What Taxpayers Need to Know for the 2026 Tax Season
If you earn tips, work overtime, or recently purchased a vehicle, the 2026 tax season brings new opportunities to lower your federal tax bill. Thanks to changes passed under the One Big Beautiful Bill Act, many working individuals and families may qualify for new “below the line” deductions that apply even if you take the standard deduction.
At Tax Avenger in Canton, MI, we’re helping taxpayers understand how these new rules work, and more importantly, how to claim them correctly.
Below is a plain English breakdown of the new deductions for tips, overtime pay, and car loan interest, and what you should do next.
No Tax on Tips: A New Deduction for Tipped Workers
If you earn tips as part of your job, you may now deduct up to $25,000 of qualified tip income from your taxable income.
What counts as “qualified tips”?
• Voluntary cash or charged tips from customers
• Tips reported on Form W 2, 1099 NEC, 1099 K, or Form 4137
• Tips earned in occupations where tipping is customary (such as food service, hospitality, personal services, and certain gig economy roles)
Mandatory service charges do not qualify, and tips must still be reported as income—the deduction happens afterward on your tax return.
Income limits apply
The deduction begins to phase out once your modified adjusted gross income (MAGI) exceeds:
• $150,000 for single filers
• $300,000 for married couples filing jointly
No Tax on Overtime: Deduct the Premium Pay
If you worked overtime, you may qualify for a deduction on the premium portion of your overtime pay, the “extra half” in time and a half compensation required under federal labor law.
How the overtime deduction works
- Maximum deduction:
•$12,500 for single filers
•$25,000 for married filing jointly - Applies to W 2 or 1099 reported overtime
• Available whether you itemize or take the standard deduction
• Subject to the same income phase outs as the tip deduction
This deduction can be especially valuable for manufacturing, healthcare, and logistics workers throughout Wayne County and the greater Canton area.
Car Loan Interest Is Deductible Again (Yes, Really)
For the first time in decades, personal car loan interest may now be deductible, up to $10,000 per year, if you meet the requirements.
To qualify, the vehicle must:
• Be new (original use starts with you)
• Have final assembly in the United States
• Be used primarily for personal (not business) purposes
• Be purchased with a loan taken out after December 31, 2024
• Weigh under 14,000 pounds (most passenger vehicles qualify)
Leased vehicles and used cars do not qualify. Income phase outs apply, and lenders may provide statements to support the deduction.
How These Deductions Are Claimed
All three deductions are claimed using the new IRS Schedule 1 A (Form 1040). These are below the line deductions, meaning they reduce taxable income without affecting eligibility for other credits and without requiring itemization.
Because the rules are new, and documentation matters, many taxpayers risk missing deductions or claiming them incorrectly if they rely on tax software alone.
Why Local Tax Guidance Matters
These deductions come with strict definitions, income limits, and reporting rules. For example:
• Not all tips qualify
• Only federally defined overtime counts
• Vehicle eligibility depends on assembly location and loan structure
At Tax Avenger, we help Canton area taxpayers:
• Determine which deductions they actually qualify for
• Maximize tax savings while staying compliant
• Avoid IRS notices and processing delays
Ready to Claim What You’ve Earned?
If you earned tips, worked overtime, or bought a vehicle in 2025, you may be leaving money on the table.
📍 Tax Avenger in Canton, MI
📞 Schedule your tax consultation today and let a professional review your eligibility for these new deductions.
Because when the IRS changes the rules, Tax Avenger helps you win.