Disclaimer: This article is for educational purposes only and is not tax, legal, or financial advice. Tax rules change periodically, always check current IRS guidance or consult a qualified tax professional.
Estimate your refund and compare tax years. Free, 100% private.
Quick Answer: New Tax Deductions for 2026
The One Big Beautiful Bill Act (P.L. 119-21), signed July 4, 2025, created seven new or enhanced individual tax deductions starting with the 2026 filing season:
- Tips deduction: Up to $25,000 above-the-line
- Overtime deduction: Up to $12,500 ($25,000 MFJ) above-the-line
- Car loan interest deduction: Up to $10,000 above-the-line
- Senior deduction: $6,000 ($12,000 if both spouses are 65+) above-the-line
- SALT cap increase: Raised from $10,000 to $40,000 (itemizers only)
- Charitable deduction: $1,000 ($2,000 MFJ) for non-itemizers
- PMI deduction: Permanently reinstated (itemizers only)
The first four are claimed on the new Schedule 1-A and are available whether you itemize or take the standard deduction. Use the Tax Calculator US app to see how these deductions affect your refund.
Key Takeaways
- Seven new or enhanced deductions. The One Big Beautiful Bill Act created four brand-new above-the-line deductions (tips, overtime, car loan interest, seniors) and enhanced three others (SALT, charitable, PMI).
- No itemizing required for the big four. The tips, overtime, car loan interest, and senior deductions are all above-the-line. You can claim them alongside the standard deduction.
- Each deduction has its own phase-out. Income limits vary widely: the senior deduction starts phasing out at $75,000 MAGI, while tips and overtime don't phase out until $150,000.
- Schedule 1-A is the new form. The IRS created Schedule 1-A (Additional Deductions) to consolidate the four temporary deductions. It attaches to your Form 1040.
- Four deductions are temporary. Tips, overtime, car loan interest, and seniors apply to tax years 2025 through 2028 only. The SALT increase lasts through 2029. The charitable and PMI changes are permanent.
- Phase-out math matters. High earners may get a reduced deduction or none at all. Each deduction uses a different formula to reduce the benefit as income rises.
What Changed: The One Big Beautiful Bill Act
The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, as P.L. 119-21. Title VII of the Act contains all individual tax provisions, and it created the largest batch of new individual deductions since the Tax Cuts and Jobs Act of 2017.
For most taxpayers, the headline changes fall into two categories:
- Four new above-the-line deductions for tips, overtime pay, car loan interest, and seniors age 65+. These are reported on a brand-new form, Schedule 1-A (Additional Deductions), and are available whether you itemize or take the standard deduction.
- Three enhanced or reinstated deductions that affect itemizers and non-itemizers differently: a higher SALT cap, a new above-the-line charitable deduction for non-itemizers, and the permanent reinstatement of the mortgage insurance (PMI) deduction.
Most of the new deductions are temporary, applying to tax years 2025 through 2028. Unless Congress extends them, they expire after TY 2028. The SALT cap increase lasts through 2029. The charitable non-itemizer deduction and PMI reinstatement are permanent.
Here is a side-by-side comparison of all seven deductions:
| Deduction | Cap | Phase-Out Starts | Itemizing Required? | Temporary? |
|---|---|---|---|---|
| Tips | $25,000 | $150K / $300K MFJ | No | 2025-2028 |
| Overtime | $12,500 ($25K MFJ) | $150K / $300K MFJ | No | 2025-2028 |
| Car loan interest | $10,000 | $100K / $200K MFJ | No | 2025-2028 |
| Senior (age 65+) | $6,000 ($12K both 65+) | $75K / $150K MFJ | No | 2025-2028 |
| SALT | $40,000 ($40,400 TY 2026) | $500K / $505K TY 2026 | Yes | Through 2029 |
| Charitable (non-itemizer) | $1,000 ($2,000 MFJ) | N/A | No | Permanent |
| PMI | Varies | $100K AGI | Yes | Permanent |
Below, we cover each deduction in detail: who qualifies, the dollar cap, how the phase-out works, and where to claim it on your return.
No Tax on Tips: Qualified Tips Deduction (Up to $25,000)
The qualified tips deduction lets eligible workers deduct up to $25,000 per year in tips from their taxable income. It's an above-the-line deduction, so it reduces your adjusted gross income whether you itemize or not.
Who qualifies
- Employees and self-employed workers in occupations that customarily received tips on or before December 31, 2024. The IRS publishes a list of qualifying occupations.
- You must not work in a specified service trade or business (SSTB).
- Married taxpayers must file jointly. A valid Social Security Number is required.
