- IRS: Tax deductions for working Americans and seniors
- IRS: Form 1040 instructions
- IRS.gov
General information only — not tax, legal or financial advice. Tax figures change every year; verify the current numbers at IRS.gov or with a qualified professional. Read the full disclaimer.