New 2026 federal tax rules for tips, overtime, seniors
A FOX 9 guide outlines how President Donald Trump’s 2025 One Big Beautiful Bill Act changes 2025 federal income tax filing for 2026, including temporary deductions that can effectively shield up to $25,000 in tips and $12,500 in overtime pay ($25,000 for joint filers), a new $6,000 senior deduction for qualifying older adults, and deductibility of up to $10,000 in car‑loan interest on U.S.-assembled vehicles. The law also raises the Child Tax Credit from $2,000 to $2,200 per child and ends the IRS Direct File pilot for 2026, meaning Twin Cities filers must use other e‑file or paid-prep options by the April 15, 2026 deadline.
📌 Key Facts
- For tax years 2025–2028, workers can deduct up to $25,000 in tips from taxable income, phasing out above $150,000 in modified AGI and limited to Treasury‑listed occupations.
- Workers can deduct up to $12,500 in overtime pay ($25,000 on a joint return), with the deduction likewise reduced above $150,000 in income and requiring a Social Security number on the return.
- Seniors age 65+ with income at or below $75,000 get an additional $6,000 deduction, and individuals may deduct up to $10,000 in interest on loans used to buy U.S.-assembled vehicles between 2025 and 2028.
- The Child Tax Credit increases from $2,000 to $2,200 per qualifying child under the new law.
- The IRS Direct File free online filing system will not be available for the 2026 filing season, and the standard federal filing deadline is April 15, 2026.
📊 Relevant Data
Tipped workers are more likely to be people of color, women, women of color, or single parents, and are disproportionately born outside the United States.
Tipping is a racist relic and a modern tool of economic oppression in America — Economic Policy Institute
Women represented more than 71 percent of tipped workers nationally in June 2024, despite representing 47 percent of the labor force.
Tipped Workers, Their Income Taxes, and States — Tax Policy Center
Latinas are overrepresented among tipped workers: despite accounting for 7.9% of the total U.S. workforce, they represent 12.9% of the tipped workforce.
Black, Latina and Native women are the tipped workers most exposed to poverty — El País
Younger workers are putting in more hours of unpaid overtime by starting early or staying late and working over breaks and lunchtimes than their older counterparts.
People at Work 2023: A Global Workforce View — ADP Research
In 2022, half of all Hispanics age 65 and older received less than $19,660 in yearly income, contrasted with $32,150 for whites.
Income Received By Different Groups — Pension Rights Center
Black workers ages 51 to 64 are the least likely among all racial and ethnic groups to have a retirement account, according to a July 2023 report.
In 2023, nearly half (46 percent) of Black children, 1 in 3 Latino and American Indian and Alaska Native children, about 1 in 6 white and 1 in 8 Asian children were in poverty.
Record Rise in Poverty Highlights Importance of Child Tax Credit — Center on Budget and Policy Priorities
📰 Source Timeline (1)
Follow how coverage of this story developed over time