The Internal Revenue Service has released an early draft of a new form that will make it easier for working Americans to take advantage of tax breaks included in President Trump’s One Big Beautiful Bill Act.
The new two-page form, Schedule 1-A, will allow taxpayers to claim deductions on tips, overtime pay, car loan interest, and enhanced senior benefits beginning with 2025 returns filed next year.
The changes mark a rare expansion of tax relief for ordinary Americans; extending benefits to those who take the standard deduction as well as those who itemize.
Four Key Deductions That Could Lower 2025 Tax Bills
The draft Schedule 1-A covers four major deductions:
Qualified tip income (up to $25,000 per return)
Overtime pay
Car loan interest for new vehicles assembled in the United States
An enhanced senior deduction for taxpayers 65 and older
These new deductions will apply from 2025 through 2028 unless Congress acts to extend them.
Designed to Help Working Americans
The One Big Beautiful Bill was marketed as a middle-class tax overhaul; and these provisions appear to deliver on that promise. Waitstaff, delivery drivers, bartenders, casino dealers, mechanics, and countless others who rely on hourly or tipped income could see meaningful savings.
Trump’s economic team said the goal was simple: to “reward work, not just wealth.” The new deductions, which apply to everyday forms of income and spending, aim to do just that.
Car Loan Interest Deduction Tied to ‘Buy American’ Rules
One of the most distinctive new breaks is the deduction for car loan interest, but it comes with specific conditions.
To qualify, the vehicle must be new, purchased in 2025, and assembled in the United States. The IRS form includes a field to report the vehicle identification number (VIN) to verify eligibility.
Used cars, refinancing of existing loans, or vehicles built outside the U.S. won’t qualify, reinforcing the bill’s “America First” manufacturing focus.
A Boost for Seniors
Retirees will also benefit from a new $6,000 enhanced deduction for those age 65 and older.
The amount begins to phase out at $75,000 for single filers and $150,000 for joint filers, meaning most middle-income seniors will qualify for the full break.
Analysts say the provision will especially help retirees on fixed incomes who have seen costs rise over the past few years.
How These Deductions Work — and Why They’re Different
All four new deductions are classified as below-the-line, meaning they lower taxable income but not adjusted gross income (AGI).
That distinction matters: lowering your AGI can open the door to additional tax credits and benefits, but below-the-line deductions still reduce what you owe.
Tax experts noted that while these deductions don’t reduce AGI, they are “available to everyone, not just those who itemize.”
With roughly 90% of taxpayers taking the standard deduction, that makes the change far-reaching.
What Counts as a ‘Tip’ Under the New Law
The IRS and Treasury have clarified that the “no tax on tips” deduction covers cash tips paid directly, by credit card, or even in stablecoins — cryptocurrencies tied to the U.S. dollar that maintain a fixed value.
Tips given through legal, voluntary transactions qualify; mandatory service charges and gratuities tied to illegal activities do not.
Which Jobs Qualify for the Tip Deduction
The IRS has listed nearly 70 occupations that “customarily receive tips,” including bartenders, hairstylists, delivery drivers, casino dealers, golf caddies, and more.
The agency is still accepting public comments on that list through October 23, suggesting it could expand further before final guidance is issued.
Who Can Claim the New Tip Deductions — and Who Can’t
The tip deduction begins to phase out at $150,000 for single filers and $300,000 for joint filers. Higher earners will see smaller or no benefits.
To qualify, taxpayers must include a valid Social Security number and report their tip income accurately on a W-2, 1099, or Form 4137.
The IRS also clarified that tips must be voluntary; automatic service fees, such as an 18% charge added to large parties at restaurants, will not count.
What It Could Mean for Your 2025 Refund
The new deductions combined with the extension of President Trump’s signature Tax Cuts and Jobs Act legislation could add up to meaningful savings.
Millions of service workers, overtime employees, and seniors stand to benefit in similar ways, as the IRS incorporates the new provisions into next year’s filing season.
More IRS Guidance on the Way
The IRS is expected to release the official Schedule 1-A instructions later this year, outlining exactly how taxpayers can document and claim these new deductions.
A draft copy of the new Schedule 1-A has been released by the Internal Revenue Service.
Tax professionals advise keeping all receipts, wage statements, and auto loan documents from 2025 to make the process smoother when filing next spring.
While the One Big Beautiful Bill Act drew fierce debate when passed, its latest provisions are beginning to show concrete benefits for the middle class; a sign that Trump’s signature tax overhaul may be reshaping the code in ways that reach far beyond the halls of Congress.
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John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
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