THE Internal Revenue Service has given Americans a glimpse of the new form needed for deductions on tips and overtime.
An early draft was recently released and includes a two-page federal income tax form called Schedule 1-A.
The IRS has released a first look at the form that defines them (stock image)[/caption]
The IRS tax deductions stem from the passing of the Trump administration’s One Big Beautiful Bill Act (OBBA) this summer.
Schedule 1-A form is for additional deductions and is to be attached to Form 1040, 1040-SR or 1040-NR.
IRS Form 1040 is the standard federal income tax form.
The updated Schedule 1-A features four sections to fill out, including the deductions on qualified tip income and overtime pay.
It also features a deduction for car loan interest and an enhanced deduction for qualified seniors, ages 65 and older.
These four deductions are effective for the 2025 tax year and run until 2028 thanks to the OBBA.
NO TAX ON TIPS
The IRS said in a news release that employees and those who are self-employed are allowed to deduct qualified tips received on or before December 31, 2024 that are reported on the forms W-2, 1099, 3137, or another specified statement to the individual.
“Qualified tips” are defined as “voluntary cash or charged tips received from customers or through tip sharing.”
The maximum annual deduction is $25,000 for self-employed individuals and the deduction must not exceed the person’s net income.
Deductions are available for itemizing and non-itemizing taxpayers with modified adjusted gross incomes over $150,000 for single filers and $300,000 for joint filers.
NO TAX ON OVERTIME
The no tax on overtime deduction is also available for both itemizing and non-itemizing taxpayers.
It’s specifically for those who receive qualified overtime compensation and for people making $150,000 as single filers or $300,000 as joint filers.
The maximum annual deduction is capped at $12,500 for single filers and $25,000 for joint filers.
NO TAX ON CAR LOANS
For no tax on car loans interest is capped at a $10,000 annual deduction.
Are ‘responsible tax refunds’ on the rise?
A new survey shows taxpayers are more likely to spend their refunds on rent, groceries and other necessities, rather than luxuries.
The poll of 2,000 U.S. taxpayers found nearly two in three (64%) have either already spent their tax refund money or are planning to soon. And all agree their refunds will be spent on necessary purchases.
Commissioned by TaxSlayer and conducted by Talker Research, the two-part study compared Americans’ initial tax refund ambitions pre-Tax Day to their post-Tax Day realities.
Four in five who have already spent their refunds spent it on essentials; top spends include bills like rent (58%), groceries (48%), paying down credit card debt (29%) and home repairs (13%).
Likewise, 72% who haven’t already spent their refunds are planning to invest it all in necessities.
The study revealed that participants received more than $2,300 on average in their refunds this year — higher than the average $1,700 that was predicted when the first study on this topic was conducted in December 2024.
Six in 10 (61%) said their refunds are an important part of their budgeting plans for 2025; an increase from 52% who felt the same about the role refunds played in their 2024 budgeting.
When asked in December, only 22% of Americans believed they would receive more this year than last, and 26% believed they would receive less. When asked how much they actually received, one-third (32%) said they received more this year than last year, while 28% reportedly received less.
The primary reasons people believe they received more this year were: working more (37%), adjustment of deductions or withholdings (31%), and getting a pay raise or promotion (16%).
Meanwhile, participants who received a smaller refund amount believe it was likely due to losing work (29%), moving to a higher tax bracket (21%) and having dependents age out of eligibility (11%).
Sixty-two percent felt happy and surprised by the amount they received; another major increase from last year, when a mere 40% recalled feeling happy with their 2024 tax refund.
In order to qualify, you must have a car, minivan, van, pick-up truck, motorcycle or SUV under 14,000 pounds with a loan that originated after December 31, 2024.
Single filers must have an income under $100,000 to be eligible.
Eligibility is set at incomes under $200,000 for joint filers.
The vehicle must also be for personal use and had final assembly in the United States.
Used vehicles do not qualify for the deduction.
SENIOR DEDUCTION
The $6,000 deduction for seniors age 65 and older also comes as part of the OBBA.
The deduction is meant for single senior filers making under $75,000 a year and under $150,000 for joint filers.
For married couples, they can deduct $12,000 if both spouses qualify.
Americans must be age 65 or older on the last day of the taxable year to be eligible.
The IRS emphasized that the Schedule 1-A form is an early release draft and unexpected issues could arise that would require a new draft to be issued.
MORE TAX BENEFITS
On September 30, the IRS and Department of the Treasury also issued guidance on Qualified Opportunity Zone (QOZ) investments in rural areas stemming from the OBBA.
The QOZ is meant to provide taxpayers who invest in it tax benefits as an incentive to improve economic growth and create jobs.
A new notice provided a clarified definition of rural area, which is “any area other than a city or town with a population greater than 50,000, and any urbanized area contiguous and adjacent to a city or town with a population greater than 50,000.”
The bill further modified the threshold for improvements to property, with the substantial improvement threshold for required additions in these QOZs reduced to 50%, down from from 100%.
“These changes are intended to offer enhanced QOZ tax incentives for investing in underserved rural areas and to address the unique challenges of rural development,” the IRS said.
The US Sun also has the truth behind the rumors of $1,390 October ‘relief’ payments from the IRS.
Some Americans also got a $3,000 direct payment from the IRS in June if they met certain criteria.
