The four new deductions, 2025 through 2028
Four federal deductions are new for tax years 2025 through 2028: qualified tips, qualified overtime, an extra deduction for people age 65 and older, and interest on a new-car loan. You claim them on Schedule 1-A, and the total goes to Form 1040 line 13b. You can claim them whether you take the standard deduction or itemize.
They are deductions, not free money. Each one has a cap and shrinks as your income rises. Social Security and Medicare tax (FICA) on tips and overtime still applies, and state treatment varies, so check your state tax agency.
| Deduction | Most you can deduct | Shrinking starts at MAGI | How it shrinks |
|---|---|---|---|
| Tips | $25,000 (shared by spouses) | $150,000; $300,000 joint | $100 per full $1,000 over |
| Overtime | $12,500; $25,000 joint | $150,000; $300,000 joint | $100 per full $1,000 over |
| Age 65+ | $6,000 per person | $75,000; $150,000 joint | 6% of the amount over, per person |
| Car loan interest | $10,000 | $100,000; $200,000 joint | $200 per $1,000 over, or part of it |
The limits are the same for 2025 and in the IRS draft 2026 schedule. Married people filing separately cannot claim the tips, overtime or age 65+ deductions, but they can claim car loan interest with the $100,000 threshold.
How to use the calculator
- Choose your filing status and enter your MAGI. For most people that is adjusted gross income, Form 1040 line 11b.
- Fill in only the sections that apply. Tips need a job on the Treasury list. Overtime means only the extra half of time-and-a-half required by the federal Fair Labor Standards Act. For tax year 2026, age 65+ means born before January 2, 1962.
- Read the estimate. It shows each deduction, the total and a rough federal income tax saving, worked out with the 2026 brackets and standard deduction. It is not a refund promise.
Example: a nail technician with tips
These numbers are made up. A single nail technician works at a salon as an employee, and customers freely pay $9,000 in tips during the year. Their MAGI is $48,000. Manicurists and pedicurists are on the Treasury list (occupation code 605), so these tips can be qualified tips if the other rules are met.
The deduction is the full $9,000, far below the $25,000 cap and the $150,000 point where shrinking starts. Estimated taxable income falls from about $31,900 to $22,900, and federal income tax falls by roughly $1,080. FICA is still due on the tips. A technician who rents a chair and is self-employed can count tips only up to the net income of that business, and for 2025 only tips that appear in amounts reported on Forms 1099.
Example: a warehouse worker with overtime
Another made-up case: a single warehouse worker earns a regular rate of $22 an hour and works 300 overtime hours in the year, each paid at time-and-a-half. Total overtime pay is $9,900, but only the extra half counts, which is one third of the total: $3,300. With a MAGI of about $55,660, the federal income tax saving is roughly $396. Double time, state daily overtime that federal law does not require, and holiday or weekend premiums for fewer than 40 hours do not count.
Shrinking in plain words
- Tips and overtime: only whole thousands count. At $150,999 a single filer loses nothing; at $151,000 they lose $100.
- Age 65+: a married couple who are both 65 or older with a MAGI of $170,000 are $20,000 over the joint threshold. Six percent of that is $1,200, so each person gets $4,800, or $9,600 together.
- Car loan interest: the reduction comes off the smaller of your interest and $10,000, not off the cap. With $3,000 of interest and a MAGI of $110,000 as a single filer, you are $10,000 over, so $2,000 comes off, leaving $1,000.
Checking where a car was assembled
Car loan interest counts only for a new vehicle that had final assembly in the United States. The VIN box can ask the National Highway Traffic Safety Administration (NHTSA) for the plant of manufacture, after checking that the VIN has 17 valid characters and a correct check digit. The answer is one of three: U.S. plant, plant outside the U.S., or no data. No data is not the same as foreign-built. The window sticker (vehicle information label) lists the final assembly point and is the other source the IRS accepts.
Your VIN goes to NHTSA only when you press the button. CentDaily does not receive, store or count it.
What this page cannot tell you
- Whether your own tips are qualified tips. Being on the Treasury list is one requirement among several.
- How the pending rule for specified service trades or businesses will end up. It can reach employees too, if their employer's business is one.
- Your state tax result, or whether lowering your withholding is wise. The IRS Tax Withholding Estimator and Form W-4 are linked on the page.
From 2026, employers report qualified tips in Form W-2 box 12 code TP, with an occupation code in box 14b, and qualified overtime in code TT.
Frequently asked questions
Do I have to itemize to claim these deductions?
No. You claim them on Schedule 1-A whether you take the standard deduction or itemize.
Do tips and overtime still owe Social Security and Medicare tax?
Yes. The deductions change only federal income tax. Social Security and Medicare tax still applies to tips and overtime, and your employer still reports and generally withholds it. States can treat these amounts differently, so check your state tax agency.
Which car loans qualify?
The loan must have started after December 31, 2024 and be used to buy a new vehicle with final assembly in the United States, for mostly personal use, secured by a first lien. Used vehicles and lease payments do not qualify. A refinance can still count.
CentDaily is not affiliated with the IRS or any government agency. This page gives general information and estimates, not tax advice, and the numbers are rounded. The rules are new and parts of them are still being finalized. Check the IRS instructions or ask a tax professional about your own situation.