Four New Tax Deductions You Might Already Qualify For (And the Gotchas That Could Trip You Up)
Tax season is my favorite time of year. I know that sounds strange — most people dread it. But here’s how I think about it: taxes are a game, and the rules are written down. If you know the rules and play by them, you get to keep more of your hard-earned money. The people who fear tax time are usually the ones who don’t know the rules. The ones who embrace it? They win.
What’s key is knowing the rules and advocating for yourself — because nobody else is going to do it for you.
When I was 21, I started doing my own taxes and missed deductions left and right. It’s what eventually pushed me to actually learn the tax code — not just the highlights, but the details. And even now, I’m constantly discovering new wrinkles, especially when things change.
The 2025 tax law enacted in July created four new deductions available through 2028. You’ve probably seen the headlines: “No tax on tips!” “No tax on overtime!” The headlines rarely tell the whole story.
The four deductions at a glance. All four are available whether you itemize or take the standard deduction. All four have income phase-outs. And all four are temporary — 2025 through 2028 only. One important clarification upfront: these are deductions, meaning they reduce your taxable income. They are not exemptions from payroll tax or “tax-free income.”
The tips deduction lets eligible workers deduct up to $25,000 in qualified tips. The overtime deduction allows hourly workers covered by federal overtime rules to deduct up to $12,500 ($25,000 married filing jointly). The car loan interest deduction covers up to $10,000 per year in interest on a new, U.S.-assembled vehicle. And the senior bonus deduction gives anyone 65+ an extra $6,000 ($12,000 for couples where both qualify).
Real benefits. Real money. But also real complications.
No tax on tips — but payroll taxes still apply. If you work in a tipped occupation — bartender, server, hotel housekeeper, salon worker, valet, and dozens more — you may be able to deduct up to $25,000 in tips from your federal income. The IRS published a list of about 68 qualifying occupations, covering food service, personal care, entertainment, and more. Your tips must be voluntary (mandatory service charges don’t count) and reported on your W-2, 1099, or Form 4137.
You might qualify and not realize it. The list includes occupations you’d expect — servers, bartenders, hairstylists — but also some that surprise people. Fitness instructors, childcare workers, and home repair workers are all included. Rideshare drivers and similar platform workers may qualify too, depending on how tips are reported. If customers have ever tipped you, it’s worth checking whether your occupation is on the list.
Here’s what the headlines leave out: you still pay Social Security and Medicare taxes (7.65%) on every dollar. The deduction only exempts you from federal income tax.
The math. Rosa is a bartender who earns $20,000 in reported tips in 2025, putting her in the 12% bracket. Under old rules, she’d owe $2,400 in federal income tax plus $1,530 in payroll taxes — $3,930 total on her tips.
Under the new rules, Rosa owes zero federal income tax on the tips. But she still owes $1,530 in payroll taxes. Her savings: $2,400. Real money — but not “tax-free tips” the way most people understand that phrase.
If Rosa earns $32,000 in tips, only the first $25,000 is deductible. She’d pay income tax on the remaining $7,000 (about $840) and payroll taxes on all $32,000. Still saving roughly $3,000 compared to old rules — but the tax isn’t zero.
The phase-out starts at $150,000 MAGI ($300,000 joint), reducing your deduction by $100 for every $1,000 of income above that threshold. And if you or your employer operates in health care, performing arts, or athletics, you may not qualify even if tips are customary.
No tax on overtime — but only the premium portion. This one has the biggest gap between headline and reality. If you’re an hourly worker entitled to overtime under federal law — warehouse workers, nurses, retail staff, manufacturing employees — you can deduct up to $12,500 ($25,000 joint) of “qualified overtime compensation.”
The catch: you can only deduct the premium portion — the “half” in time-and-a-half. Not the whole overtime check.
The math. Linda earns $22/hour at a warehouse. Overtime pays $33/hour (time-and-a-half). She works 120 overtime hours in 2025.