What counts as qualified tips
Voluntary cash tips, charged tips, and tip-pool distributions all qualify. These are the amounts reported on your W-2 (box 7) or on Form 4137. Mandatory service charges set by your employer do not qualify.
Income phase-out
The deduction is reduced by $100 for every $1,000 of modified adjusted gross income (MAGI) above the threshold:
- Single: Phase-out begins at $150,000 MAGI; fully phases out at $400,000
- Married filing jointly: Phase-out begins at $300,000 MAGI; fully phases out at $550,000
For example, a single server with $200,000 in MAGI would lose $5,000 of the deduction ($50,000 over the threshold / $1,000 x $100), reducing the maximum from $25,000 to $20,000.
Where to claim it
Schedule 1-A, Part I. The total flows through to Form 1040 as an adjustment to income.
No Tax on Overtime: Qualified Overtime Deduction (Up to $12,500)
The qualified overtime deduction lets eligible hourly workers deduct up to $12,500 per taxpayer ($25,000 on a joint return where both spouses qualify) in overtime premium pay.
A critical detail: only the premium portion
This is the most misunderstood part of the law. Only the premium portion above your regular hourly rate is deductible. If you earn $20/hour and work overtime at time-and-a-half ($30/hour), only the extra $10/hour counts. Your base $20/hour for those overtime hours remains fully taxable.
Who qualifies
- Employees covered by FLSA Section 7 (hourly, non-exempt workers). Salaried exempt employees generally do not qualify.
- Married taxpayers must file jointly. A valid SSN is required.
Income phase-out
The deduction is reduced by $100 for every $1,000 of MAGI above the threshold:
- Single: Phase-out begins at $150,000 MAGI; fully phases out at $275,000
- Married filing jointly: Phase-out begins at $300,000 MAGI; fully phases out at $550,000
Where to claim it
Schedule 1-A, Part II. Your employer reports overtime premium pay separately on your W-2 starting in TY 2025.
Car Loan Interest Deduction (Up to $10,000)
For the first time, interest on qualifying auto loans is deductible, up to $10,000 per year. This is an above-the-line deduction available to all filers.
Vehicle requirements
The vehicle must meet all of the following:
- Type: Car, minivan, van, SUV, pickup truck, or motorcycle
- Weight: Gross vehicle weight rating (GVWR) under 14,000 pounds
- Assembly: Final assembly in the United States
- New vehicle only: Original use must begin with you (no used vehicles)
Fleet vehicles, commercial-only vehicles, leased vehicles, salvage/scrap vehicles, and vehicles purchased from related parties do not qualify.
How to verify U.S. assembly
Check the vehicle's window sticker (Monroney label), look up the VIN through the NHTSA VIN decoder, or ask the dealer. You must include the VIN on your tax return.
Income phase-out
The deduction is reduced by $200 for every $1,000 of MAGI above the threshold (a steeper phase-out than tips or overtime):
- Single: Phase-out begins at $100,000 MAGI; fully phases out at $150,000
- Married filing jointly: Phase-out begins at $200,000 MAGI; fully phases out at $250,000
Refinancing
Interest on a refinanced auto loan qualifies if the new loan is secured by a first lien on the vehicle and does not exceed the original loan amount. Your lender must provide an interest statement by January 31.
Where to claim it
Schedule 1-A, Part III.
Senior Deduction: $6,000 or $12,000 for Age 65+
Taxpayers who are 65 or older by the end of the tax year can claim a new above-the-line deduction of $6,000. If both spouses on a joint return are 65+, the deduction doubles to $12,000.
How it stacks
This deduction is in addition to the standard deduction and the additional standard deduction for age 65+. For a single filer 65+ in TY 2026, the combined benefit looks like this:
- Standard deduction: $16,100
- Additional standard deduction (age 65+): $2,050
- New senior deduction: $6,000
- Total before-tax shelter: $24,150
That adds up to $24,150 in income shielded from federal tax. For a married couple both 65+, the total can exceed $50,000. See our full breakdown in the Senior Tax Deduction 2026 guide.
Income phase-out
The deduction is reduced by 6% of MAGI above the threshold:
- Single: Phase-out begins at $75,000 MAGI; fully phases out at $175,000
- Married filing jointly: Phase-out begins at $150,000 MAGI; fully phases out at $350,000
At $100,000 MAGI (single), the reduction is 6% x $25,000 = $1,500, leaving a deduction of $4,500.
Where to claim it
Schedule 1-A, Part IV. Married taxpayers must file jointly and have a valid SSN.
