New Tax Deductions for 2026: Tips, Overtime, Auto Loans, and More

The One Big Beautiful Bill Act introduced several new deductions for working individuals and families, effective for tax years 2025 through 2028. These provisions provide targeted tax relief for specific worker categories and purchases. The tip income deduction allows employees and self-employed individuals in occupations that customarily and regularly receive tips to deduct qualified tip income directly from taxable income. The maximum deduction is $25,000 for single filers (or $50,000 for married couples filing jointly, with each spouse limited to $25,000), but only if modified adjusted gross income is below $150,000 (single) or $300,000 (joint). Tips must be from occupations listed by the IRS as customarily and regularly receiving tips and must be reported on a Form W-2, Form 1099, or other specified statement. For service industry workers in restaurants, hospitality, transportation, and similar fields, this deduction is available—reducing taxable tip income subject to federal income tax on amounts up to $25,000 annually (IRC §11024).

The overtime deduction permits workers to deduct qualified overtime compensation (wages earned for hours worked beyond standard working hours, as defined by applicable labor laws). The maximum deduction is $12,500 for single filers and $25,000 for married couples filing jointly (not both spouses limited to $12,500 each—the limit is per household). The deduction phases out at $100 for every $1,000 of MAGI above $150,000 (single) or $300,000 (joint), reducing to zero at $275,000 (single) or $550,000 (joint). For workers earning overtime pay—such as nurses, construction workers, manufacturing employees, and others earning time-and-a-half or double-time for hours over 40 per week—this deduction is available whether you itemize or claim the standard deduction, making it valuable for most taxpayers. Additionally, a new deduction for vehicle loan interest allows individuals who financed the purchase of a new (not used) vehicle in 2025 to deduct up to $10,000 of interest paid during the year. The vehicle must be assembled in the United States and weigh less than 14,000 pounds (excluding trailers), and the deduction phases out for taxpayers with MAGI above $100,000 (single) or $200,000 (joint). This deduction benefits middle-income households purchasing American-made vehicles, incentivizing domestic automotive purchases.

Enhanced senior tax deductions provide additional relief for older Americans. Taxpayers age 65 and older are eligible for an additional $6,000 deduction per qualifying taxpayer (indexed for inflation), separate from and stacked with the increased standard deduction. For married couples filing jointly where both spouses are 65+, the combined additional deduction is $12,000. The deduction phases out at 6% per $1,000 of MAGI above $75,000 (single) or $150,000 (joint), completely phasing out at $175,000 (single) or $250,000 (joint). For a single senior with $75,000 MAGI, the standard deduction increases to $16,100 (2026 base) plus $2,050 (additional age 65+ standard deduction) plus up to $6,000 (new senior deduction), for a combined standard deduction of $24,150. This stacking of deductions allows seniors on fixed incomes or with modest retirement withdrawals to exclude up to $24,150 of income from federal tax. These deductions are all temporary, scheduled to expire after December 31, 2028 (IRC §11024(f)(1), reflecting OBBBA sunset provisions). Planning across 2026-2028 to manage income timing and charitable contributions becomes relevant before rules revert to 2025 standards in 2029.