Key takeaways
- Up to $25,000 of qualified tips and $12,500 of overtime premium ($25,000 jointly) can be deducted for 2025 to 2028.
- Both shrink by $100 for every $1,000 of income over $150,000 ($300,000 jointly).
- Seniors get an extra $6,000 each; car loan interest on a new US-assembled car is deductible up to $10,000.
- They are deductions, not exemptions: Social Security and Medicare still apply, and the saving depends on your tax rate.
On this page
The four new deductions
| Deduction | Maximum | Phase-out starts (single / joint) | Reduction |
|---|---|---|---|
| Qualified tips | $25,000 | $150,000 / $300,000 | $100 per $1,000 over |
| Overtime premium | $12,500 / $25,000 | $150,000 / $300,000 | $100 per $1,000 over |
| Car loan interest | $10,000 | $100,000 / $200,000 | $200 per $1,000 over |
| Seniors (65 or over) | $6,000 each | $75,000 / $150,000 | 6% of income over |
All four apply for tax years 2025 to 2028 and are claimed on Schedule 1-A, whether you take the standard deduction or itemize. Income here means modified adjusted gross income (MAGI).
Example: a server with tips and overtime
A single filer has MAGI of $62,000, including $9,000 of qualified tips and $3,000 of overtime premium, and paid $1,800 of interest on a loan for a new US-assembled car. All three are below the phase-out, so the new deductions total $13,800. After the $16,100 standard deduction, the rest of this income is taxed at 12%, so the federal saving is about $1,656.
Example: higher income
A single filer with MAGI of $160,000 and $30,000 of tips can count only $25,000. Income is $10,000 over $150,000, so the deduction falls by 10 × $100 to $24,000. A single person aged 65 with MAGI of $85,000 gets $6,000 minus 6% of $10,000: $5,400.
What counts
- Tips must be voluntary, in an occupation that customarily received tips, and reported on a W-2, 1099 or Form 4137. Automatic service charges do not count.
- Overtime means only the premium required by the Fair Labor Standards Act, usually the extra half of time-and-a-half.
- Car loan interest applies to a new vehicle for personal use, with final assembly in the US and a loan taken out after 2024. You must report the vehicle identification number.
- Married people must file jointly to claim the tips and overtime deductions, and a valid Social Security number is required.
The SALT cap for 2026
If you itemize, you can deduct up to $40,400 of state and local taxes in 2026. The cap falls by 30% of MAGI above $505,000, but never below $10,000.
Try your own numbers in the no tax on tips and overtime calculator. It is an estimate: check eligibility with the IRS or a tax professional before you file.
Sources
Fact-checked against the sources above. We test every tool we mention. Editorial policy.
