IRS Schedule 1-A : New Tax Breaks for Tips, Overtime, Car Loans, and Seniors Explained

The Internal Revenue Service has unveiled a draft of a new tax form for the 2025 filing year. This form, called Schedule 1-A, introduces four significant deductions for American taxpayers. The changes are part of the recently enacted legislative package.

These deductions target specific groups of workers and older adults. According to the Detroit Free Press, the provisions are temporary, set to expire after the 2028 tax year. The IRS is currently seeking public feedback on the draft.

Breaking Down the Four New Deductions

The draft Schedule 1-A outlines four key areas for tax relief. These deductions are available to filers regardless of whether they itemize or take the standard deduction. This makes them accessible to a wide range of taxpayers.

The first deduction covers qualified tip income. This includes cash, credit card tips, and even non-cash items like casino chips. The second deduction applies to a portion of qualified overtime pay earned by eligible workers.

The third break allows a deduction for interest paid on car loans. There is a major catch, however. The vehicle must be new and assembled in the United States. Taxpayers will need to provide their car’s VIN to claim this benefit. The fourth deduction is an extra $6,000 for taxpayers aged 65 and older.

Eligibility and Important Limitations

Not every worker will qualify for the new tip and overtime deductions. The Treasury has published a list of nearly 70 eligible occupations. Jobs like bartenders, delivery drivers, and casino dealers are included.

There are strict income limits. The tip deduction, for example, begins to phase out for single filers earning over $150,000. It is completely unavailable for those married but filing separately. The senior deduction also phases out at lower income thresholds.

These are “below-the-line” deductions. They reduce a filer’s final taxable income but not their Adjusted Gross Income (AGI). This distinction is important for tax calculations that are based on AGI. The IRS is expected to finalize the form later this year.

The introduction of Schedule 1-A for the 2025 tax year represents a targeted shift in tax policy. These new deductions could provide meaningful savings for millions of service industry workers, car buyers, and seniors. Taxpayers should review the final rules when released to understand their eligibility fully.

Info at your fingertips-

What exactly is IRS Schedule 1-A?

Schedule 1-A is a new, two-page form that must be filed with 2025 federal tax returns. It is designed specifically to claim four new deductions that are not available on other schedules.

Who can claim the new tip deduction?

The Treasury lists specific eligible occupations, including servers, bartenders, and hair stylists. The maximum annual deduction is capped at $25,000 per tax return.

Do all car loans qualify for the interest deduction?

No. The vehicle must be new and assembled in the United States. Loans for used cars or imported models do not qualify for this particular break.

How does the new senior deduction work?

Taxpayers age 65 and older can claim an additional $6,000 deduction. This benefit phases out for individuals with incomes above $75,000 and couples above $150,000.

Are these deductions permanent?

No. According to reports, these tax provisions are currently set to be temporary. They are scheduled to apply only to tax years 2025 through 2028.

What types of tips are eligible?

Eligible tips include cash, checks, credit card tips, and certain non-cash equivalents like casino chips. Cryptocurrencies like Bitcoin are explicitly excluded.

Trusted Sources: Detroit Free Press, Internal Revenue Service (IRS), U.S. Department of the Treasury.