Popular ‘no tax’ deductions this filing season may be just hype, experts say

President Donald Trump was able to push through many of the tax breaks he touted on the campaign trail, but experts said they may be more hype than savings for some taxpayers.

Four main tax breaks were created with the passage of Trump's sweeping budget bill in July 2025: no tax on tips, no tax on overtime, a deduction on qualifying new auto loans and a $6,000 senior deduction, which passed instead of no federal taxes on Social Security.

“My analysis is that it’s more of a [public relations] thing than something that majorly impacts most taxpayers,” said Rebecca Wohltman, tax attorney at Sandberg Phoenix in O'Fallon, Illinois. “Yes, there will be some taxpayers who see a few thousand dollars worth of benefits, but most are not very helpful for the average taxpayer.”

The tax cuts also vary based on income levels, with the least benefit for low-income filers. For example, the deductions for tips and overtime will likely not apply to households making less than $35,000 a year, and nearly 99% of low-income older adults won't benefit from the federal senior deduction, according to a report from the Urban-Brookings Tax Policy Center.

“There are several ways in which these new laws have holes and are not immediately transparent,” said Janet Holtzblatt, senior fellow at the Urban-Brookings Tax Policy Center. “I think there will be some surprises for people.”

Senior deduction

Trump originally pushed for no tax on Social Security benefits, but the compromise was a special deduction for some older taxpayers.

Filers ages 65 and older may qualify for a $6,000 federal deduction, with married couples filing jointly, receiving $12,000. But the amount begins phasing out for those with a modified adjusted gross income of $75,000 if single and $150,000 for married couples filing jointly.

The deduction is not available for single filers making $175,000 or more and for married couples filing jointly with an income of $250,000 or more.

The Urban-Brookings Tax Policy Center issued a report in August that predicted fewer than half of all adults over 65 will benefit, and the average tax cut for older adults will be $450 — far less than the $6,000 touted by the White House.

Auto loan interest

Loans on new vehicles where the final assembly occurred in the U.S. could be eligible for a tax deduction for tax years 2025 through 2028. Used vehicles or those assembled outside the U.S. don't qualify, and neither do leases and cash purchases.

The car must be for personal use, and like other new deductions, it phases out for taxpayers with an income of $100,000 or more, for single filters and at $200,000 for married couples filing jointly.

Because the deduction is new, the IRS has made it easier for lenders by requiring that they only provide the car buyer a statement of interest paid, instead of an official IRS form. However, starting in 2026, lenders will be required to provide a Form 1098 to report interest paid.

For those shopping for new cars, they can confirm the vehicle’s final assembly point on the window sticker or by checking the vehicle identification number. VINs beginning with 1, 4 or 5 are the ones in which final assembly took place in the U.S.

Tax experts said the easiest way to calculate interest on a car loan is to use this formula: principal (the amount you borrowed) x rate (annual rate) x time (length of the loan) = interest.

No tax on overtime

Workers can deduct no more than $12,500 in overtime pay or $25,000 if married. But the deduction only applies to the portion that exceeds their regular pay. So, if a worker gets time-and-a-half while working overtime, they can only deduct the extra “half.”

Holtzblatt said it's important that, for tax purposes, the hours worked meet the definition of overtime under the Fair Labor Standards Act, which may be different than Illinois law or a union’s definition of overtime.

Both the Fair Labor Standards Act and Illinois law require overtime pay at 1½ times the regular rate for nonexempt employees working over 40 hours a week, but the rules in Illinois are stricter. For example, Illinois generally bans comp time, or private-sector compensatory time off, and ensures that all nonexempt employees get overtime for hours over 40, with specific meal breaks required.

The Tax Policy Center predicts the biggest beneficiaries of the overtime deduction will be those making between $217,000 and $460,000. Those earners would see their taxes reduced by $500 to $600, or about 0.02% of their income after taxes.

Wohltman said the overtime deduction is an example of a public relations campaign, rather than something that will have a major impact on taxpayers.

“It sounds good, 'no taxes on overtime,’ but it’s not quite that," she said. That's because many were led to believe there would be no tax on all wages earned over 40 hours, rather than no taxes on the "half" of the time-and-a-half that is paid for overtime work, she said.

No tax on tips

The no tax on tips deduction has received the most attention, but experts said it’s not that simple.

“The difficulty, and what may be a surprise to many restaurant workers, is that some income perceived as tips will not be exempt,” Holtzblatt said.

She said many restaurants, some spurred by an increase in minimum wage laws, are charging diners a service fee that's often considered a tip, but not by the IRS.

In 2023, Chicago passed an ordinance to increase the city's subminimum wage over five years.

“Generally, when I pay a service fee at a restaurant, in my mind, it’s a substitute for a tip. However, the exemption on tips does not extend to service fees. So, a restaurant worker who is receiving a service fee will not qualify for the tax exemption, while another worker who gets the same amount in tips will,” Holtzblatt said.

The deduction phases out when single filers earn more than $150,000 or $300,000 for married couples filing jointly. However, the average restaurant worker makes far less than $150,000 a year. A One Fair Wage report from March 2024 said tipped workers in Illinois earn a median income of about $14,590 to $16,733 annually, which is below the poverty line.

Holtzblatt also said many restaurant workers may not qualify because they don't make enough money to have to pay taxes.

“This deduction is worthless to people who don’t have income tax liability,” Holtzblatt said. “If you’re a minimum-wage restaurant worker and you already don’t have income tax liability because you’re low-income, and also because of tax credits you may receive for your children, you probably do not have any tax liability, so this deduction will not help you.”

For many seeking the deduction for 2025 tips, it may be a challenge, Wohltman said.

“In 2026, on the W-2, your employer will have to specify the portion that qualifies for the deduction. They don’t have to do that for 2025, so you as the taxpayer will have to have some basis for saying, ‘This is the part of my wages that is the qualifying portion,’” Wohltman said. “There is some guidance that’s out there, but it’s not very helpful for the average taxpayer.”

While tipped workers may qualify for a certain amount of tipped income on the federal level, those who live in Illinois will not receive any exemption on tips with their state taxes.

That’s because Illinois was one of a small number of states that declined to adopt the federal “no tax on tips” provision. This means service workers across the state will continue to pay Illinois income tax on their tip earnings, even as those same tips are exempt from federal taxation.