New Federal Tax Breaks for 2025–2028

What Workers, Families, and Retirees Need to Know About Tips, Overtime, Car Loans, and Trump Accounts

Beginning with the 2025 tax year, several major federal tax changes are taking effect that could significantly reduce how much you owe. These include long-anticipated rules around no tax on tips, no tax on overtime, personal car loan interest deductions, Trump Accounts, and an enhanced senior deduction.

While these benefits are real and active, many will require careful record-keeping, especially in the early years. Here is what you need to know, explained clearly and without tax jargon.

Important state note: Some states do not automatically follow federal tax changes. South Carolina has not yet released guidance on these provisions and historically does not conform. This means some deductions may need to be added back on the state return.

Trump Accounts (Up to $1,250)

Trump Accounts provide a direct federal tax benefit for eligible taxpayers beginning in 2025.

Key Points

• $1,000 base federal amount

• Potential additional $250 bonus

  • This extra $250 is tied to private funding and eligibility criteria

  • Availability and qualification may vary and should be confirmed before claiming

• Claimed using Form 4547

• Applies beginning with the 2025 tax year

• Requires a separate filing step and will not be automatic

This is a straightforward benefit, but it is important to confirm eligibility and ensure it is claimed correctly.

No Tax on Tips (2025–2028)

Eligible workers may deduct cash tips from federal income tax. Tips remain subject to payroll taxes.

What This Means

• Applies for tax years 2025 through 2028

• Tips are still subject to Social Security and Medicare (FICA)

• The deduction is taken before federal income tax is calculated

Deduction Limits

• Up to $25,000 per tax return

• Income limits:

  • $150,000 for Single filers

  • $300,000 for Married Filing Jointly

• The $25,000 cap is per return, not per individual

How Tips Are Determined

For 2025, deductible tips may be calculated using:

• Tips reported on a W-2

• Personal tip records

• Other reasonable documentation if tips were not fully reported by an employer

Independent contractors may use:

• Tip logs

• Receipts

• Earnings statements

  
  

Important Rules

• A valid Social Security number is required

• Married taxpayers must file jointly

• Married Filing Separately is not allowed

• The IRS is allowing temporary flexibility while final regulations are developed

• Good records matter, including pay stubs and tip logs

No Tax on Overtime Pay

Workers who earn overtime may deduct the premium portion of required overtime pay from federal income tax. Only the amount above regular pay qualifies.

Who Qualifies

• Applies only to overtime required under federal labor law

• Generally applies to hourly workers

• Most salaried employees do not qualify

Deduction Limits

• Up to $12,500 for Single filers

• Up to $25,000 for Married Filing Jointly

• Caps are per return, not per spouse

How Overtime Is Calculated

For 2025, reasonable calculation methods are allowed. One IRS-referenced approach:

If overtime is paid at time-and-a-half, one-third of total overtime pay may represent the deductible premium portion.

Additional Requirements

• Valid Social Security number required

• Married Filing Jointly only

• Overtime and payroll records must be retained

Personal Car Loan Interest Deduction

A new deduction allows taxpayers to deduct interest paid on personal auto loans.

Key Rules

• Maximum deduction: $10,000

• Income phaseouts:

  • Single: phases out from $100,000 to $150,000

  • Married Filing Jointly: phases out from $200,000 to $250,000

• The deduction reduces gradually as income increases

Because this deduction can be complex, especially near income limits, accurate calculations are important.

What to Expect When Filing for 2025

• W-2s and other income forms may not reflect these changes

• The IRS has provided transition relief allowing taxpayers to calculate deductions manually

• Dedicated tax form sections are expected beginning in 2026

The Bottom Line

These new tax breaks can be extremely valuable, but they are not automatic.

You should plan ahead if you:

• Earn tips

• Work significant overtime

• Have a personal car loan

• Are close to income thresholds

• Live in a state that may not follow federal changes

At Pinnacle 1 Tax Advisors, we help clients understand how these rules apply to their specific situation and ensure deductions are claimed correctly and defensibly.

If you would like help reviewing eligibility or planning ahead, we are happy to assist.