New Tax Breaks and Deductions: What to Know

There are new tax breaks being announced, focusing on areas like tips, overtime pay, senior deductions, and even interest on car loans. Many people filing income taxes are anticipating larger refunds or reduced tax liabilities this year.

However, while this may hold true for some, others might find that the new deductions don’t significantly impact their tax situation—or might even leave them with no relief at all.

This unfortunate reality is due to the complex eligibility rules that accompany these deductions. It often means that the expected relief may be less than what ads claim when they say, “there is no tax on…” In fact, you’ll need to fill out specific forms to actually receive these breaks.

So, it’s wise to manage your expectations. Remember, there’s really no such thing as truly tax-free income.

These deductions function by reducing the taxable amount owed by a certain percentage, which aligns with your tax bracket. For instance, in the 12% bracket, every $100 in deductions will lessen your federal tax bill by $12. If you’re in the 22% bracket, that reduction jumps to $22.

Moreover, there are income thresholds for claiming these deductions, along with specific qualifications for what counts as tips, overtime pay, car loan interest, and so forth.

Understanding the Deductions

How much can filers deduct? For couples both earning tips, the maximum is up to $25,000 for “qualified” tips. Interestingly, this limit doesn’t double for each spouse, according to the IRS.

What defines “qualified” tips? Essentially, these are tips obtained from customers or through shared arrangements in jobs where tipping is standard before December 31, 2024.

Also, keep in mind that tipping should be voluntary. So, if your job includes a mandatory gratuity, like an 18% tip for large parties, that doesn’t count.

If you’re self-employed, the rules change slightly. You can only deduct qualified tips that don’t exceed your gross business income, minus other deductions (not including tips).

Am I eligible? You can say yes if you fit the following criteria:

• Your modified adjusted gross income (MAGI) was under $150,000 in 2025 ($300,000 for married couples). If your MAGI goes above these limits, the deduction starts diminishing, and over $400,000 ($550,000 married), no deduction is permitted.
• You belong to one of the targeted industries.
• You possess a valid Social Security number.
• If married, you need to file jointly.

How much can filers deduct for overtime? “Qualified” overtime pay can reach up to $12,500 ($25,000 if married filing jointly). This is based on the portion of salary that exceeds the standard wage. So, if you’re earning overtime at a time-and-a-half rate, only the additional “half” is eligible for deduction.

Am I eligible for overtime deductions? Again, if you meet these standards, you’re in:

• Your MAGI was less than $150,000 in 2025 ($300,000 married). Exceeding these figures leads to reductions, and if your MAGI is over $275,000 ($550,000 married), you won’t be eligible for these deductions at all.
• You have a valid Social Security number.
• If married, a joint return is mandatory.

It’s worth noting that a measure often misrepresented as a “tax exemption on Social Security” is actually just an enhancement of the general senior deduction, without changing the tax status of Social Security benefits.

How much can filers claim for senior deductions? That’s up to $6,000 ($12,000 for married couples), in addition to your regular standard deduction or any itemized deductions.

Am I eligible for senior deductions? Here’s what you need to check:

• You or your spouse need to have been born before January 2, 1961. To qualify for the maximum deduction as a married couple, both individuals must be at least 65.
• Possession of a valid Social Security number is required.
• Your MAGI last year had to be under $75,000 ($150,000 for married). If it exceeds $175,000 ($250,000 married), you won’t qualify.

What about car loan interest deductions? Filers can deduct up to $10,000 if they meet all the following conditions:

• You paid or accrued “qualified passenger car loan interest” in 2025.
• Your loan began in 2025 for the purchase of a brand-new car. Loans from family or friends do not qualify.
• Vehicles must be for personal use, defined as over 50% personal reasons by the IRS.
• Final assembly of the vehicle needs to occur in the U.S., which you can verify via your VIN.
• Your MAGI in 2025 was $100,000 or less ($200,000 for couples). If it exceeds $149,000 ($249,000 married), no deduction applies.