New Tax Credits and Deductions for 2025-2026 – The IRS has rolled out major updates for tax years 2025 and 2026 thanks to the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025. These changes include brand-new deductions for tips, overtime pay, car loan interest, and an enhanced senior deduction—plus inflation-adjusted standard deductions, an increased Child Tax Credit, and updates to the Earned Income Tax Credit (EITC).
Whether you take the standard deduction or itemize, these below-the-line deductions can significantly lower your taxable income. Most new benefits apply through 2028 and are claimed on the new Schedule 1-A. This guide covers everything US taxpayers need to know for filing 2025 returns (due in 2026) and planning for 2026.
Major Tax Law Changes from the One Big Beautiful Bill Act
The OBBBA made many Tax Cuts and Jobs Act (TCJA) provisions permanent while introducing targeted relief for working families, service workers, and seniors. Key highlights for 2025–2026 include four new deductions available to both standard deduction and itemizing filers, higher standard deduction amounts, and an expanded Child Tax Credit.
These changes aim to put more money back in taxpayers’ pockets while simplifying claims through Schedule 1-A.
New Deductions Claimed on Schedule 1-A (Available 2025–2028)
The IRS created Schedule 1-A, Additional Deductions specifically for these four new breaks. You attach it to Form 1040 (or 1040-SR/1040-NR). They reduce taxable income directly and work whether you itemize or take the standard deduction.
No Tax on Tips Deduction
Qualified tipped workers (e.g., servers, bartenders, rideshare drivers) can deduct up to $25,000 in qualified tip income reported on W-2, 1099, or Form 4137.
Eligibility requires a valid Social Security Number (SSN) for you and/or your spouse, and you must file jointly if married. The deduction phases out for modified adjusted gross income (MAGI) above $150,000 (single) or $300,000 (joint). Tips must come from occupations the IRS lists as customarily receiving them as of December 31, 2024.
No Tax on Overtime Deduction
Workers earning qualified overtime (the “half” in time-and-a-half under the Fair Labor Standards Act) can deduct up to $12,500 (single) or $25,000 (joint).
The same SSN and joint-filing rules apply, with phaseouts starting at the same MAGI thresholds as the tips deduction ($150,000/$300,000). Overtime must be reported on W-2 or 1099.
Car Loan Interest Deduction (No Tax on Car Loan Interest)
You can deduct up to $10,000 of interest paid on a qualifying passenger vehicle loan.
The loan must:
- Originate after December 31, 2024
- Finance a new vehicle (original use begins with you; used cars and leases do not qualify)
- Be secured by a first lien on the vehicle
- Cover a passenger vehicle with final assembly in the United States and gross vehicle weight rating under 14,000 pounds, purchased for personal use
Phaseout begins at MAGI over $100,000 (single) or $200,000 (joint).
Enhanced Senior Deduction
Taxpayers age 65 or older by the end of the tax year can claim an extra $6,000 deduction per qualifying person ($12,000 if both spouses qualify and file jointly).
This is in addition to the regular additional standard deduction for seniors. It phases out for MAGI above $75,000 (single) or $150,000 (joint).
Increased Child Tax Credit for Families
The Child Tax Credit rises to $2,200 per qualifying child under age 17 for tax year 2025 (up from $2,000). A portion remains refundable. Income limits and SSN requirements continue to apply. The credit stays at this enhanced level into 2026 with future inflation adjustments.
Higher Standard Deduction Amounts for 2025 and 2026
The OBBBA boosted the standard deduction starting in 2025:
- 2025: $15,750 (single/MFS), $31,500 (joint/surviving spouse), $23,625 (HoH)
- 2026: $16,100 (single/MFS), $32,200 (joint/surviving spouse), $24,150 (HoH)
Seniors and blind individuals still receive their regular additional amounts on top of these figures.
Earned Income Tax Credit (EITC) and Other Updated Credits
The EITC maximum for families with three or more qualifying children increases to $8,046 (2025) and $8,231 (2026) due to inflation adjustments. Other categories see similar boosts.
The Adoption Credit also rises: maximum qualified expenses up to $17,280 (2025) and $17,670 (2026), with a refundable portion of $5,120 in 2026.
Clean vehicle and home energy credits from the Inflation Reduction Act remain available but with updated eligibility and limits—check IRS.gov for your specific purchase.
How to Claim These New Benefits on Your Return?
- Gather documentation (W-2s for tips/overtime, loan statements for car interest, proof of age for seniors).
- Complete Schedule 1-A to calculate each deduction and any phaseouts.
- Enter the total additional deductions on your Form 1040.
- File electronically for faster processing and built-in error checks.
The IRS provides detailed instructions with Form 1040 and Schedule 1-A. Tax software like TurboTax and H&R Block automatically handles these calculations for eligible filers.
Phaseout Rules and Important Limitations
All four new Schedule 1-A deductions have income-based phaseouts that are not inflation-adjusted. Higher earners may see partial or full reductions. Always calculate your MAGI carefully, as these deductions are below-the-line (they do not affect AGI-based credits).
Consult a tax professional or use IRS tools if your situation involves self-employment, multiple income sources, or complex filing status.
Action Steps to Maximize Your 2025–2026 Tax Savings
- Review your 2025 pay stubs and loan statements now.
- Consider timing vehicle purchases (new US-assembled cars only).
- Use free IRS resources or reputable tax software.
- Plan charitable giving and other deductions alongside these new breaks.
- Stay updated via IRS.gov—filing season for 2025 taxes is underway as of April 2026.
These new tax credits and deductions represent one of the most significant expansions of worker and senior relief in recent years. By claiming them correctly on Schedule 1-A, millions of US taxpayers can reduce their 2025 and 2026 tax bills or boost their refunds.
For the latest official guidance, visit IRS.gov and search for “One Big Beautiful Bill provisions” or download Schedule 1-A and Publication 17. Consult a qualified tax advisor for personalized advice.