IRS Releases Fact Sheet on New Worker and Senior Tax Deductions: What’s Now Deductible in 2025

On July 17, 2025, the IRS released Fact Sheet FS‑2025‑03, outlining several new deductions created under the One Big Beautiful Bill Act (OBBBA). These provisions many of which apply even if a taxpayer claims the standard deduction mark a dramatic shift in federal tax benefits aimed at workers, seniors, and consumers.

If you’re a tax professional, now is the time to recalibrate year-end planning strategies.

Key Deductions Introduced in FS‑2025‑03

The IRS confirms that taxpayers may now deduct the following—effective for income earned on or after January 1, 2025:

1. Overtime Pay Deduction

• Deduct 50% of overtime compensation

• Annual cap: $12,500 (single), $25,000 (joint)

• Applies in addition to the standard deduction

• IRS to allow “reasonable approximation” for 2025 if employers cannot fully segregate overtime on W‑2s

  
  

2. No Tax on Tips Deduction

• Deduct up to $25,000 in reported cash tips

• Phaseout begins at $150,000 AGI

• Applies to a list of eligible occupations, to be published by October 2, 2025

  
  

3. Senior Standard Boost

• An additional $6,000 deduction per eligible individual aged 67 or older

• Couples where both qualify can deduct an extra $12,000

• Stackable with Social Security exclusions and IRA distributions

  
  

4. Car Loan Interest Deduction

• Deduct up to $10,000 of interest on a personal vehicle loan

• Vehicle must be used for work, caregiving, or commuting

• Applies to loans originated after January 1, 2024

  
  

Planning Implications for 2025 Returns

For Taxpayers

• Many of these deductions are above-the-line, allowing access to expanded benefits without requiring itemization.

• Low- and middle-income taxpayers stand to benefit most—but high earners can still qualify if AGI thresholds are met.

  
  

For Employers

• Payroll systems must be updated to track and report overtime separately, or use acceptable estimation methods.

• Tip-tracking systems may need to integrate new occupation codes once the IRS publishes final guidance.

  
  

For Tax Professionals

• Begin adjusting client intake checklists to include:

  • Tip income logs

  • Overtime hours

  • Car loan documentation

  • Age-based deduction triggers

• Prepare for mid-season IRS updates—especially around implementation and substantiation rules.

  
  

Looking Ahead: Expect More IRS Guidance

The IRS has stated that formal regulations covering substantiation, phaseout limits, and audit exposure will be released in stages starting with proposed rules by Q4 2025.

Tax professionals should stay alert as the IRS refines enforcement mechanics. Bizora AI will be monitoring all rule changes in real time to flag deduction eligibility and document gaps.

Need help identifying which of your clients qualify for the new OBBBA deductions? Bizora’s AI assistant can parse wage data, tip income, and client profiles to pre-qualify opportunities and reduce missed benefits.