Claiming new tax breaks for tips, overtime, seniors or car loan interest? Mind the fine print

By Jeanne Sahadi, CNN

(CNN) — The much-touted new tax breaks for tips, overtime, seniors and car loan interest have a lot of income tax filers expecting a big bump in their refunds this year – or a big cut in their tax bill.

That certainly may be the result for some people. But for others, the new deductions may offer a smaller-than-expected break. Or none.

Why? Complicated details and eligibility rules reduce the relief taxpayers may have assumed they’ll get given the misleading promotion of the new tax breaks as “no tax on … .” And that same misleading language is repeated on Schedule 1-A, the form you must fill out to claim the breaks.

So, temper your expectations: There will be no 100% tax-free anything.

These breaks are deductions, which reduce the tax you owe by a percentage of the deductible amount. And that percentage will be the same as your tax bracket. If you’re in the 12% bracket, you will reduce your federal income tax bill (or boost your refund) by $12 for every $100 in deductions. If you’re in the 22% bracket, it’s $22.

What’s more, there are income limitations on who may claim the deductions, limits on what constitute “qualified” tips, overtime and car loan interest, and a limit on how much you may deduct.

Here are details on key limitations for each of the four deductions.

Tips deduction

How much may filers deduct? Up to $25,000 of “qualified” tips – even if you and your spouse both earn tips. “It’s not a per spouse limit,” the IRS notes in its 1040 instructions.

What are “qualified” tips, exactly? Per the IRS, they are “tips that you received from customers or, as an employee, through a tip-sharing arrangement in an occupation that customarily and regularly received tips on or before December 31, 2024.”

Also, they have to be “voluntary” tips – meaning customers decide whether and how much to tip you. So, if you’re a waiter at a restaurant that includes an 18% automatic gratuity for large tables, that is not deductible.

If you’re self-employed, you may only deduct the qualified tips that don’t exceed your gross business income minus all your business deductions (except for the tips one). So, those include “the deductible part of self-employment tax; the deduction for contributions to self-employed SEP, SIMPLE, and qualified plans; and the self-employed health insurance deduction,” according to the IRS.

Am I eligible? Yes, if you meet the following criteria:

• Your modified adjusted gross income was $150,000 or less in 2025 ($300,000 if married). You will get a partial deduction if your MAGI was above those thresholds. But the deduction is disallowed if your MAGI was $400,000 or more ($550,000 or more if married).*
• You earned your tips in one of these industries.
• You have a valid Social Security number.
• You file a joint return if married.

Overtime deduction

How much may filers deduct? “Up to $12,500 ($25,000 if married filing jointly) of your qualified overtime compensation,” per the IRS. “Qualified” overtime refers to the portion of your pay that is above your standard wage. So if you’re paid time and a half, only the “half” portion is deductible.

Am I eligible? Yes, if you meet the following criteria:

• Your MAGI was $150,000 or less in 2025 ($300,000 if married). You will get a partial deduction if your MAGI was above those thresholds. But the deduction is disallowed if your MAGI was $275,000 or more ($550,000 or more if married).*
• You have a valid Social Security number.
• You file a joint return if married.

Deduction for seniors

Falsely billed as “no tax on Social Security,” this break is actually an enhanced general deduction for senior citizens and does not change the taxation of anyone’s Social Security benefits.

How much may filers deduct? Up to $6,000 (or $12,000 if married filing jointly). This is on top of your standard deduction or itemized deductions.

Am I eligible? Yes, if you meet the following criteria:

• You and/or your spouse were born before January 2, 1961. To deduct up to $12,000 as a married couple, both spouses must be at least 65.
• You and/or your spouse have a valid Social Security number.
• Your MAGI last year was $75,000 or less ($150,000 if married). The value of your deduction will be reduced above those thresholds, but it will be disallowed if your MAGI exceeded $175,000 ($250,000 if married).**

Car loan interest deduction

How much may filers deduct? Up to $10,000.

Am I eligible? Yes, if you meet all the following criteria:

• You paid or accrued “qualified passenger vehicle loan interest” in 2025.
• Your loan originated in 2025 for your purchase of a new, not used, vehicle. The loan may not be from family or friends.
• The vehicle (eg, a car, motorcycle, van, SUV or pickup truck) must be for your personal use, defined by the IRS to mean you use it for personal reasons more than 50% of the time.
• Final assembly of your vehicle occurred in the US – which you can determine by looking up the Vehicle Identification Number (VIN) here.
• Your MAGI in 2025 was no more than $100,000 ($200,000 if married filing jointly). The value of your deduction is reduced above those thresholds, but it will be disallowed if your MAGI exceeded $149,000 ($249,000 for joint filers).** *

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***The car loan interest deduction is reduced by $200 for every $1,000 your MAGI exceeds $100,000 ($200,000 if married), according to enrolled agent David Mellem. For example, single filers whose MAGI was $110,000 would see their deduction cut by $2,000 [$200 x ($10,000/1,000)]. So if they paid $9,000 in qualified loan interest, they may only deduct $7,000.