IRS Drafts New Schedule 1-A Form: Overtime, Tips, Car Loan Interest, and Senior Deductions on the Table

New Deductions That Could Impact Millions

• Tips: Workers in industries that regularly receive tips, such as food service and personal care, could deduct up to $25,000 in qualified tips, provided they are properly reported.
• Overtime Pay: Employees who log hours beyond the federal 40-hour workweek could claim deductions up to $12,500 for single filers or $25,000 for joint filers, covering only the extra hours worked.
• Car Loan Interest: Buyers of new cars after January 1, 2025, could deduct up to $10,000 per year in interest on auto loans. The deduction excludes used cars and leases, and phases out for families earning over $200,000.
• Senior Deduction: Taxpayers aged 65 and older will receive an enhanced deduction of about $6,000 per person, doubled for couples, providing additional relief to households on fixed incomes.

Key Rules and Limitations

• Phase-outs begin at $150,000 income for singles and $300,000 for joint filers.
• Employers will be required to revise W-2 forms with new overtime and tip reporting codes, which may not be fully implemented until 2026.
• Unless extended by Congress, all provisions will expire after 2028.

Why It Matters