The IRS has published new Schedule 1-A that taxpayers will use for tax year 2025 to claim the One Big Beautiful Bill Act (OBBB) deductions for tips, overtime, and car loan interest as well as the enhanced deduction for seniors. (IR 2026-28, 3/2/2026)
Schedule 1-A and its related instructions – included in the Form 1040 Instructions – allow taxpayers to deduct amounts for these new categories. Generally, taxpayers can claim these new deductions whether they claim the standard deduction or itemize their deductions.
Tips Deduction
Taxpayers now can claim a deduction for qualified tips of up to $25,000. The deduction is phased out for taxpayers with a Modified Adjusted Gross Income (MAGI) greater than $150,000 ($300,000 if married filing jointly).
To claim the deduction, the tips must be reported. In addition, married taxpayers are required to file a joint return. The taxpayer who received the tips must have a valid Social Security number.
The instructions provide examples and worksheets to help workers calculate their tipped income. The instructions also direct taxpayers to the list of occupations eligible for the deduction.
Overtime Deduction
Certain workers can claim a deduction of up to $12,500 for overtime compensation they received (or up to $25,000 if married filing jointly). This deduction is reduced when MAGI exceeds $150,000 ($300,000 if married filing jointly).
Married taxpayers must file a joint return to claim this deduction. The taxpayer who received the overtime pay must have a valid Social Security number.
The instructions specify that qualified overtime compensation is overtime paid as required under Fair Labor Standards Act, Section 7, and is in excess of the employee’s regular rate of pay. Per the instructions, premium pay, holiday and weekend pay, and certain overtime paid under state laws should not be included in figuring the deduction.
Car Loan Interest Deduction
Taxpayers can claim a deduction for qualified passenger vehicle loan interest for loans originated after December 31, 2024.
The deduction is limited to $10,000. It is reduced for taxpayers whose MAGI exceeds $100,000 after applying the $10,000 limit ($200,000 if married filing jointly).
The instructions define key terms such as “applicable passenger vehicle,” “final assembly in the United States,” and “personal use.”
Enhanced Deduction for Seniors
Taxpayers born before January 2, 1961, may qualify for the enhanced senior deduction. The maximum deduction is $6,000 per qualifying person. For married couples filing jointly where both spouses qualify, the maximum deduction is $12,000.
The deduction is reduced if the taxpayer’s MAGI exceeds $75,000 ($150,000 if married filing jointly).
To claim the deduction, married couples must file jointly. Each individual claiming the deduction must have a valid Social Security number.
For more information on the new OBBB individual deductions, see the IRS’ One, Big, Beautiful Bill Provisions webpage.
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