These celebrated new tax breaks will save some taxpayers money. Do you qualify? While the average refund to U.S. taxpayers is expected to increase by $300 to $1,000 this tax season, some of the most-talked-about tax breaks are unlikely to benefit most people. Those deductions include “no tax on tips,” “no tax on overtime” and even a new $6,000 deduction for people 65 and older. After the Republican-controlled Congress shepherded President Donald Trump’s One Big Beautiful Bill Act into law last July, tax analysts began furiously crunching the numbers. For instance, “no tax on tips” is expected to boost the bottom line of as few as one in every 40 taxpayers, according to researchers. Other changes brought on by the law, however, will benefit sweeping numbers of taxpayers, including a larger standard deduction and Child Tax Credit that are increasing faster than inflation. Here’s how many U.S. taxpayers might be affected by a list of new tax breaks come Jan. 26, the first day the IRS is accepting tax returns for the 2025 tax year. Returns are due no later than April 15, unless the taxpayer receives an extension. 'No tax on tips' applies to a sliver of taxpayers Most taxpayers knew this wouldn’t affect them, because only about 2.5% of workers receive tips, according to The Budget Lab at Yale, at least as of 2023. Similarly, the Tax Policy Center, a Washington, D.C.-based think tank, estimated that about 3% of U.S. households will avoid tax on tips. And at least on their federal taxes, the average household receiving this benefit will save about $40. This group includes food servers, bartenders, hairdressers, Uber drivers and tour guides. There are restrictions. Tipped workers can claim no more than $25,000 in tips for the year. The benefit starts phasing out for single filers with modified adjusted gross incomes over $150,000 per year, and $300,000 for joint filers. The tips also have to be voluntarily given. For instance, a food server who received an 18% tip that was automatically tacked onto a large table of customers will still have to pay taxes on that tip because it was a mandatory part of the bill. 'No tax on overtime' affects fewer than 1 in 10 workers 'No tax on overtime' is expected to benefit about 9% of U.S. workers, according to The Tax Policy Center. And the nonprofit estimates that the benefit is expected to average only about $130, likely less money than many people anticipated. Of course, this benefit excludes salaried employees and hourly employees who never get a chance to work more than 40 hours per week. Among the group of overtime workers who will benefit from this tax break are a swath of city and county employees in Oregon’s most populous county, including firefighters, police officers and jail deputies who garner a significant portion of their income from working extra hours. But many people who log loads of overtime may run into a wall with this deduction. The IRS is allowing up to $12,500 in overtime to be deducted for single filers, or $25,000 for joint filers. On top of that, taxpayers still must pay taxes on the portion of their overtime that’s equivalent to their normal hourly wage. It’s only the extra 50% — i.e. the half in the “time and a half” that comprises overtime — that isn’t taxable. So, for example, if a worker received $9,000 in overtime pay in 2025, they’d only be able to avoid paying taxes on $3,000 of it. The tax break starts phasing out at a modified adjusted gross income of $150,000 for single filers, $300,000 for joint filers. About half of older taxpayers will save hundreds The Tax Policy Center estimated that about half of taxpayers 65 and older will benefit from a new $6,000 deduction tailored just for their older age group. Analysts estimate it’ll benefit the average elderly taxpayer with $450 more back in their pocket. The deduction starts phasing out for single filers with a modified adjusted gross income of $75,000 or $150,000 for joint filers, a significantly lower income threshold than the tips and overtime tax breaks. Most car buyers don’t qualify for 'no tax on car loan interest' This deduction also will exclude most people with car loans because it doesn’t apply to the approximately three out of four cars sold that are used cars. This new break applies only to taxpayers who bought a new car in 2025, and in future tax years, through 2028. The benefit also doesn’t apply to people leasing cars. About 23% of new cars nationwide are leased, according to Experian. Taxpayers who do qualify for this break can deduct up to $10,000 per year in interest. That’s probably far more generous than it needs to be. Most people who buy an average priced new car, which crept above $50,000 last year, won’t even pay $10,000 in interest over the terms of a five-year loan. This no-interest-on-new-car-loans benefit also starts phasing out at an modified adjusted gross income of $100,000 for single filers and $200,000 for joint filers. Small boost in store for 90% of taxpayers Historically, close to 90% of taxpayers take the standard deduction, which is a set amount that a person doesn’t have to pay taxes on. So this year’s increase of 10% — that’s faster than inflation, which stood at about 3% — will affect most taxpayers. The standard deduction for the 2025 tax year will rise by $750 — to $15,750 — for single filers or married people filing separately. It’ll increase by $1,500 for married couples filing jointly, to $31,500. Money for families with children benefits tens of millions The Child Tax Credit, too, will affect a wide cross section of U.S. taxpayers — tens of millions of them. For tax year 2025, the credit grows by $200 year over year, to $2,200 per child for the 2025 tax year. That’s a 10% increase, which is more than three times the rate of inflation. It’s unclear what percentage of taxpayers will claim the Child Tax Credit this tax season. The credit, however, only applies to single filers with annual incomes up to $200,000, or $400,000 for joint filers. Above those thresholds, parents may be able to claim a partial credit. To claim most of these deductions, you must fill out this new form The IRS has released its new Schedule 1-A form, which taxpayers must complete to claim any four of the new tax breaks: “no tax on tips,” “no tax on overtime,” the $6,000 deduction for elderly taxpayers and “no tax on car loan interest.” The form can be found here.
