The New Tax Deductions for Tips, Overtime, Seniors and Car Loans (2025-2028), Explained Simply

The 2025 tax law created four new deductions that apply to tax years 2025 through 2028. They're taken whether you itemize or use the standard deduction. Here's who qualifies and what to keep.

Tips: Workers in occupations that customarily receive tips can deduct qualified tips, up to $25,000 a year. The deduction phases out once modified adjusted gross income passes $150,000 ($300,000 for joint filers). Tips need to be reported - on your W-2 or 1099, or on Form 4137 - so keep your tip records.

Overtime: If you're paid overtime under the Fair Labor Standards Act, you can deduct the premium portion (the "half" in time-and-a-half), up to $12,500 a year ($25,000 joint), with the same income phase-out as tips. Your regular rate for those hours isn't deductible - only the extra.

Seniors: Taxpayers age 65 or older get an additional $6,000 deduction ($12,000 if both spouses qualify). It phases out above $75,000 of income ($150,000 joint), and it's on top of the existing extra standard deduction for age.

Car-loan interest: Interest on a loan for a new personal-use vehicle whose final assembly happened in the U.S. can be deducted, up to $10,000 a year, phasing out above $100,000 ($200,000 joint). Used cars, leases and business vehicles don't qualify, and you'll need the VIN on your return.

What to keep: W-2s and pay stubs showing tips and overtime separately, Form 4137 if you reported tips yourself, your loan statement showing interest paid, and the vehicle's VIN.

Common mistakes: deducting all overtime pay instead of just the premium, claiming the car-loan deduction on a used vehicle, and forgetting the income phase-outs. These rules are new and the IRS is still issuing guidance, so check current instructions or talk with a preparer before you file.

- Robert Allen Bautista, independent tax preparer, Kansas City

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