When working hard to sustain oneself, it is a relief to know that tips and overtime are no
longer taxed for some individuals. From 2025 to 2028, employees and self-employed
individuals may deduct qualified tips received in occupations listed by the IRS as
customarily and regularly receiving tips on or before December 31, 2024, and reported
on a Form W-2, Form 1099, or other specified statement furnished to the individual or
reported directly by the individual on Form 4137. This deduction is applicable to
voluntary cash or chargeable tips and can be claimed even if you take the standard
deduction. Tips continue to be subject to federal payroll taxes for Social Security and
Medicare. Non-exempt employees who earn overtime pay can deduct up to $12,500 in
qualifying overtime compensation per year. Married couples filing jointly can claim a
maximum deduction of $25,000. The deduction only applies to federal income taxes;
overtime wages are still subject to federal payroll taxes and appropriate state taxes.
Individuals can deduct up to $10,000 in car loan interest per year on a qualifying loan
for a new vehicle. This deduction is available regardless of whether you itemize or take
the standard deduction. It does not apply to used or leased vehicles. Senior tax
deductions allow individuals 65 and over to claim an additional $6,000. This new
deduction supplemented the current higher standard deduction for seniors under
existing legislation. The $6,000 senior deduction applies to each qualifying individual
($12,000 total for a married pair when both spouses qualify). The deduction is phased
away for taxpayers with a modified adjusted gross income of more than $75,000
($150,000 for joint filers).
