In partnership with
If you earn tips as a server, bartender, or hair stylist — or you’re an hourly worker who clocked overtime in 2025 — or you financed a new American-made vehicle — or you turned 65 last year — the IRS just published the form that puts money back in your pocket.
IR-2026-28 (March 2, 2026) announces that Schedule 1-A (Form 1040) is now final, Best of all, you can claim all of them whether you take the standard deduction or itemize.
Before we go deeper into this, please take a moment and click on the link below to check out a word from one of our sponsors.
Wake up to better business news
Some business news reads like a lullaby.
Morning Brew is the opposite.
A free daily newsletter that breaks down what’s happening in business and culture — clearly, quickly, and with enough personality to keep things interesting.
Each morning brings a sharp, easy-to-read rundown of what matters, why it matters, and what it means to you. Plus, there’s daily brain games everyone’s playing.
Business news, minus the snooze. Read by over 4 million people every morning.
📊 Here Are the Deets: The Four New Deductions
Deduction | Who Qualifies | Max Benefit | Phase-Out Starts |
|---|---|---|---|
No Tax on Tips2 | Tipped workers (servers, stylists, etc.) | $25,000 | $150K Modified Adjusted Gross Income (MAGI) ($300K joint) |
No Tax on Overtime3 | FLSA hourly/nonexempt workers | $12,500 / $25,000 joint | $150K MAGI ($300K joint) |
Car Loan Interest4 | New U.S.-assembled vehicle buyers in 2025 | $10,000 | $100K MAGI ($200K joint) |
Senior Deduction5 | Age 65+ as of Dec. 31, 2025 | $6,000 / $12,000 joint | $75K MAGI ($150K joint) |
Can You Use Schedule 1-A If You Take the Standard Deduction?
Yes — 100%. All four Schedule 1-A deductions are available whether you take the standard deduction or itemize. These are separate “below-the-line” deductions that reduce your taxable income on top of whichever method you already use.
The IRS confirmed in IR-2026-28 that taxpayers “can claim this deduction whether they claim the standard deduction or itemize.” The 2025 standard deduction (boosted by the OBBBA6) is $15,750 for single filers, $23,625 for heads of household, and $31,500 for joint filers (Revenue Procedure 2025-32)7 — and Schedule 1-A savings stack right on top.
🍽️ Part II: No Tax on Tips — Servers, Bartenders, Stylists
Tipped workers in occupations where gratuities are “customarily and regularly” expected:
· servers,
· bartenders,
· hotel housekeeping,
· hair stylists,
· nail techs,
· massage therapists,
· valets, and
· casino dealers
This list is not all-inclusive. Workers in these occupations can deduct up to $25,000 of qualified voluntary tip income. Tips must be reported on Form W-2 (Box 7), Form 4137, or Form 1099. Employers are responsible for that part. Mandatory service charges don’t qualify; only voluntary customer gratuities do. The deduction phases out above $150,000 MAGI ($300,000 joint), and married taxpayers must file jointly. See Notice 2025-678 and IR-2025-1149 for 2025 transition guidance.
⏰ Part III: Overtime Pay Tax Deduction — Nurses, Drivers, Warehouse Workers
FLSA-covered hourly employees — including registered nurses, truck drivers, warehouse workers, retail staff, and construction tradespeople — can deduct up to $12,500 of their overtime premium ($25,000 joint). The deduction covers only the “half” in “time-and-a-half,” not the entire overtime wage. Because employers weren’t required to separately report overtime premiums on 2025 W-2s, Schedule 1-A’s instructions include a worksheet to help you calculate the amount from your pay stubs. Salaried exempt employees and independent contractors don’t qualify. Phase-out starts at $150,000 MAGI ($300,000 joint). See IRS Notice 2025-6910 and IR-2026-1011 for a guide of FAQs on calculations.
As we go further into this, please take a moment and click on the link below to check out a final word from another one of our sponsors.
