The One Big Beautiful Bill Act (Public Law 119-21, signed July 4, 2025) created a set of new federal deductions for tax years 2025 to 2028. They are all claimed on one new form, Schedule 1-A, and they all reduce taxable income rather than tax owed directly. This guide walks through each one, what it actually covers, and the mistake people most often make with it.
Two reference pages sit beside this guide: the caps and phase-outs reference and the deductions timeline.
No tax on overtime: only the premium
The overtime deduction covers the premium part of overtime pay required by the Fair Labor Standards Act: the extra half in time and a half. It does not cover your whole overtime pay, and it does not cover extra amounts an employer pays under state law, a union contract or its own policy beyond what the FLSA requires. The cap is $12,500, or $25,000 on a joint return, and it phases out over $150,000 of modified adjusted gross income ($300,000 joint). Work your figure with the overtime calculator and read the detail in no tax on overtime.
No tax on tips: listed occupations, $25,000 cap
The tips deduction covers cash tips, including card tips, received in an occupation that customarily and regularly received tips on or before December 31, 2024. The IRS has published the list: 71 occupations in 8 categories. The cap is $25,000 per tax return, not per person, and the same $150,000 / $300,000 phase-out applies. Mandatory service charges are not tips. Check your job in the occupation checker, browse the full list, then use the tips calculator.
Car loan interest: qualification is the hard part
The car loan deduction covers up to $10,000 a year of interest on a loan for a new, personally used vehicle with final assembly in the United States, where the loan was originated after December 31, 2024 and is secured by a first lien. Used cars and leases never qualify. Its phase-out is the steepest of the three: $200 for every $1,000 or part of $1,000 over $100,000 of MAGI ($200,000 joint), so it is gone by $150,000 ($250,000 joint). Start with the car loan checker, which runs the qualification questions before any number.
The 1099 thresholds changed too
Two reporting rules changed alongside the deductions. Form 1099-K from payment apps and marketplaces went back to the old test: over $20,000 AND over 200 transactions, both required. And the 1099-NEC and 1099-MISC threshold rose from $600 to $2,000 for payments made from 2026, with exceptions that stayed put. The threshold checker answers by form and payment year.
One more deduction lives on the same form
Schedule 1-A also carries an additional deduction for seniors. This site does not build a calculator for it, because it sits outside the worker-focused set above, but it exists and may apply to you or a parent: see the IRS page for Schedule 1-A for its rules.
What all of them share
They apply to tax years 2025 to 2028 and then sunset. They reduce taxable income, so their cash value depends on your own marginal rate (see deduction vs tax credit). And from 2026, the amounts generally have to be reported to you on a form first: overtime in W-2 Box 12 code TT, tips in code TP. How the claiming works, part by part, is in the Schedule 1-A guide.