No tax on tips and overtime - IRS publishes instructions for claiming deductions

article

For the 2025 tax year, taxpayers will use the new Schedule 1-A and instructions included in the Form 1040 instruction booklet to take advantage of the deductions. (IRS)

The IRS has published filing instructions for the new Schedule 1-A and Form 1040 instructions for taxpayers to claim no tax on tips, overtime, and other deductions.

Dig deeper:

The One, Big, Beautiful Bill Act (OBBBA), includes provisions for no tax on tips and overtime, car loan interest deduction, and enhanced deductions for seniors. For the 2025 tax year, taxpayers will use the new Schedule 1-A and instructions included in the Form 1040 instruction booklet to take advantage of the deductions.

RELATED: Study reveals which states have the highest and lowest income tax burdens - See where your state ranks

IRS deduction for tips

Under the OBBBA, workers who receive qualified tips can deduct up to an annual maximum of $25,000. The deduction phases out for taxpayers with a modified adjusted gross income over $150,000, or $300,000 for joint filers. 

IRS deduction for overtime compensation  

The new instruction also explains how certain workers can claim a deduction for overtime compensation they received. Qualified taxpayers can claim a deduction of up to $12,500, $25,000 if married filing jointly.   

IRS deduction for car loan interest

With the OBBBA, taxpayers can claim a deduction for car loan interest. The deduction allows taxpayers to deduct vehicle loan interest on a qualified passenger vehicle whether they claim the standard deduction or itemize.   

IRS enhanced deduction for seniors  

The enhanced $6,000 deduction is for seniors born before Jan. 2, 1961 with a valid Social Security number. Married couples must file jointly to claim the benefit.   

IRS encourages tax filers to file returns electronically  

The IRS is encouraging tax filers to file their tax returns electronically and use direct deposit for faster, more secure processing of refunds. The IRS says filing electronically reduces tax return errors because the tax software performs the calculations, flags common errors, and prompts taxpayers for missing information.