IRS outlines tax deductions from Trump's "big, beautiful bill"

Axios

4 days ago

Starting next year, millions of Americans — from restaurant servers to retirees — could receive lower tax bills under President Trump 's recently signed tax legislation.
Why it matters: The sweeping law locks in Trump-era tax cuts and rolls out a fresh set of deductions, including tax breaks for tips, overtime pay, car loan interest and seniors.
Follow the money: The legislation extends the expiring 2017 Tax Cuts and Jobs Act. That would decrease federal tax revenue by $4.5 trillion from 2025 through 2034, the Tax Foundation says.
The legislation also slashes food and health benefits for the poorest Americans. The White House has said the law will spur strong economic growth.
Standard deduction 2025, SALT and Child Tax Credit
The legislation makes the Child Tax Credit permanent and increases it by $200 per child to $2,200.
TurboTax spokesperson Lisa Greene-Lewis told Axios the legislation increased the state and local tax (SALT) deduction cap for homeowners and permanently extends lower individual tax rates.
"For the majority of filers who claim the standard deduction, the standard deduction increased to $15,750 for single filers, $31,500 married filing jointly and $23,635 for head of household for tax year 2025 under the new bill," Greene-Lewis said.
For single filers, that's an increase of $750, for joint it's $1,500 more and for heads of households it's up $1,135 from the deductions previously announced for taxes filed in 2026.
IRS tax deductions
The big picture: The Internal Revenue Service published a new fact sheet this week outlining how — and when — the law's temporary tax deductions will take effect.
They will apply starting with tax returns filed in 2026 and expire in 2028 when Trump leaves office.
The following new and temporary deductions were highlighted by the IRS:
No tax on tips deduction 🧾
Workers in tip-heavy jobs — like restaurant servers and salon staff — can deduct up to $25,000 in qualified tips from their income. The new break applies to both W-2 employees and some self-employed workers.
The tax deduction would decrease once a worker's income hits $150,000, or $300,000 for joint filers.
By the numbers: Roughly 4 million U.S. workers were in tipped occupations in 2023, or 2.5% of all employment, according to estimates from The Budget Lab at Yale University.
The median weekly wage for tipped occupations was $538 in 2023, compared to $1,000 for non-tipped workers, per the Yale lab.
What's next: The IRS will release a list of eligible tip-earning jobs by Oct. 2, 2025, along with updated employer reporting rules.
No tax on overtime deduction 🕒
Workers who receive "qualified overtime compensation may deduct the pay that exceeds their regular rate of pay" — the "half portion" in "time-and-a-half" overtime, the IRS said.
The maximum annual deduction is $12,500, or $25,000 for joint filers.
The deduction phases out for taxpayers with modified adjusted gross income over $150,000, or $300,000 for joint filers.
What they're saying: Kristin Baldwin, compliance director at employer organization CoAdvantage, told Axios that employees who receive tips or overtime won't see any immediate changes in their paycheck, but will need to file for the deductions in 2026 on their tax returns.
$6,000 senior tax deduction 💸
Zoom in: The temporary tax deduction is for individuals 65 and older, who can claim an additional $6,000 deduction, or $12,000 for a married couple when both qualify.
This deduction is in addition to the standard deduction and available for itemizing and non-itemizing tax returns.
It phases out for taxpayers with modified adjusted gross income over $75,000, or $150,000 for joint filers, the IRS said.
Yes, but: Trump promised to eliminate taxes on Social Security income. This temporary deduction comes close.
The tax break will raise the number of seniors with enough deductions to offset taxable benefits from 64% to around 88%.
The deduction leaves out the poorest seniors — who already don't pay Social Security taxes — and the wealthiest ones, too.
New car tax deduction on loan interest 🚗
Driving the news: Taxpayers can deduct up to $10,000 annually in interest on new car loans — if the car is U.S.-assembled, for personal use and purchased new.
Qualified vehicles are cars, minivans, vans, SUVs, pick-up trucks or motorcycles, with a gross vehicle weight rating of less than 14,000 pounds.
Final vehicle assembly has to be done in the U.S. to qualify.
Yes, but: Used vehicles and leases don't qualify.
"The taxpayer must include the Vehicle Identification Number (VIN) of the qualified vehicle on the tax return for any year in which the deduction is claimed," the IRS said.
The deduction phases out for taxpayers with modified adjusted gross income over $100,000, or $200,000 for joint filers.