New Tax Changes Could Mean Bigger Refunds for Tipped and Overtime Workers

Deductions for tips, overtime pay, and vehicle purchases may boost refunds for some filers.

Jan. 28, 2026 at 6:55pm

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New federal tax code changes for 2025-2028 could affect refunds for tipped workers, overtime earners, seniors, and some car buyers. A provision called "No Tax on Tips" allows qualifying workers to deduct certain tip income from federal taxes, while changes to overtime pay deductions and new deductions for vehicle purchases and senior citizens may also impact refund amounts.

Why it matters

These tax code updates aim to provide financial relief for workers in industries like restaurants who rely on tips, as well as overtime earners, retirees, and car buyers. The changes could significantly boost refund amounts for eligible taxpayers, though there are still reporting requirements and limitations on the deductions.

The details

The "No Tax on Tips" provision allows qualifying tipped workers to deduct up to $25,000 per year in voluntary tips from their federal income taxes, though tips must still be reported. There is also a new deduction for the premium portion of overtime pay, capped at $12,500 for single filers and $25,000 for joint filers. Additional changes include a deduction for interest paid on loans for new U.S.-made vehicles purchased in 2025, and a $6,000 ($12,000 for couples) deduction for taxpayers 65 and older.

  • The tax code changes apply to Tax Years 2025-2028.
  • The "No Tax on Tips" provision and overtime pay deduction run through Tax Year 2028.

The players

Argelia Ventura

A tipped worker at a family-owned restaurant who is excited about the "No Tax on Tips" deduction.

Octavio Saenz

An IRS representative who explains some of the key changes and clarifies that tips must still be reported, despite the new deduction.

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What they’re saying

“When they give you that extra tip, it's like, 'Oh God, did you make a mistake, are you sure?' It gives you goosebumps.”

— Argelia Ventura (nbcsandiego.com)

“A lot of people ask, 'So does that mean that tips no longer get taxed?' Well, not exactly. It is not that we don't report tips anymore — that's not the thing.”

— Octavio Saenz, IRS Representative (nbcsandiego.com)

What’s next

Experts recommend that taxpayers work with a trusted tax professional or use reliable tax software to understand how the new rules apply to their individual situations.

The takeaway

These tax code changes aim to provide financial relief for workers in industries like restaurants who rely on tips, as well as overtime earners, retirees, and car buyers. The changes could significantly boost refund amounts for eligible taxpayers, though there are still reporting requirements and limitations on the deductions.