The Internal Revenue Service (IRS) has been actively promoting four new tax deductions that took effect January 1, 2025, under legislation signed into law on July 4, 2025. On May 22, IRS Chief Executive Officer Frank J. Bisignano toured the Cleveland area alongside Senator Bernie Moreno to highlight who qualifies, and the data suggests a significant share of eligible workers haven’t claimed what they’re owed.
According to mid-season figures from the U.S. Department of the Treasury, 45% of all tax returns processed so far this filing season included at least one of the new deductions. That means the other 55 percent either didn’t qualify or didn’t claim them. Here is what the law actually requires for each benefit.
No tax on overtime: the premium-only rule most workers misunderstand
This is the most widely misunderstood provision. The law did not eliminate all federal income tax on overtime pay. It created a deduction specifically for the “premium” portion, which is the extra half of time-and-a-half pay required under the Fair Labor Standards Act (FLSA). The math:
- If a worker earns $20 per hour and receives $30 per overtime hour, only the $10 differential is deductible — not the full $30.
- The deduction is capped at $12,500 per individual return or $25,000 for joint filers, and phases out for taxpayers with modified adjusted gross income above $150,000 ($300,000 for joint filers).
- Overtime paid under state laws, collective bargaining agreements, or voluntary employer premiums does not qualify — only the FLSA-required premium counts.
Overtime and car loan interest tax deduction
Starting with tax year 2026, employers must separately report qualified overtime on Form W-2 using the new Box 12, Code TT. For 2025 returns already filed, workers were permitted to use pay stubs and payroll records to calculate the amount. Treasury data shows 15.5 million returns claimed this deduction during the current filing season.
Now, there is a car loan interest deduction, but the assembly requirement disqualifies many vehicles. Taxpayers may deduct up to $10,000 per year in interest paid on a qualified vehicle loan. The deduction phases out for individuals earning above $100,000 in modified adjusted gross income, or $200,000 for joint filers. Lease payments do not qualify.
The vehicle must be assembled in the United States as its final stage of production, must be intended for road use, must have at least two wheels, and must fall into one of these categories: car, minivan, SUV, pickup truck, van, motorcycle, or ATV. Loans for campers and RVs are explicitly excluded under the final version of the bill.
The vehicle identification number (VIN) must appear on the loan documentation. As of mid-filing season, approximately 690,000 returns have claimed this deduction, with an average deduction value above $1,800.
Enhanced senior deduction: the Social Security number requirement
Taxpayers aged 65 or older may claim an additional $6,000 deduction on top of the standard deduction. Married couples where both spouses qualify can deduct an additional $12,000. To be eligible, taxpayers must include their Social Security numbers on the return, and married filers must file jointly.
Nationally, over 35 million seniors claimed this deduction, with more than $193 billion in total deductions reported. In Ohio alone, approximately 1.4 million seniors used the benefit. The deduction is available for tax years 2025 through 2028. It applies regardless of whether a senior is still working — age 65 and a valid Social Security number are the primary requirements. Treasury data shows 9.2 million returns claimed this deduction so far in the current filing season.
Standard deduction increases: automatic benefits for most filers
Even taxpayers who don’t qualify for any of the above still benefit from changes to the standard deduction, which requires no separate documentation or special filing. For tax year 2026, the standard deduction rises to $16,100 for single filers and $32,200 for married couples filing jointly.
The same law retroactively raised the 2025 standard deduction to $15,750 for single filers and $31,500 for joint filers. These increases reduce taxable income automatically for anyone who doesn’t itemize, which is the majority of American taxpayers.
Child Tax Credit and adoption credits: expanded thresholds for families
The Child Tax Credit was increased to $2,200 per qualifying child, and the adoption credit rose to $17,670. Both amounts represent increases over prior-law figures.
To claim the Child Tax Credit, the child must be a U.S. citizen or resident, must have lived with the taxpayer for more than half the tax year, must be under age 17, and the child cannot have provided more than half of their own financial support during the year. Income phaseouts still apply.
The overtime, tips, car loan interest, and senior deductions are set to expire after December 31, 2028, unless Congress acts to extend them. The expanded standard deduction and the Child Tax Credit increase, by contrast, are permanent under current law.
The IRS has updated its Tax Withholding Estimator at its official website to reflect all of the above changes, allowing workers to adjust withholding now rather than wait for a refund — or a balance due — next filing season.
