By Piyush Shukla

Copyright indiatimes

The IRS now offers new tax breaks for workers. Eligible employees can keep more tips, overtime, and claim deductions, easing taxes and boosting take-home pay.

The IRS has introduced new tax breaks for millions of American workers. These changes let employees keep more of their hard-earned tips and overtime pay. They are part of a law signed earlier this year, designed to help working families. The new deductions apply to tax years 2025 through 2028. Workers in eligible jobs can now reduce their taxable income by claiming deductions for tips, overtime, car loan interest, and even extra deductions for seniors. This is one of the biggest updates for everyday workers in recent years. Many workers rely heavily on tips and overtime as part of their income. Until now, these earnings were fully taxable, which often meant paying higher taxes despite putting in extra hours. With the new law, more of this income stays in workers’ pockets. Experts say this is a significant financial boost for service workers, restaurant staff, and other tip-based occupations. It also encourages employees to work overtime without fearing that a big portion of their extra earnings will be eaten up by taxes. The law also includes deductions for car loan interest and seniors, helping middle-class Americans manage everyday expenses. For seniors, this extra deduction can be particularly helpful in covering medical bills or household costs.Live Events Workers should start reviewing their income and keeping accurate records of tips, overtime, and other eligible expenses. Doing so will make it easier to claim deductions and maximize the financial benefits. Tax advisors predict that millions of Americans will save thousands of dollars over the next four years. This law marks a rare moment where tax relief directly targets the people who work long hours and rely on variable income streams.What tip deductions are available to workers? Workers who earn tips can now claim up to $25,000 in deductions each year. This includes cash tips, card tips, and tips shared through tip pools. This deduction is available to both employees and self-employed workers in eligible occupations. It does not matter if you itemize your taxes or take the standard deduction. The goal is to make it easier for workers to pay less tax on money they actually earn. The deduction begins to phase out for higher-income earners. Individuals earning over $150,000 and joint filers making more than $300,000 will see a smaller deduction. This ensures that the benefit targets workers who need it most. How does the new overtime deduction work? Employees who work overtime can now deduct a portion of their extra pay. The law allows a deduction of up to $12,500 per year for overtime pay for single filers. Joint filers can claim up to $25,000. The deduction applies only to the portion of pay above the normal hourly rate. For example, “time-and-a-half” pay for extra hours is partially deductible. This new rule helps people who often work long hours to keep more of their income. Even part-time workers or those with occasional overtime can benefit. It’s designed to reward effort and ensure taxes don’t take an unfair share of extra work. Can i deduct car loan interest on my taxes? Yes. Taxpayers can now deduct interest paid on car loans for new U.S.-assembled vehicles. The maximum deduction is $10,000 per year. This deduction applies to both employees and self-employed individuals who meet income limits. It helps people who rely on personal vehicles for commuting or work-related travel. The deduction phases out for higher earners. If your income is above certain thresholds, the benefit gradually decreases. For many, this can reduce taxable income significantly, making car ownership more affordable. What extra deductions are available for seniors? Seniors now get a special boost on their tax returns. Individuals aged 65 and older can claim an additional $6,000 deduction. Couples filing jointly may claim up to $12,000. This extra deduction helps seniors manage living expenses, medical costs, and other essential spending. It also encourages older workers to continue participating in the workforce without worrying about losing income to taxes. Income limits apply. The benefit starts to reduce for single earners above $75,000 and joint filers above $150,000. Even with limits, this deduction can make a noticeable difference for many seniors. How do i claim these new deductions? To claim these deductions, workers will use a new form called Schedule 1-A. It is filed along with the standard tax return. Schedule 1-A includes sections for tips, overtime, car loan interest, and senior deductions. Workers calculate the amount they qualify for and include it in their main tax return. Employers will also play a role. They need to report tips accurately and provide statements to employees. This ensures deductions match what is reported to the IRS and keeps records clear. Who qualifies for these deductions? The deductions are primarily for employees and self-employed individuals in eligible occupations. Not all jobs are included, but most service and tip-based roles qualify. Higher-income earners may see the deduction phase out. This keeps the benefit targeted toward workers who need it most. Even if you take the standard deduction, these new rules allow you to claim deductions for tips and overtime. This is a major shift, designed to help more workers save money on taxes. Why are these deductions important now? For many Americans, tips and overtime are a significant part of income. Taxes on these earnings can reduce take-home pay by hundreds or thousands of dollars a year. The new deductions give workers more control over their finances. They can keep more of what they earn without complicated tax planning. It’s also a recognition of the effort put in by people working long hours and serving customers daily. This law is part of a broader effort to make tax rules fairer for working Americans. By simplifying deductions and expanding eligibility, it aims to reduce financial stress and increase disposable income. What should workers do next? Workers should review their earnings and understand how much they can deduct. Employers will provide statements showing tips and overtime earnings. These records will help calculate deductions accurately. Filing early and using Schedule 1-A can maximize benefits. Workers should also check if their income puts them near phase-out limits. This will help plan tax payments and avoid surprises. Even if you have never claimed these types of deductions before, this year is a good time to start. The new rules make it simpler and more rewarding to do so.Add as a Reliable and Trusted News Source Add Now!
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(You can now subscribe to our Economic Times WhatsApp channel)Read More News onIRS tips deduction form unveiled todayirs tax breaksworker tax deductionstips tax deductionovertime tax deduction2025 tax deductionssenior tax deductioncar loan interest deductionreduce taxable incomeirs news(Catch all the US News, UK News, Canada News, International Breaking News Events, and Latest News Updates on The Economic Times.) Download The Economic Times News App to get Daily International News Updates….moreless