The Internal Revenue Service (IRS) has unveiled a new draft form, Schedule 1-A, set to debut with the 2025 federal income tax returns.
This form introduces four brand-new tax deductions designed to provide relief for millions of Americans.
Taxpayers will now be able to claim deductions on qualified tip income, overtime pay, car loan interest, and an enhanced deduction for seniors.
These deductions are part of the recently passed One Big Beautiful Bill Act and will apply from 2025 through 2028.
While they bring promising opportunities to lower taxable income, taxpayers must understand the eligibility requirements, income thresholds, and reporting rules to maximize savings and avoid mistakes.
The new IRS Schedule 1-A is a two-page additional form filed with your federal tax return.
It provides taxpayers with access to below-the-line deductions—these lower your taxable income but do not reduce your Adjusted Gross Income (AGI).
The deductions include:
- Qualified Tip Income Deduction
- Qualified Overtime Pay Deduction
- Car Loan Interest Deduction
- Enhanced Deduction for Seniors (65+)
| Deduction | What Qualifies | Limitations / Caps |
|---|---|---|
| Tips | Cash tips, card tips, gift cards, or stablecoins tied to U.S. dollar value. Must be from recognized “tipped occupations.” | Maximum deduction of $25,000 per return. Phases out at incomes above $150,000 (single) and $300,000 (joint). |
| Overtime Pay | Overtime pay exceeding the regular hourly rate under federal law. | Maximum deduction of $12,500 (single) and $25,000 (joint). Subject to income thresholds. |
| Car Loan Interest | Interest on new auto loans taken in 2025, for cars assembled in the U.S. Must provide Vehicle Identification Number (VIN). | Up to $10,000 deductible annually. Excludes used cars or foreign-assembled vehicles. |
| Enhanced Senior Deduction | Additional deduction for taxpayers 65 and older. | Worth up to $6,000. Phases out at $75,000 (single) and $150,000 (joint). |
Unlike above-the-line deductions that reduce AGI, these new breaks are below the line. That means they:
- Reduce your taxable income
- Do not lower AGI thresholds for other credits (like Earned Income Tax Credit or education credits)
- May be less advantageous for high-income earners
Still, they remain valuable because they can be claimed without itemizing deductions, making them accessible to the majority of taxpayers who claim the standard deduction.
The IRS has identified nearly 70 occupations that customarily receive tips. Examples include:
- Bartenders and servers
- Hairstylists and shampooers
- Valet attendants
- Casino dealers and caddies
- Pizza delivery drivers
Only tips from legal, voluntary transactions qualify. Mandatory service charges or tips from illegal activities are excluded.
One of the most discussed provisions is the car loan interest deduction. To qualify:
- The loan must be taken out in 2025.
- The vehicle must be new and assembled in the U.S.
- The VIN must be reported on Schedule 1-A.
This aims to support domestic manufacturing while offering tax relief for car buyers.
Starting in 2025, seniors 65 or older can claim up to an extra $6,000 deduction.
However, the benefit phases out at higher income levels, ensuring that middle- and lower-income retirees receive the most value.
For many Americans, these new deductions could mean hundreds or even thousands of dollars in tax savings. For example:
- A restaurant worker with $5,000 in tips may save around $600 in federal taxes.
- A taxpayer paying $8,000 in auto loan interest on a new U.S.-assembled car could see a significant cut in taxable income.
- Seniors with modest incomes could reduce their tax bills by several thousand dollars.
Proper recordkeeping—including W-2s, 1099s, VIN details, and proof of reported tips—will be critical to ensure eligibility.
See also $400 Tax Rebate Program Launched — Eligibility and Payment Details
The IRS’s new Schedule 1-A introduces four groundbreaking deductions for tips, overtime pay, car loan interest, and seniors.
While they are below-the-line and subject to strict rules, they provide meaningful relief to working Americans, retirees, and families purchasing new U.S.-made vehicles.
Taxpayers should prepare now by tracking eligible income, saving loan records, and monitoring income thresholds.
With smart planning, these deductions could help lower taxable income and reduce overall tax burdens during the 2025–2028 window.
No. These deductions are available whether you itemize or take the standard deduction.
No. Only new cars assembled in the U.S., with loans originating in 2025, qualify.
They apply from 2025 through 2028 under current law. Unless extended, they will expire afterward.
