The IRS is debuting a new two-page form called Schedule 1-A for 2025 federal income tax returns, and it’s designed to make it simpler for Americans to claim some shiny new deductions. From tips and overtime to car loan interest and senior-specific breaks, taxpayers have plenty to rejoice about—but plenty to stay on top of, too.
Four New Deductions to Know About
Here’s what Schedule 1-A will cover for eligible filers:
- Qualified tip income: Your cash tips may finally get some relief.
- Qualified overtime pay: Overtime hours could mean overtime savings.
- Car loan interest: Only for new cars built in the U.S. in 2025.
- Enhanced deduction for seniors 65+: An extra $6,000, though it phases out at higher incomes.
- Good news: These deductions work whether you itemize deductions or take the standard deduction. There are income limits and other restrictions to keep in mind, however, and the perks only last from 2025 to 2028.
Tips, but not all tips
Not all gratuities qualify for the new break. IRS guidelines specify that only voluntary tips qualify. That cash, check, credit card, debit card, gift card, or even stablecoin tips can qualify—but not mandatory service charges or obligatory tips. So, for example, if a restaurant adds an 18% service charge for large parties, the tips don’t qualify for the deduction.
Tips must also be reported on a W-2, 1099, or Form 4137 to deduct. Maximum deduction? $25,000 per return. That’s a potential $600 tax savings for a single taxpayer earning $50,000 with $5,000 in tips.
Car loans: More than just a ride
Car buyers have a few rules to remember. The deduction is just for new cars manufactured in the U.S. in 2025. No imports or used cars. And the IRS would prefer that you report the vehicle identification number for any car loan you deduct.
Seniors get a boost
There are seven lines on Schedule 1-A set aside specifically for taxpayers aged 65 and older. Up to $6,000 can be deducted by seniors, but it phases out for higher-income filers: $75,000 for single filers and $150,000 for joint filers.
Below-the-line, Not above-the-line
Schedule 1-A deductions are below-the-line, which means they decrease your taxable income but not your adjusted gross income (AGI). The difference is important because AGI influences your eligibility for other credits, such as the Earned Income Tax Credit or child tax credit.
Tax expert Tom O’Saben notes that while below-the-line deductions won’t reduce AGI, they do benefit itemizers and standard deduction filers as well. Since approximately 90% of filers take the standard deduction, that’s a lot of people who would be assisted.
Who qualifies for tip deductions?
Nearly 70 occupations are eligible, including bartenders, golf caddies, pizza deliverers, casino dealers, valets, hairstylists, and more. Tip pools, cash or cash-equivalent tokens—but not tips from illegal services, such as from illegal services—qualify.
Next steps for taxpayers
IRS guidance is still coming out piecemeal. The draft Schedule 1-A provides the framework, but instructions will come later. The Treasury also is asking for public input on the tip deduction through Oct. 23, 2025.
Taxpayers will have to keep diligent records of tips, overtime, car loans, and senior-related expenses in 2025 in order to fully benefit from these new deductions when they file next year.
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Key takeaway:
Schedule 1-A offers the chance for Americans to deduct tips, overtime, auto loans, and senior-focused breaks, but precise record-keeping will be paramount. While not every auto loan or tip will be eligible, the new form can save many taxpayers a lot of money in 2026 when they file their 2025 returns.
