4 Brand-New Tax Deductions You Can Claim in 2026

If you haven't heard about the One Big Beautiful Bill Act (OBBBA) yet, you're about to be glad you found this article. Signed into law on July 4, 2025, this sweeping legislation created four brand-new tax deductions that millions of Americans can claim starting with the 2025 tax year — and they're fully in effect for 2026.

These aren't small tweaks. We're talking about deductions worth up to $25,000 for tipped workers, $12,500 for overtime earners, $10,000 for car buyers, and $6,000 for seniors. And the best part? They're all "above-the-line" deductions, meaning you can claim them whether you take the standard deduction or itemize. You report them on the new Schedule 1-A.

Here's what you need to know about each one — and how to make sure you don't leave money on the table when you file.

1. No Tax on Tips (Up to $25,000)

If you work in a job where you regularly earn tips — waiting tables, bartending, cutting hair, driving rideshare, personal training — this deduction could save you thousands.

The OBBBA lets you deduct up to $25,000 in qualified tip income from your federal taxable income each year. That's a meaningful chunk of money. A server earning $30,000 in tips could shield most of that income from federal income tax.

Who qualifies?

You need to work in an occupation where tips are "customarily and regularly received." According to the IRS, that includes wait staff, bartenders, salon workers, valets, personal trainers, and many gig economy workers. The key word is voluntary — tips your customers choose to leave count, but mandatory service charges or automatic gratuities added to a bill do not, even if that money ends up in your pocket.

What to watch out for

There's an income phase-out. The deduction starts shrinking once your modified adjusted gross income (MAGI) exceeds $150,000 ($300,000 for married couples filing jointly). And here's a critical detail for 2026: only tips that are separately reported on your Form W-2, 1099-NEC, 1099-MISC, or 1099-K qualify. Make sure your employer is breaking out your tip income on your tax documents.

One more thing: this deduction only reduces your federal income tax. Your tips are still subject to Social Security and Medicare taxes. It's not literally "no tax on tips" — but it's still a significant break.

2. No Tax on Overtime (Up to $12,500)

This one catches a lot of people off guard because it doesn't work the way most expect. You can't deduct all your overtime pay — just the premium portion.

Here's what that means. Under the Fair Labor Standards Act, overtime pay is typically time-and-a-half. If you earn $20 an hour and work 10 hours of overtime, you get $30 per hour for those extra hours. The deduction applies only to the extra $10 per hour — the "half" in time-and-a-half — not the full $30. In this example, your qualified overtime deduction would be $100 (0.5 × $20 × 10 hours).

The cap and phase-out

You can deduct up to $12,500 per year ($25,000 for joint filers). The deduction phases out for taxpayers with MAGI above $150,000 ($300,000 for joint filers), shrinking by $100 for every $1,000 over the threshold.

Who's eligible — and who isn't

This is strictly for non-exempt workers who receive overtime pay under FLSA rules. If you're a salaried professional who's exempt from overtime, you don't qualify. The deduction is designed for hourly workers in manufacturing, healthcare, construction, retail, and similar fields.

Important: this deduction doesn't change your paycheck. Your employer still withholds federal income tax, Social Security, and Medicare from your overtime pay the same as before. You claim the deduction when you file your annual return, and it reduces your tax bill (or increases your refund) at that point.

Starting with the 2026 tax year, according to IRS guidance, your employer must separately report your qualified overtime compensation on your W-2 for the deduction to apply. If your overtime isn't broken out, you won't be able to claim this — so it's worth checking with your HR department now.

3. Car Loan Interest Deduction (Up to $10,000)

This is the newest and perhaps most surprising of the four deductions. For the first time, you can deduct interest on a personal car loan — up to $10,000 per year. But the rules are specific.

The requirements

Your vehicle must be new (not used), assembled in the United States, and it must be a qualifying passenger vehicle — cars, minivans, SUVs, pickup trucks, or motorcycles with a gross vehicle weight rating under 14,000 pounds. The loan must have been originated after December 31, 2024, and it must be a first lien secured by the vehicle. And the car has to be for personal use, not commercial or fleet purposes.

Income limits

The phase-out starts at $100,000 MAGI for single filers and $200,000 for married filing jointly — lower thresholds than the tips and overtime deductions. This one is really targeted at middle-income car buyers.

How to claim it

Starting with the 2026 tax year, your lender will send you a new tax form — Form 1098-VLI (Vehicle Loan Interest) — with the information you need. You'll include your vehicle identification number (VIN) on your return to prove it's a U.S.-assembled vehicle.

If you recently bought a new American-made car with a loan, this deduction could put real money back in your pocket. On a $35,000 loan at 7% interest, you'd pay roughly $2,400 in interest the first year — all deductible. That's a tax savings of $528 if you're in the 22% bracket.

4. The Senior Bonus Deduction ($4,000 or $6,000)

If you're 65 or older, the OBBBA gives you an additional deduction on top of the standard deduction you already receive. For 2026, it's worth $4,000 if you're age 65 to 78, and $6,000 if you're 79 or older. If both spouses in a married couple qualify, you can each claim your own — potentially up to $12,000 combined.

Income phase-out

The deduction phases out starting at $75,000 MAGI for single filers ($150,000 for joint filers). It's reduced by 6% of every dollar over the threshold. For single filers, it's fully phased out at $175,000 MAGI; for joint filers, $350,000.

Why it matters

The average Social Security benefit in 2026 is roughly $1,976 per month, according to the Social Security Administration. For a single retiree in the 12% tax bracket, a $4,000 deduction translates to about $480 in tax savings — not life-changing, but meaningful for someone on a fixed income. A couple both over 79 claiming the full $12,000 could save over $1,400.

This deduction stacks with the existing higher standard deduction for seniors, so eligible retirees are getting a bigger combined tax break than ever before.

These Deductions Are Temporary — Act Now

All four of these deductions expire after the 2028 tax year unless Congress extends them. That gives you three more filing seasons (2026, 2027, 2028) to take advantage.

Here's a quick action plan:

If you earn tips

Make sure every dollar is reported and separately broken out on your W-2 or 1099. Talk to your employer about compliance with the new reporting rules.

If you work overtime

Confirm with HR that your W-2 will separately report qualified overtime compensation for 2026. Keep your own records of overtime hours as backup.

If you bought (or plan to buy) a new car

Check that it was assembled in the U.S. — you can verify this through the VIN. Make sure your loan qualifies as a first lien. Watch for Form 1098-VLI from your lender early next year.

If you're 65 or older

No special action needed — just make sure you claim the deduction when you file. If your income is near the phase-out threshold, consider strategies like Roth conversions or charitable giving to manage your MAGI.

The Bottom Line

The One Big Beautiful Bill Act delivered some of the most significant new individual tax deductions in years. Whether you're a server, a nurse working overtime, a retiree, or someone who just bought a new truck, there's likely something here for you. The key is knowing the rules, keeping clean records, and making sure your employers and lenders are reporting your income correctly on the new forms.

Don't wait until tax season to figure this out. A quick conversation with your employer or a glance at your car loan documents now could mean hundreds — or thousands — more in your pocket next April.