The four new 2026 tax deductions, explained

The One Big Beautiful Bill Act, signed in 2025, created four new individual income tax deductions that apply for tax years 2025 through 2028. They are often described in headlines as making overtime, tips, and car loan interest "tax-free," but each is a capped deduction with its own income phaseout and its own eligibility conditions. This article explains all four in plain language, with the exact figures and worked examples, and points you to a free calculator for each of the three that need one.

First, a deduction is not a credit

Every rule here is a deduction, meaning it lowers the amount of income you are taxed on. Its cash value equals the deduction times your marginal tax rate, not the full amount. If you deduct $10,000 and your top dollar is taxed at 22 percent, the deduction saves you about $2,200. All four are above-the- line deductions, so you can claim them whether you take the standard deduction or itemize. The dollar figures are fixed by statute and are not indexed for inflation across the four-year window.

No tax on overtime

Only the premium "half" of time-and-a-half pay qualifies, which is the amount your overtime rate exceeds your regular rate. If you earn $20 an hour and $30 for overtime, only the $10 premium per overtime hour counts, not the whole $30. The deduction is capped at $12,500 for single filers and $25,000 for joint filers. The cap phases out by $100 for every $1,000 of modified adjusted gross income (MAGI) above $150,000 (single) or $300,000 (joint), reaching zero at $275,000 and $550,000 respectively. Married filers must file jointly, and a valid Social Security number is required.

Example: a single filer with a $22 regular rate and 250 overtime hours has a premium of 0.5 times $22 times 250, which is $2,750, all deductible at that income. Estimate your own figure with the No Tax on Overtime calculator.

No tax on tips

You can deduct up to $25,000 of qualified tips a year, and unlike overtime the cap is the same $25,000 for single and joint filers. Qualified tips are voluntary tips in occupations that customarily received tips on or before December 31, 2024, such as food service, hospitality, and personal-care roles. Mandatory service charges are generally wages, not tips, and do not qualify. The cap phases out by $100 per $1,000 of MAGI over $150,000 (single) or $300,000 (joint), reaching zero at $400,000 and $550,000. Important: this is an income tax deduction only. Tips remain subject to Social Security and Medicare (FICA) taxes, and you must still report them as before. Estimate yours with the No Tax on Tips calculator.

Car loan interest

You can deduct up to $10,000 of interest on a loan for a new vehicle bought for personal use, with a gross vehicle weight rating under 14,000 pounds, whose final assembly was in the United States. You must report the vehicle identification number (VIN) on your return, and the loan must originate after December 31, 2024 from an unrelated lender and be secured by the vehicle. US final assembly is a checkable fact tied to the VIN and window sticker, not a matter of brand. The phaseout is steeper than the others: the cap drops $200 for every $1,000 of MAGI over $100,000 (single) or $200,000 (joint), so it reaches zero at just $150,000 and $250,000. Lenders report the interest on Form 1098-VLI at $600 or more, with 2025 transition relief allowing a statement instead. Estimate yours with the Car Loan Interest calculator.

Extra senior deduction

The fourth deduction is an extra amount for older taxpayers, and it is the one with no standalone calculator because the math is simple enough to state directly. Each taxpayer who is age 65 or older by the end of the tax year can deduct an extra $6,000. On a joint return where both spouses qualify, that is $12,000. This is on top of the existing additional standard deduction for seniors, not a replacement for it.

The senior deduction uses a percentage phaseout rather than the per-$1,000 step the other three use. It is reduced by 6 percent of every dollar of MAGI above $75,000 for single filers and $150,000 for joint filers. Because 6 percent of $100,000 is $6,000, a single senior's deduction is fully gone once MAGI reaches $175,000, and a joint couple's combined amount is gone by $250,000. For example, a single filer age 66 with $125,000 of MAGI is $50,000 over the threshold; 6 percent of $50,000 is $3,000, so the $6,000 deduction is reduced to $3,000. A single filer at or below $75,000 keeps the full $6,000.

How the deductions work together

A household can qualify for more than one of these at once. A married couple where one spouse works overtime and the other works in a tipped job, and who financed a qualifying vehicle, could claim all three wage-related deductions, and the senior deduction too if a spouse is 65 or older. Each deduction is calculated on its own terms with its own cap and phaseout, then all reduce the same taxable income. Because the phaseouts are keyed to MAGI, a higher combined income can shrink several of them at once, which is why estimating each with your real numbers is the only reliable way to see the total.

An estimate, not tax advice

This guide and the linked calculators are designed to explain the 2026 rules and give honest estimates so you can plan. They are not tax advice, they do not file anything, and they cannot see your full return. Tax situations vary and the law can change, so rely on your official forms and, where needed, a qualified tax professional for the final figures.