More Deduction Changes: SALT, Charitable, and PMI
Three additional deductions were enhanced or reinstated by the One Big Beautiful Bill Act. These are not reported on Schedule 1-A, but they are still new for 2026. Note: the charitable and PMI changes take effect for TY 2026 (returns filed in 2027), while the SALT cap increase applies from TY 2025.
SALT deduction increase
The state and local tax (SALT) deduction cap was raised from $10,000 to $40,000 for tax year 2025 ($40,400 for TY 2026). For married filing separately, the cap is $20,000 ($20,200 for TY 2026).
There's a phase-down for high earners: the cap is reduced by 30% of MAGI over $500,000 ($505,000 for TY 2026), but it can never drop below $10,000. This means the full $40,000 SALT deduction is available to most itemizers, and even high earners still get at least $10,000.
The increased cap applies through TY 2029, then reverts to $10,000. Claimed on Schedule A (itemizers only).
Above-the-line charitable deduction
Non-itemizers can now deduct up to $1,000 per individual ($2,000 married filing jointly) for cash contributions to qualifying charities. This is a permanent change effective TY 2026 (filed in 2027), and it's available on top of the standard deduction.
There's also a new 0.5% floor on individual charitable deductions, meaning you can only deduct charitable contributions that exceed 0.5% of your AGI. This floor applies to both itemizers and non-itemizers. Claimed on Schedule 1.
PMI deduction reinstated
The mortgage insurance premium (PMI) deduction, which expired after TY 2021, has been permanently reinstated effective TY 2026. If you pay private mortgage insurance, those premiums are treated as deductible mortgage interest again.
The existing AGI phase-out still applies: the deduction begins to phase out at $100,000 AGI ($50,000 for married filing separately). Claimed on Schedule A (itemizers only).
How to Claim: Schedule 1-A and Your Tax Return
The IRS created a new form specifically for the four temporary deductions: Schedule 1-A (Additional Deductions). Here is how it works.
Schedule 1-A structure
The form has four parts, one for each deduction:
- Part I: Qualified tips deduction
- Part II: Qualified overtime deduction
- Part III: Auto loan interest deduction
- Part IV: Senior deduction
You fill in only the parts that apply to you. The total from Schedule 1-A flows to Form 1040 as an adjustment to gross income, reducing your AGI before the standard deduction or itemized deductions are applied.
Key point: above-the-line means accessible to everyone
Because these are above-the-line deductions, you don't need to itemize. You can claim the standard deduction ($16,100 single / $32,200 MFJ for TY 2026) and any Schedule 1-A deductions you qualify for. This is different from the SALT and PMI deductions, which require itemizing on Schedule A.
Where each deduction is claimed
| Deduction | Form/Schedule | Itemizing Required? |
|---|---|---|
| Tips ($25,000) | Schedule 1-A, Part I | No |
| Overtime ($12,500) | Schedule 1-A, Part II | No |
| Car loan interest ($10,000) | Schedule 1-A, Part III | No |
| Senior deduction ($6,000) | Schedule 1-A, Part IV | No |
| SALT ($40,000) | Schedule A | Yes |
| Charitable ($1,000) | Schedule 1 | No |
| PMI (varies) | Schedule A | Yes |
Tax software and IRS Free File
All major tax software providers (TurboTax, H&R Block, FreeTaxUSA, etc.) support Schedule 1-A for the 2026 filing season. IRS Free File also supports the new form. The software will ask screening questions to determine your eligibility and calculate your phase-out automatically.
Want to estimate the impact before you file? The Tax Calculator US app lets you model how these new deductions affect your refund.
2026 New Deduction Examples
These examples show how the new deductions work in practice using 2026 tax rules. Your results will depend on your full tax situation. Use the Tax Calculator US app to calculate your specific numbers.
Maria is a single restaurant server who earned $38,000 in wages plus $22,000 in tips during TY 2026.
- Qualified tips: $22,000
- Tips deduction cap: $25,000
- MAGI: $60,000 (below the $150,000 phase-out threshold)
- Tips deduction claimed: $22,000 (full amount, no phase-out)
- Standard deduction: $16,100
- Total deductions: $16,100 + $22,000 = $38,100
- Estimated tax savings: $22,000 x 12% marginal rate = $2,640
Maria's tips deduction alone saves her roughly $2,640 in federal tax. She claims it on Schedule 1-A, Part I, alongside her standard deduction.
James is a single hourly factory worker covered by FLSA Section 7. His regular rate is $25/hour, and he worked 400 overtime hours at time-and-a-half ($37.50/hour) during TY 2026.
