WASHINGTON, D.C. – The Internal Revenue Service has released details of several new tax deductions available to working Americans and seniors beginning in tax year 2025, following the recent enactment of the One Big Beautiful Bill Act.
Signed into law by President Trump on July 4, 2025, the Act introduces four major tax provisions that apply through 2028. These deductions include relief for tip earners, overtime workers, vehicle buyers, and senior citizens.
“No Tax on Tips”
Effective for tax years 2025 through 2028, workers in occupations that customarily receive tips may deduct up to $25,000 of qualified tip income annually. The deduction is available to both employees and self-employed individuals, provided the tips are reported on IRS-accepted forms, such as Form W-2, Form 1099, or Form 4137.
Only tips voluntarily given by customers and received in listed occupations qualify. The IRS will publish a list of these occupations by October 2, 2025.
The deduction begins to phase out for taxpayers with modified adjusted gross income (MAGI) over $150,000, or $300,000 for joint filers. Self-employed individuals and employees working in “Specified Service Trades or Businesses” (SSTBs), such as law, health, or financial services, are not eligible.
“No Tax on Overtime”
Also effective from 2025 through 2028, taxpayers may deduct a portion of their qualified overtime pay — specifically, the premium amount paid above the regular rate (such as the “half” portion in time-and-a-half compensation).
The annual deduction is limited to $12,500, or $25,000 for joint filers, and phases out for MAGI over $150,000 ($300,000 joint). Both itemizing and standard deduction filers may claim the deduction, provided they report their Social Security Number and file jointly if married.
Employers will be required to furnish statements showing total qualified overtime paid.
“No Tax on Car Loan Interest”
For personal vehicles purchased after December 31, 2024, taxpayers may deduct up to $10,000 in annual interest on qualifying auto loans. The deduction applies only to interest on loans used to purchase new vehicles for personal use — not leases, used vehicles, or vehicles used for business.
Qualifying vehicles must weigh under 14,000 pounds, undergo final assembly in the United States, and include cars, SUVs, trucks, motorcycles, and vans.
This deduction phases out for taxpayers with MAGI above $100,000 ($200,000 joint). Taxpayers must include the Vehicle Identification Number (VIN) on their return.
Additional Deduction for Seniors
Taxpayers aged 65 or older by the end of the taxable year can claim a new $6,000 deduction beginning in 2025. For couples where both spouses qualify, the total deduction is $12,000. This is in addition to the existing senior standard deduction under current law.
The deduction phases out at $75,000 MAGI for single filers and $150,000 for joint filers. Taxpayers must file jointly if married and include the Social Security Number of the qualifying individual(s).
More information is expected to be released by the IRS throughout the year as implementation moves forward.