The Headlines Traders Need Before the Bell
Tired of missing the trades that actually move?
In under five minutes, Elite Trade Club delivers the top stories, market-moving headlines, and stocks to watch — before the open.
Join 200K+ traders who start with a plan, not a scroll.
🚗 Part IV: Car Loan Interest Deduction — New U.S.-Assembled Vehicles Only
Purchased a new passenger vehicle in 2025 with a qualifying loan? You can deduct up to $10,000 of the interest paid. The vehicle must be new (not used), assembled in the United States (verify via the Monroney sticker or NHTSA’s VIN database), bought for personal use, and financed — not leased. Popular qualifying brands include many Ford, GM, Tesla, Honda, Toyota, and BMW models built in U.S. plants. You’ll need the VIN on the form and your lender’s annual interest statement. Phase-out begins at $100,000 MAGI ($200,000 joint). I summarized the qualifying loan eligibility details in an early January edition of the Tax Clarity Newsletter, but greater detail is available in previous guidance.12, 13
👴 Part V: Enhanced Senior Deduction — Age 65 or Older in 2025
Taxpayers born before January 2, 1961 can claim an extra $6,000 deduction — on top of the existing additional standard deduction seniors already receive under current law. Both spouses can claim it if both qualify, for a combined $12,000. Phase-out starts at $75,000 MAGI ($150,000 joint) at a 6% rate. A valid Social Security number is required for each claimant. This deduction stacks with the standard deduction and is available to itemizers too.
⚠️ Five Things to Get Right
• Tips are still taxable income — report them on W-2 Box 7 or Form 4137 first, then offset with Schedule 1-A.
• Mandatory service charges are not tips; only voluntary customer gratuities qualify.
• Used vehicles and leases don’t qualify for the car loan interest deduction — new U.S.-assembled purchases only.
• Joint filing is required for tips, overtime, and the senior deduction if you’re married. Filing separately disqualifies you from all three.
• MAGI phase-out thresholds differ across all four deductions — check each Part separately, and gather pay stubs, W-2s, loan statements, and Social Security numbers before you file.
🚀 Your Bottom Line…
IR-2026-28 is the IRS’s official go-ahead for millions of service workers, hourly employees, new car buyers, and seniors to claim meaningful savings on their 2025 returns — without giving up the standard deduction. Tax software will populate Schedule 1-A automatically. With the April 15, 2026 deadline approaching, now is the time to gather your records and check your eligibility for each Part.
That’s the update, everyone! Thanks for taking the time to check out this e-mail edition of the Tax Clarity Newsletter on beehiiv.
Thank you so much!
DISCLAIMER: The information in this newsletter is derived from public information, provided for education purposes. It is not provided as a financial advisory service and should not be relied upon as such. For advice on a specific tax matter, please consult a tax professional.
References (13)
1 IR-2026-28, March 2, 2026 — IRS publishes Schedule 1-A and instructions for new OBBBA deductions.
2 IRC §224 - Qualified Tips
3 IRC §225 - Qualified Overtime Compensation
4 IRC §163(h)(4) - Special rules for taxable years 2025 through 2028 relating to qualified passenger vehicle loan interest
5 IRC §151(d)(5)(C) - Deduction for Seniors.
6 Pub. L. 119-21, One Big Beautiful Bill Act (OBBBA), signed July 4, 2025.
7 Rev. Proc. 2025-32 — 2025 standard deduction amounts and inflation adjustments.
8 Notice 2025-67 — Transitional guidance on the qualified tip deduction.
9 IR-2025-114 (Nov. 21, 2025) — Guidance for individuals who received tips or overtime in 2025.
10 Notice 2025-69 — Guidance on determining qualified overtime compensation.
11 IR-2026-10 (Jan. 23, 2026) — FAQs on the qualified overtime deduction.
12 Notice 2025-57 — Transitional guidance on car loan interest reporting.
13 IR-2025-129 (Dec. 31, 2025) — Guidance on the new deduction for car loan interest.