- Total overtime pay: 400 hours x $37.50 = $15,000
- Deductible premium portion: 400 hours x $12.50 (the "half" in time-and-a-half) = $5,000
- Overtime deduction cap: $12,500
- MAGI: $72,000 (below the $150,000 phase-out threshold)
- Overtime deduction claimed: $5,000 (full amount, no phase-out)
- Estimated tax savings: $5,000 x 12% marginal rate = $600
Note that James can only deduct the $12.50/hour premium, not the full $37.50/hour overtime rate. His base pay for overtime hours ($25/hour x 400 = $10,000) remains fully taxable.
Robert and Susan are both 68 years old and file jointly. Their combined income is $95,000 from pensions and Social Security.
- Senior deduction (both 65+): $12,000
- MAGI: $95,000 (below the $150,000 MFJ phase-out threshold)
- Senior deduction claimed: $12,000 (full amount, no phase-out)
- Standard deduction (MFJ): $32,200
- Additional standard deduction (both 65+): $3,300 ($1,650 each)
- Total deductions: $32,200 + $3,300 + $12,000 = $47,500
- Estimated tax savings: $12,000 x 12% marginal rate = $1,440
The new senior deduction stacks on top of the standard deduction and the existing age-based additional deduction, sheltering about $47,500 from federal tax. The couple claims it on Schedule 1-A, Part IV.
Kevin and Lisa file jointly, earn $175,000 combined, and live in New Jersey. They bought a U.S.-assembled SUV in 2025 and pay $3,800/year in auto loan interest. They also pay $28,000 in state and local taxes.
- Car loan interest paid: $3,800
- Auto loan deduction cap: $10,000
- MAGI: $175,000 (below the $200,000 MFJ auto loan phase-out)
- Auto loan deduction claimed: $3,800 (full amount)
- SALT paid: $28,000
- SALT cap (TY 2025): $40,000
- SALT deduction claimed: $28,000 (full amount, below cap)
Kevin and Lisa claim the car loan interest on Schedule 1-A (above-the-line, no itemizing required) and the SALT deduction on Schedule A. They can claim the auto loan deduction regardless of whether they itemize for SALT.
Frequently Asked Questions
Tips for Claiming the New Deductions
- Keep documentation for every deduction you claim. Tips need W-2 box 7 or Form 4137 records. Overtime needs your pay stubs showing the premium portion. Car loans need the lender's interest statement and VIN. The IRS is likely to scrutinize these new deductions closely in the first few filing seasons.
- Check your MAGI against each phase-out threshold. The phase-outs differ for each deduction. You might qualify for the full tips deduction but get a reduced car loan interest deduction if your income is between $100,000 and $150,000. Run the numbers individually.
- Don't confuse total overtime pay with the deductible amount. Only the premium portion above your regular rate qualifies. If you earn $30/hour in time-and-a-half, only $10/hour (the extra half) is deductible. Your employer should report this separately on your W-2 starting in TY 2025.
- Verify U.S. assembly before buying a car for the deduction. Check the vehicle's Monroney sticker (window sticker), use the NHTSA VIN decoder online, or ask the dealer to confirm final assembly location. Vehicles assembled abroad do not qualify, even if the manufacturer is a U.S. company.
- Stack deductions where you can. The four Schedule 1-A deductions stack with each other and with the standard deduction. A 66-year-old tipped worker could claim up to $25,000 in tips + $6,000 senior deduction + $16,100 standard deduction + $2,050 additional standard deduction for age = $49,150 in total deductions.
- Use the Tax Calculator US app to model your refund. Plug in your income, tips, overtime, and age to see exactly how the new deductions affect your refund before you file.
References
- IRS: New and Enhanced Deductions for Individuals — Official IRS overview of all new and enhanced individual deductions created by the One Big Beautiful Bill Act.
- IRS: Schedule 1-A (Additional Deductions) -- What to Know About the New Form — IRS guidance on the new Schedule 1-A form, including which deductions are reported and how it connects to Form 1040.
- IRS: Treasury, IRS Provide Guidance on the New Deduction for Car Loan Interest — Official guidance on the auto loan interest deduction, including vehicle requirements, VIN reporting, and refinancing rules.
- IRS: One Big Beautiful Bill Provisions -- Individuals and Workers — Comprehensive IRS summary of all OBBBA tax provisions affecting individuals, including tips, overtime, and SALT changes.
- IRS: 2026 Filing Season Updates and Resources for Seniors — IRS guidance specifically for senior taxpayers, covering the new $6,000/$12,000 deduction and how it stacks with existing benefits.
- IRS: Tax Inflation Adjustments for Tax Year 2026 (IR-2025-103) — Official IRS announcement of all 2026 inflation-adjusted tax figures, including standard deduction amounts and SALT cap indexing.