IRS: A Major New Bill Offers Tax Deductions for Employed Americans and Seniors

Internal Revenue Agency

WASHINGTON, D.C. – A new provision has been introduced as part of a significant bill that’s set to take effect on July 4, 2025, under Public Law 119-21.

“There is no tax on tips.”

1. New Deduction: From 2025 to 2028, employees and self-employed individuals can deduct eligible tips received in their jobs that the IRS recognizes as being conventionally and regularly reported up to December 31, 2024. There’s a maximum annual deduction of $25,000. For self-employed individuals, this deduction cannot exceed their net profit from the business where the tips were earned, especially for those with adjusted gross incomes over $150,000 ($300,000 for joint filers).
2. “Qualified Tips” refer to cash or billed tips received through customer service interactions or tip sharing.
3. The deduction phase-out applies to those with adjusted gross incomes exceeding $150,000 ($300,000 for joint filers).
4. Taxpayer Eligibility: Both itemized and non-itemized taxpayers can claim these deductions. However, self-employed individuals in specific types of service trades under Section 199A are not eligible, nor are employees of such businesses. Married couples must jointly report their Social Security numbers to claim this deduction.
5. Employers must submit information to the IRS (or SSA) that details the cash tips workers received.
6. Guidance: By October 2, 2025, the IRS will outline occupations that are considered “conventionally and regularly” reported. Transition relief will be provided for the 2025 tax year for those claiming deductions and for eligible employers and payers.

“There is no tax on overtime.”

1. New Deduction: For overtime earnings from 2025 to 2028, individuals can deduct wages that exceed the “half” portion of the Fair Labor Standards Act (FLSA) overtime rate. The maximum annual deduction is $12,500 ($25,000 for joint filers). There is also a phase-out for those with adjusted gross incomes over $150,000 ($300,000 for joint filers).
2. Taxpayer Eligibility: Available to both itemized and non-itemized taxpayers, those who are married must include their Social Security number jointly when filing to claim this deduction.
3. Employers must also submit information returns regarding these overtime payments to the IRS.
4. Guidance: Similar transition relief will apply for the 2025 tax year for eligible taxpayers and employers.

“There is no tax on car loan interest.”

1. New Deduction: Between 2025 and 2028, individuals can deduct interest on loans used to buy qualifying vehicles (not lease payments). The maximum annual deduction is $10,000 for those with adjusted gross incomes over $100,000 ($200,000 for joint filers).
2. Eligible vehicles include cars, minivans, SUVs, and trucks weighing less than 14,000 pounds, and they must be assembled in the U.S. The vehicle’s final assembly location, noted on its information label, helps determine eligibility.
3. Taxpayers must include the vehicle identification number (VIN) on their tax returns for the year they claim this deduction.
4. Report: Lenders must provide an information return to the IRS and indicate the total interest received during the tax year.
5. Guidance: Transition relief will be available for interest recipients affected by the new reporting requirements in the 2025 tax year.

Deduction for Seniors

1. New Deduction: From 2025 to 2028, individuals 65 and older can claim an additional $6,000 deduction, supplementing the existing standard deduction for seniors. This means a total of $12,000 for qualifying married couples. The phase-out begins for revised adjusted gross incomes over $75,000 ($150,000 for joint filers).
2. Qualified Taxpayers: Taxpayers must be 65 or older by the end of the tax year they are filing for, and must include the Social Security Number of the qualified individual on the return when married.