If you're filing your 2025 tax return and wondering about the new deductions you've been hearing about (no tax on tips, no tax on overtime, car loan interest, and the senior deduction), they all live on one brand-new form: IRS Schedule 1-A.
Released on March 2, 2026, Schedule 1-A is how you claim the four new below-the-line deductions created by the One, Big, Beautiful Bill Act (OBBBA).
Important: These Are Below-the-Line
These deductions do not reduce your AGI, so they won't improve eligibility for credits like the EITC, Child Tax Credit, or Roth IRA limits. Tips and overtime also remain subject to payroll taxes (Social Security + Medicare). The "no tax" branding refers to federal income tax only.
1. No Tax on Tips: Up to $25,000
Who qualifies: Workers in 68 IRS-recognized tipped occupations (wait staff, bartenders, salon workers, delivery drivers, rideshare drivers). Tips must be reported on W-2, 1099-NEC/MISC/K, or Form 4137. Must have a valid SSN and file jointly if married.
What doesn't count: Mandatory service charges/auto-gratuities (those are wages under Rev. Ruling 2012-18), tips in SSTBs, and unreported tips.
Phaseout: Reduces by $100 per $1,000 of MAGI over $150,000 (single/HoH) or $300,000 (MFJ). MFS not permitted.
2025 note: W-2 Box 12 code "TP" doesn't exist yet, so calculate manually from pay stubs. Starting 2026, employers must use the TP code.
2. No Tax on Overtime: Up to $25,000
The critical distinction: Only the premium portion is deductible, meaning the extra half of time-and-a-half, not the full overtime pay. Safe harbor: 1/3 of total overtime pay at 1.5x rate.
Who qualifies: FLSA-covered, non-exempt employees only. Hours must exceed 40/week at the required 1.5x rate. Max: $12,500 (single/MFS) or $25,000 (MFJ).
What doesn't count: State-only overtime (California daily OT after 8 hours unless also FLSA-qualifying), union premiums beyond FLSA minimums, holiday double-time, shift differentials, FLSA-exempt salaried employees, and self-employed individuals.
Phaseout: $150,000/$300,000 thresholds. This is the only Schedule 1-A deduction that allows MFS filing.
2025 note: W-2 Box 12 code "TT" doesn't exist for 2025. Starting 2026, only separately reported amounts will be deductible.
3. Car Loan Interest: Up to $10,000
Requirements: Loan originated after 12/31/2024, new vehicle only (original use begins with you), final assembly in the U.S. (verify via NHTSA VIN Decoder), under 14,000 lbs GVWR, first lien, personal use, VIN reported on Schedule 1-A.
What doesn't count: Used vehicles (no exceptions), leases, business vehicles, loans from relatives, vehicles assembled outside the U.S. regardless of brand.
Phaseout: Steeper than other deductions: $200 per $1,000 of MAGI over $100,000 (single) or $200,000 (MFJ). Fully gone at $150K/$250K. MFS not permitted.
4. Enhanced Senior Deduction: Up to $12,000
Who qualifies: Age 65+ by December 31 (born before Jan 2, 1961 for 2025). $6,000 per qualifying person, $12,000 if both spouses are 65+. Must use the standard deduction, as itemizers cannot claim this.
This stacks on top of the existing senior standard deduction addition ($2,000 single / $1,600 per spouse MFJ). A single filer 65+ gets: $15,350 + $2,000 + $6,000 = $23,350 total.
Phaseout (cliff structure): Reduces by 6% of MAGI above $75,000 (single) or $150,000 (MFJ). Drops to $0 above $175,000/$250,000. Plan IRA distributions and Roth conversions carefully around these thresholds.
How It Flows to Your Return
Schedule 1-A Part VI totals all four deductions → transfers to Form 1040, Line 13b → added to your standard/itemized deductions + QBI deduction → reduces taxable income.
State Tax Warning
Many states have not adopted these deductions. New Jersey confirmed non-conformity. Check your state before assuming these flow to your state return.
Common Mistakes
- Overclaiming overtime: only the premium (1/3 of total OT pay) is deductible, not the full amount
- Counting auto-gratuities as tips: mandatory service charges are wages, not tips
- Assuming your car qualifies: check assembly location via VIN decoder, not the brand name
- Missing the senior cliff: one dollar over the threshold eliminates the entire deduction
Between all four deductions, qualifying taxpayers could reduce taxable income by $50,000+. If you're unsure whether you qualify, contact TS CPA for a consultation.