What You Need to Know About 2025 Tax Rules for Car Loan Interest, Tips, Social Security, and Overtime Pay

Posted on October 6th, 2025

Tax season can be confusing, but the 2025 U.S. tax law brings several significant changes—some that may benefit you! This blog will clarify the latest updates on car loan interest deductions, reporting and taxing of tips, Social Security benefits, and overtime pay. We’ll walk you through what is deductible, taxable, and the documentation you need to prepare, all in line with the latest federal laws as of 2025.

The 2025 Tax Landscape: Key Updates

In July 2025, the One Big Beautiful Bill Act (OBBBA, Public Law 119-21) introduced new deductions and clarifications for car loan interest, tips, overtime, and more. Understanding how these provisions apply—and what records you need to gather—will help you claim every dollar you're entitled to while remaining IRS-compliant.

Car Loan Interest: How to Claim the New Deduction

What Changed in 2025?

Previously, car loan interest was considered a non-deductible personal expense. Starting in tax year 2025 (returns filed in 2026), a temporary but generous above-the-line deduction allows taxpayers to deduct up to $10,000 per year in interest paid on certain new vehicle loans.

Who Qualifies?

You can deduct interest on a car loan if:

• The vehicle is new (no used vehicles or leases qualify).
• The vehicle is purchased for personal use (no business, fleet, or commercial vehicles).
• The vehicle is assembled in the U.S. (check your VIN).
• The loan originated after December 31, 2024.
• The vehicle’s Gross Vehicle Weight Rating (GVWR) is under 14,000 lbs.
• The loan is a first-lien loan.

Income Limits

• Single filers: Deduction starts phasing out at $100,000 Modified Adjusted Gross Income (MAGI); fully phased out at $150,000.
• Joint filers: Phasing out at $200,000 MAGI; fully phased out at $250,000.

Which Vehicles Qualify?

Eligible vehicles must be:

• New (original use starts with you).
• Assembled in the U.S.
• Have a first-lien purchase loan.

Documentation Required:

• Form 1098 (or equivalent statement) from your lender.
• Purchase and loan documents.
• VIN for your vehicle.

Tax Treatment of Tips: What’s Deductible and How to Report

2025 Update: “No Tax on Tips” Deduction

The OBBBA now lets workers in certain occupations claim an above-the-line deduction for qualified tips received in tipped occupations, up to $25,000 per year.

What Is a “Qualified Tip”?

• Voluntary payments (cash, credit/debit).
• Paid to a worker in an occupation designated by the IRS as "tipped" (e.g., waitstaff, bartenders, etc.).

Who Can Deduct Tips?

• Employees in qualifying occupations.
• Self-employed non-SSTB workers.
• Both itemizers and non-itemizers.

Documentation:

• Keep a daily tip log.
• Report tips to your employer.
• Confirm tips are reported on your W-2.

Social Security Income: Taxability and Documentation

Taxation Rules as of 2025

Social Security benefits may be taxable depending on your “provisional income,” but seniors now get an additional deduction under OBBBA.

How Social Security Is Taxed:

• If your “provisional income” is below $25,000 (single) or $32,000 (married, joint), Social Security benefits are not taxable.
• For provisional income above $34,000 (single) or $44,000 (joint), up to 85% of your benefits may be taxable.

Documentation:

• Form SSA-1099 for total benefits received.
• Combined income documentation (wages, pensions, retirement withdrawals, etc.).

New Senior Deduction:

• A $6,000 deduction for those 65+, $12,000 for couples 65+.
• Phases out at $75,000 MAGI (single) or $150,000 MAGI (joint).

Overtime Pay: 2025’s “No Tax on Overtime” Rule

Overtime Tax Deduction

Starting in 2025, you may be able to deduct the “premium” portion of overtime pay (the extra half of time-and-a-half compensation required by the Fair Labor Standards Act).

Who Is Eligible?

• Employees paid qualifying overtime.
• Must not be an exempt employee.

Deduction Limit:

• Single filers: Up to $12,500 per year for overtime pay.
• Joint filers: Up to $25,000 combined.

Documentation:

• W-2 forms showing overtime pay.
• Pay stubs and payroll reports that break down overtime.

Documentation: Keeping Records for 2025 Tax Season and Beyond

Proper recordkeeping is essential for claiming these deductions. Here are the key documents you should gather:

• Car Loan Interest Deduction: Loan docs, purchase contract, Form 1098, VIN info.
• Tip Deduction: Daily tip logs, W-2/1099 reflecting tip income, employer-generated tip summary.
• Overtime Deduction: W-2, pay stubs, employer statements showing overtime pay.
• Social Security Benefits: SSA-1099, tax determination worksheets, income statements.

Key Takeaways and Pro Tips

• Act Early: Gather your supporting documents now to ensure you don’t miss any deductions.
• Know Your Income: Be mindful of phase-outs related to your MAGI.
• Coordinate with Employers & Lenders: Ensure they provide the correct W-2 and loan documentation.
• Consult a Tax Pro: With these complex provisions, a professional can help you navigate the changes.

Conclusion: Plan Ahead, Maximize Your Savings, and Stay Compliant

The 2025 tax season offers several opportunities to save, but it also brings new complexities. By understanding the new deductions for car loan interest, tips, overtime pay, and Social Security benefits, and by gathering the right documentation, you can lower your tax bill and keep more of your income.

If you have any questions or need assistance, don’t hesitate to reach out—we’re here to help you navigate these new tax provisions.

This blog is for informational purposes only and reflects new 2025 U.S. federal tax provisions. Please consult with a qualified tax professional for personalized advice on your specific tax situation.