Total overtime pay: 120 × $33 = $3,960. But only the premium is deductible — the extra $11/hour above her regular rate. Deductible amount: 120 × $11 = $1,320. At 12%, her actual tax savings: about $158.
Linda might have expected her entire $3,960 to be tax-free. It’s not — she saves about $158 total, or roughly $1.32 per overtime hour.
Still worth claiming? Absolutely — always take free money.
Same phase-out: $150,000 single, $300,000 joint. And only federally-required overtime counts — extra pay from state laws, union contracts, or employer policies doesn’t qualify.
Car loan interest — check the VIN before you buy. This one hits close to home. A couple years ago, I bought an EV and discovered — after the fact — that I couldn’t claim the credit because my model wasn’t assembled in the United States. Same brand made some models in Ohio, some overseas. Different assembly location, different tax outcome.
The car loan interest deduction works the same way. You can deduct up to $10,000 per year in interest on a new vehicle — but only if it underwent final assembly in the U.S. Not just an American brand — final assembly is what matters.
How to check. If the VIN starts with 1, 4, or 5, it was assembled in the U.S. But don’t guess — use the NHTSA VIN Decoder at vpic.nhtsa.dot.gov/decoder before you sign anything.
A Honda Accord assembled in Ohio qualifies. A Toyota Camry assembled in Kentucky qualifies. But some models from those same manufacturers are built overseas and don’t. Check the specific vehicle’s VIN, not just the model.
Other requirements: must be new (not used), for personal use (not business), financed with a loan (leases don’t qualify). If you use it partly for business and deduct that portion separately, you can only claim the personal-use portion here.
Example. Derek finances a U.S.-assembled truck for $40,000 at 6%, paying $2,400 in interest year one. He uses it 30% for his landscaping business. For this deduction, he claims the personal portion: 70% × $2,400 = $1,680. At 22%, that saves him about $370.
Phase-out starts at $100,000 single, $200,000 joint. You must include the VIN on your return.
The senior bonus deduction — generous, but watch the phase-out. If you’re 65+ by December 31, you can claim an additional $6,000 deduction per person — $12,000 for couples where both qualify.
This stacks on what seniors already get. In 2025, a single filer 65+ could have: $15,750 base + $2,000 existing senior add-on + $6,000 new bonus = $23,750 total. A married couple where both are 65+ could reach $46,700.
The catch. The phase-out is lower than the other provisions — just $75,000 single ($150,000 joint), at 6% of every dollar above. By $175,000 single ($250,000 joint), it’s completely gone.
Barbara, 66, with $60,000 MAGI gets the full benefit: $23,750 total deduction. At $100,000, she’s $25,000 over threshold — her bonus drops by $1,500 to $4,500. Many middle-class seniors will land in this middle ground.
One more detail: you cannot claim this if you file married filing separately.
Mistakes to watch for. Because these rules are new, this is where people tend to get tripped up. Tax software may not prompt you correctly. Preparers may not catch them — tax prep is a volume business. You need to know these exist and advocate for yourself.
For tips: make sure you’re reporting them. The deduction only applies to reported income.
For overtime: don’t assume your whole check is deductible. Calculate the premium portion from your pay stubs.
For car loans: check the VIN before you buy. Leases and used vehicles don’t qualify.
For seniors: don’t forget the phase-out. The $75,000 threshold catches people off guard.
One more thing. The IRS has issued transition guidance for 2025. Employers and lenders aren’t yet required to separately report qualified tips, overtime, or vehicle loan interest the way they will in future years. Most tax software should incorporate this automatically — but understanding what’s happening helps you catch errors.
Where does this leave you? These deductions are worth claiming if you qualify. But the value is usually smaller than the headlines suggest — and the rules are more specific than most people realize.
If you work for tips, check the IRS occupation list.
If you work overtime, run the math on the premium portion.
If you’re financing a vehicle, verify assembly location before you buy.
If you’re 65+, watch the phase-out.
And if you use a preparer, ask about these specifically. These provisions are new enough that not everyone will think to check.