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Current Topics

Senior, tips, overtime and car-loan interest: what you can actually claim

These four deductions are real, but they are capped, shrink as income rises and cover tax years 2025 through 2028 only. Payroll taxes still apply.

Prepared by Prem Tax and Accounting Corp. Last reviewed November 6, 2026. Figures as of November 6, 2026.

Tips, overtime, turning 65 and a new car have made headlines. The four deductions created by Public Law 119-21, the law many call the One Big Beautiful Bill Act, are real but limited. Our Pay-Stub Pouch Check keeps the proof in one place. What stays and what ends sorts every rule and year, and our overview lists the other guides.

The short version

Four income tax deductions, tax years 2025 through 2028, claimed on Schedule 1-A whether or not you itemize.
They are deductions, not exclusions. They do not lower adjusted gross income (AGI), and Social Security and Medicare tax still apply.
Caps and phase-out starts are fixed and do not index. The reduction comes off what you earned or paid, up to the cap, not off the cap itself.

The four at a glance

Deduction	Largest amount	How income trims it	Trimming starts at MAGI
Senior, age 65 or older	$6,000 for each person	6 cents per dollar above the start	$75,000 single, $150,000 joint
Qualified tips	$25,000 per return	$100 per $1,000 above the start	$150,000 single, $300,000 joint
Overtime premium	$12,500, or $25,000 joint	$100 per $1,000 above the start	$150,000 single, $300,000 joint
Car-loan interest	$10,000 per return	$200 per $1,000 (or part) above the start	$100,000 single, $200,000 joint

MAGI is AGI plus certain excluded foreign and territory income.

Who qualifies

Seniors: age 65 by December 31, a Social Security number valid for work, and a joint return if married. It adds to the extra standard deduction.
Tips: cash or card tips in a job on Treasury's list of more than 70, with the same rules.
Overtime: only the extra half of legally required time-and-a-half pay, with the same rules.
Car loans: a loan taken after December 31, 2024 on a new, U.S.-assembled vehicle for personal use, with the VIN on your return. No leases or used cars.

Where the rules stand on November 6, 2026

Tips: final regulations (April 2026). Overtime: a notice for 2025, then IRS FAQs. Seniors: the form and its instructions.
Car loans: final regulations take effect November 9, 2026. Lenders report on Form 1098-VLI.
The 2026 W-2 adds codes TP (tips) and TT (overtime), plus a tipped-occupation code in box 14b. The 2025 employer reporting relief has not been extended to 2026.

An invented example

In 2026 Marco and Elena file jointly. Elena, a restaurant server, has $18,000 of qualified tips, and their MAGI is $340,000, $40,000 over the $300,000 start. The reduction is $4,000, taken from the $18,000 and not the $25,000 cap, leaving a $14,000 deduction. At a 24% bracket that saves about $3,360. The tips still carry $1,377 of Social Security and Medicare tax.

The Pay-Stub Pouch Check

Social Security numbers and birth dates for everyone claiming a deduction.
Year-end pay stubs or the W-2 showing tips (TP) or overtime (TT).
Your own tip log, for tips not on the W-2.
Car papers: contract, VIN, place of final assembly, lender statement.

Common questions

Is it really "no tax on tips and overtime"?

No. These are capped income tax deductions that fade out as income rises. Payroll tax applies, and Illinois still taxes the income. See [state and IRS gaps](/current-topics/obbba/state-and-irs-gaps/).

What if my W-2 does not show tips or overtime separately?

For 2025 you could work the amounts out from records. For 2026, IRS FAQs expect the W-2 to show overtime on its own.

Can the deductions be extended?

Only Congress can, and no law has as of November 6, 2026. See our [sunset countdown](/current-topics/year-end-2027/sunset-countdown/).

Official sources

Keep reading

Please read: general information only

This page gives general information and education about current federal and state tax topics, including recent legislation, planning ideas, retirement and annuity rules, and court decisions. It is not tax, legal, accounting, investment, insurance or other professional advice, and it is not a substitute for advice from a qualified CPA, attorney or other adviser who knows your facts. Reading it does not create a CPA-client or any other professional relationship with Prem Tax and Accounting Corp. Prem Tax and Accounting Corp is a CPA firm, not a law firm. It does not sell insurance or investment products, and it does not recommend, rate or sell any annuity, fund or other product. A planning idea, a strategy name or an example here is not a recommendation to take or avoid any action.

Tax rules, thresholds, rates and deadlines change often, and Congress, the IRS, the courts and the states change how they apply them. Guidance on recent legislation is still being issued. We checked the figures against the official sources named on the page on the date shown (last reviewed November 6, 2026), but we do not promise that this page is complete, current or free of errors, and we do not update it the moment a rule changes. Where the rules are unsettled or guidance is still pending we say so. Amounts for a future year are labelled planning figures until the IRS or another agency publishes them. Examples use invented numbers and are for illustration only.

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Questions about how the new tax law or your year-end moves apply to you? Keshav Agrawal is a U.S. CPA and a Chartered Accountant (CA) from India. We prepare U.S. and Illinois returns, plan with you, and work alongside your financial adviser, insurance agent or attorney. We sell no investment or insurance products. Book a 10-minute call or send us a message.

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