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The IRS published new Schedule 1-A and its related instructions (included in updated Form 1040 instructions published at the same time) on March 2, enabling taxpayers to deduct amounts for qualified tips and overtime and for the interest on certain car loans, as well as to claim the enhanced deduction for seniors.
These new federal income tax deductions were created by the One Big Beautiful Bill Act, which allows individuals an above-the-line deduction for qualified tips and qualified overtime compensation received in the 2025–2028 calendar years, subject to certain limitations and phaseouts. The IRS issued several items of guidance in the fall of 2025 with respect to qualified tips and overtime, including most recently Notice 2025-69 (PDF - 224.21KB)
Part II of the updated Form 1040 instructions explains how to determine the amount of qualified tips, how to claim the deduction of up to $25,000, and the phaseout for modified adjusted gross income (MAGI) greater than $150,000 ($300,000 for married taxpayers filing joint returns).
Part III of the updated Form 1040 instructions explains how certain workers can claim a deduction for overtime compensation they received up to $12,500 ($25,000 if married filing jointly) and how the deduction is reduced when MAGI exceeds $150,000 ($300,000 if married filing jointly). Married taxpayers must file a joint return to claim this deduction.
Taxpayers can claim both of these deductions whether they claim the standard deduction or itemize.
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