Overtime pay deduction: For 2025 employees can deduct $12,500 of the overtime premium (the one-half of the time and a half amount). The deduction is per individual and it is an above the line deduction (Reduces taxable income). Employers are responsible for providing this information to employees for 2025 by statement or by using box 14 of the W2. Next tax year (2026), the information will be present in a new box on the W2.
Tip Income: For the next four years, up to $25,000 of qualifying tips reported on a W2 can be deducted. Mandatory service charges, i.e. percentages added to a bill for tables over a certain number of customers, are not considered voluntary payments from customers and are not qualified tips. This is an above the line deduction of the tips reported on the W2. The deduction is available for employees and self employed contractors. Over the years, there have been numerous attempts to ascertain the total of untaxed tip income, a historically underreported income amount. This is an interesting deduction and one may consider the reasoning behind this targeted deduction.
December 2025
All taxpayers receiving refunds for 2025 must provide direct deposit information on their tax return. If it is not provided, the IRS will process the return but will not issue a refund. Instead they will send a notice asking for the reason the direct deposit information was not provided. Taxpayers can request an exception if they do not have access to banking such as living in a rural area with limited financial services or other limited hardships. The current estimate for this additional step is an additional six week delay in receiving a refund.
Loan Interest: For the next five years there is an above the line deduction for interest paid on a car loan. This amount can be up to a $10,000 deduction for a new car purchased for personal use after December 31, 2024 and before January 1. 2029. It cannot be a used car and cannot be a lease and final assembly must have occurred in the United States.
For the next three years, an additional $6000 deduction for taxpayers over 65 years of age. The deduction phases out over 75K/100K/200K income limits. This deduction reduces taxable income.
