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IRS adds new schedule 1-A for 2025: Deductions for tips, overtime, car loans, and seniors
IRS rolls out Schedule 1-A for 2025, adding new deductions for tips, overtime, car loans on U.S.-made vehicles, and enhanced breaks for seniors.
The IRS has rolled out an early draft of Schedule 1-A, a new form that will need to be filed with 2025 federal income tax returns. The form is tied to the recently passed One Big Beautiful Bill Act and opens the door to four new tax breaks: qualified tips, qualified overtime, car loan interest, and a special deduction for older taxpayers.
The rules, though, are layered with restrictions. Income limits apply, and the provisions are temporary, only running from 2025 through 2028, according to the Detroit Free Press. Still, the changes matter to millions of workers, especially those in jobs where tips and overtime play a big role.
Deductions explained
According to the draft schedule, the breaks apply whether a filer itemizes or takes the standard deduction. The four areas include:
Tips: Cash tips, checks, credit card tips, even casino chips and dollar-tied stablecoins are eligible. Bitcoin and other cryptocurrencies that fluctuate in value don’t qualify.
Overtime: Workers can deduct part of their qualified overtime pay.
Car loans: The deduction is tied to interest on new cars bought in 2025, but only if the vehicle is assembled in the U.S. Used cars and imports don’t count. Taxpayers must list the vehicle identification number to claim it.
Seniors: Starting with 2025 returns, taxpayers age 65 and older can claim an extra $6,000 deduction. The benefit begins to phase out for individuals earning above $75,000 and couples above $150,000.
Also read: IRS confirms there are no plans for September 2025 stimulus checks, only tax refunds being issued
Who qualifies
The Treasury has listed nearly 70 occupations that can claim the “no tax on tips” deduction. The list includes bartenders, caddies, pizza delivery drivers, casino dealers, hair stylists, shampooers, even clowns. Public comments are open until October 23, leaving the door open to more jobs being added.
The maximum annual deduction for tip income is capped at $25,000 per return, Secretary of the Treasury Scott Bessent said in his statement.
Limits and fine print
All four are “below-the-line” deductions, meaning they lower taxable income but don’t adjust AGI. Tax experts note that while above-the-line breaks are usually broader, these new ones still matter because they’re available to everyone, not just itemizers.
Higher earners, however, may see benefits scaled back. The tip deduction phases out at $150,000 for single filers and $300,000 for joint returns. It’s not available to those filing separately.
The IRS is expected to finalize the form later this year, giving tax preparers and filers more clarity ahead of the spring 2026 tax season.
FAQs
What is IRS Schedule 1-A?
Schedule 1-A is a new two-page form introduced for 2025 tax returns. It lets taxpayers claim new deductions for tips, overtime, car loan interest, and seniors.
Who can claim the new deductions?
Workers who earn tips or overtime, taxpayers with new U.S.-assembled car loans, and seniors aged 65+ can claim deductions, subject to income limits.
How much is the new senior deduction?
Seniors age 65 and above can claim an additional $6,000 deduction. The benefit phases out at $75,000 for singles and $150,000 for joint filers.
Are tips from all sources eligible?
Tips received in cash, credit cards, gift cards, casino chips, and stablecoins qualify. Bitcoin and other volatile cryptocurrencies do not.
