The IRS has introduced a new form, the Schedule 1-A, that will make a huge impact on the new tax season of 2025. This measure is part of the law known as One Big Beautiful Bill and it aims to give millions of paytaxers access to deductions that weren’t available before. Among them it stands out the ones related to tips, overtime, car loan interest, and new pension-related benefits. This is a really important thing for Americans, so let’s find out more about this.
New step of IRS to make it simple
The IRS wants to make the processing of tax filling easier to understand for the average paytaxer. The Schedule 1-A form will be used along with the traditional Forms 1040 and 1040-SR. According to an initial analysis, this novelty aims to ease calculation of deduction that many middle- and working-class Americans were previously unable to claim.
Key details about the new form
The Schedule 1-A includes 4 main points that everybody should know:
- Tips deduction: Workers from the service sector could deduct up to $25,000 on reported tips. The deduction phases out for higher earners, beginning at $150,000 for single filers and $300,000 for couples.
- Overtime deduction: It could only deduct the ‘’premium’’ part of the overtime payment, so the limit will be $12,500 for single people and $15,000 for couples.
- Car loan interest: Property owners who purchase a new car made in the United States could deduct up to $10,000 of the loan interest. Second hand cars and leases generally don’t qualify.
- Benefits for people older than 65 years old: They will receive an automatic increment of $6,000 on their deduction. If both members of the couple meet the age, the benefit doubles.
Who benefits the most?
The IRS points out that this new way is mainly aimed to service workers, hourly employees, car buyers, and retirees. For restaurant and hospitality workers, the tips deduction is considered a high expected relief. At the same time, retirees who depend on fixed income could experience a relief regarding the increase of the cost-of-living (COLA) thanks to the additional deduction.
Not everything is as good as it seems
Even though deductions sound very attractive, the IRS establishes strict rules of eligibility. Every deduction is reduced gradually as the income increases. What’s more, the requirements are strict too:
- Tips must be officially reported.
- Overtime must appear on official payroll forms.
- Car loan interest deductions apply only to qualifying new purchases.
Challenges and documents
Tax experts warn about the importance of documents. To make the most of these deductions, it will be necessary proof of reported tips, pay stubs that clearly show overtime premiums, and contracts for new car loans. The IRS has made it clear: they will check very carefully all the information.
Temporary deductions
There is something else you should pay attention to: deductions aren’t permanents. According to the IRS, they will be available only until the 2028 tax year unless Congress chooses to extend them in the future.
A relief for common workers
The great thing about this measure is that it represents tax relief for workers. Waiters, retail employees, and gig economy workers could see hundreds or even thousands of dollars refunded thanks to deductions for tips and overtime. Car buyers and seniors will also feel the impact, provided they follow the rules and maintain proper documentation.
So, as you can see, many people can benefit from these deductions and if you are part of these groups we previously mentioned, you need to pay attention to all the documents and file with accuracy under the updated IRS guidelines.