How the 2026 deductions work (and which one applies to you)
If you have heard that overtime, tips, or car loan interest became "tax-free" in 2026, the reality is more specific and more useful to understand. The One Big Beautiful Bill Act created four new deductions for tax years 2025 through 2028. Each lowers the income you are taxed on, each has a dollar cap, and each shrinks as your income rises. This page is the map: it explains how to tell which ones apply to you and which calculator to reach for. The full detail, with every figure and worked example, is in the pillar guide.
Start with the kind of income you have
The three wage-and-purchase deductions are keyed to what you earn or buy. If you are paid time-and-a-half for extra hours, the overtime deduction is for you, and it covers only the premium half of that overtime, not the whole overtime wage. If you work in a tipped occupation, the tips deduction covers up to $25,000 of your qualified tips. If you financed a new, US-assembled vehicle for personal use, the car loan interest deduction covers up to $10,000 of the interest. If you or your spouse is 65 or older, the senior deduction adds $6,000 per qualifying person. Many households qualify for more than one at the same time.
Every deduction has a cap and a phaseout
A cap limits how much you can deduct, and a phaseout shrinks that cap as your modified adjusted gross income (MAGI) climbs. The overtime cap is $12,500 single or $25,000 joint; tips is $25,000 for everyone; car loan interest is $10,000. The overtime and tips caps fall by $100 for every $1,000 of MAGI over $150,000 (single) or $300,000 (joint). The car loan cap falls twice as fast, by $200 per $1,000 over $100,000 or $200,000, so it disappears at a much lower income. The senior deduction uses a percentage phaseout instead, losing 6 percent of every dollar over $75,000 (single) or $150,000 (joint). The calculators apply the right phaseout for you so you do not have to work the arithmetic by hand.
What these deductions do not change
These are federal income tax deductions, not credits and not a payroll tax cut. They do not reduce Social Security and Medicare (FICA) taxes on your wages, overtime, or tips, and they do not change your obligation to report tips to your employer. Because they are above the line, you can claim them with the standard deduction or while itemizing, but married taxpayers generally must file jointly to claim the overtime and tips deductions. Understanding this up front prevents the most common disappointment, which is expecting a paycheck to suddenly show no tax on overtime or tips. The benefit shows up when you file, as a smaller taxable income.
Which calculator to use
Reach for the overtime calculator if you have time-and-a-half pay, the tips calculator if you receive qualified tips, and the car loan interest calculator if you financed a qualifying vehicle. Each asks for a few figures, applies the cap and phaseout, and shows both the deduction you can claim and a rough estimate of the federal tax it would save at the marginal rate you choose. The senior deduction does not need a calculator: it is $6,000 per senior, reduced by 6 percent of MAGI over the threshold, and is covered in the pillar article.
Estimating your household total
Because the phaseouts all depend on MAGI, a higher household income can shrink several deductions at once. The honest way to see your total is to run each calculator with your real numbers rather than adding up the headline caps. A two-earner household near a phaseout threshold may find that the combined benefit is smaller than the caps suggest, while a lower-income household may keep the full amount of each. Running the numbers also helps you check your official tax forms once they arrive, so you can spot a reporting error before it affects your return.
An estimate, not tax advice
Everything here is intended to explain the 2026 rules and help you plan. The calculators run entirely in your browser, store nothing, and file nothing. They are not tax advice and cannot see your full return. For the final figures, rely on your official forms and, where your situation is complex, a qualified tax professional.