Charles Trautman, EA · Since 1969
They run from 2025 through 2028. Here is who gets them, how much, and what to bring.
The 2025 tax law created four deductions that didn’t exist before, and all four work the same way in one important respect: you get them whether you itemize or take the standard deduction. They go on a new form, Schedule 1-A, and they subtract from income after adjusted gross income, so they don’t change AGI, which is what most other limits and phase-outs are based on. Each one has an income limit, and each has fine print that decides whether you qualify.
Current as of October 2026 · Figures are for tax year 2026 · All four deductions expire after 2028 unless Congress extends them
| Maximum deduction | Phase-out begins (modified AGI) | How fast it phases out | |
|---|---|---|---|
| Qualified tips | $25,000 | $150,000 single / $300,000 joint | $100 per $1,000 over |
| Qualified overtime | $12,500 / $25,000 joint | $150,000 single / $300,000 joint | $100 per $1,000 over |
| Seniors, 65 and older | $6,000 per person | $75,000 single / $150,000 joint | 6% of income over |
| Car loan interest | $10,000 | $100,000 single / $200,000 joint | $200 per $1,000 over |
All four: available with the standard deduction, claimed on Schedule 1-A, tax years 2025 through 2028. Married couples must file jointly to claim the tip, overtime and car loan deductions. A Social Security number is required for the taxpayer (and the spouse, for a joint return).
Up to $25,000 a year, for people in jobs where tipping is customary.
Employees and self-employed workers in an occupation that “customarily and regularly” received tips as of December 31, 2024. The Treasury published the list: servers, bartenders, hotel and casino staff, hairdressers and barbers, drivers and delivery workers, golf caddies, movers, and so on. If your job isn’t on it, the deduction isn’t available even if customers tip you.
Cash, card and app tips, and tips from a tip pool, as long as they’re voluntary. A mandatory service charge, like the automatic 18% for a party of eight, is not a tip and doesn’t qualify. Tips have to be reported: on your W-2, on a 1099 if you’re self-employed, or on Form 4137.
It’s an income tax deduction only. Social Security and Medicare tax still come out of tips, and tips still count as income for everything else, including the earned income credit and Colorado tax.
The deduction can’t exceed the net profit of the business the tips came from. And a self-employed person in a “specified service” business, such as a consultant or performer, doesn’t qualify.
Up to $12,500 a year, $25,000 on a joint return — but only the premium part of the overtime pay.
This is the one most people get wrong. If you earn $30 an hour and overtime pays time-and-a-half, you get $45 for an overtime hour. The deductible part is the $15 premium, not the $45. Work 400 overtime hours in a year at that wage and the deduction is $6,000, not $18,000.
It has to be overtime that federal wage law requires — hours over 40 in a week under the Fair Labor Standards Act. Overtime paid under a union contract or a state law that goes beyond the federal rule, like daily overtime, doesn’t qualify for the extra part. Salaried employees who are exempt from overtime rules don’t have qualified overtime at all, even if their employer pays extra for long weeks.
Your employer reports the qualified amount in a new box on the 2026 W-2. For 2025 many employers didn’t have the box yet and reported it separately or not at all, which is why some 2025 returns needed a pay-stub reconstruction.
When the W-2 box is blank or looks wrong, we go back to the year-end pay stub and separate the premium from the regular pay, hour by hour if we have to. Nurses, police officers, firefighters and warehouse workers with a lot of overtime are the ones where this is worth real money — and the ones whose payroll departments are most likely to have reported the full overtime wage instead of the premium.
For each person 65 or older by the end of the year. $12,000 for a couple who both qualify.
This one was sold as “no tax on Social Security.” That is not what it does. The formula that taxes Social Security is untouched. What you get is a $6,000 deduction from taxable income if you’re 65 or older, whether or not you receive Social Security, whether or not you itemize, and on top of the extra standard deduction for age that already existed ($2,050 single or $1,650 per person married, for 2026).
For a retired couple, both over 65, with $90,000 of income, the $12,000 deduction is worth roughly $1,400 to $2,600 of federal tax, depending on the bracket. It phases out at six cents per dollar above $75,000 of modified AGI for a single filer or $150,000 joint, and is gone entirely at $175,000 and $250,000.
You don’t have to do anything to claim it; the software applies it from your date of birth. Both spouses must be 65 for the couple to get $12,000; if one is 63, it’s $6,000.
Retirees doing Roth conversions or large IRA withdrawals: the senior deduction phases out on modified AGI, so a conversion that pushes a couple past $150,000 costs part of the deduction along with everything else. We size conversions with that line in mind. Social Security, RMDs and IRA gifts.
Up to $10,000 a year of interest, on the right car with the right loan.
New, not used. Bought for personal use. Cars, SUVs, pickups, vans and motorcycles under 14,000 pounds. Final assembly in the United States, which you check by the VIN. Plenty of foreign-brand vehicles qualify and plenty of American-brand ones don’t; the plant decides, not the nameplate.
Taken out after December 31, 2024, secured by the vehicle, from a lender that isn’t a relative. Refinancing a qualifying loan keeps the deduction. Leases don’t qualify, and neither does a loan on a car used in a business.
The VIN goes on the return. Lenders send a statement of interest paid; for 2026 they’re required to report it. Keep the purchase contract.
$10,000 of interest is a lot — it takes a loan of well over $100,000 to pay that in a year. For most people the deduction is the actual interest, a few hundred to a couple thousand dollars. It phases out above $100,000 of modified AGI single, $200,000 joint.
Colorado starts its return from federal taxable income, so a federal deduction flows through to the state return unless the legislature adds it back. For 2026 it added one back: the overtime deduction is added back on the Colorado return, so overtime pay is fully taxed by the state. The tips deduction flows through and reduces Colorado tax too. The senior deduction and car loan interest also flow through as of this writing. Colorado changes for 2026.
Yes. The deductions are for income tax only. Payroll taxes come out the same as before, and the earnings still count toward your Social Security record.
No. The occupation has to be on the Treasury list. The list is broad — it covers most of food service, hospitality, personal care, transportation and delivery, and some home services — but it is a list.
Yes, if your modified AGI is under the phase-out. It isn’t tied to retirement or to Social Security.
The tip, overtime and car loan deductions require a joint return if you’re married. The senior deduction is available on a separate return, with the single-filer phase-out.
Not unless Congress acts. All four are written to expire after the 2028 tax year. What’s already scheduled.
Bring the W-2 and the pay stub. We’ll figure the deduction and check that the employer reported it right. In person in Lone Tree or remotely, year round.
This page is general information, current as of October 2026, and is not advice about your situation. Tax law changes every year. Confirm anything that matters to you with us or at the sources below.