Tax breaks on tips and overtime, alongside an extra deduction for older Americans, offer eligible households a chance to keep more of their money.
Donald Trump’s tax law is giving American workers and older taxpayers new ways to reduce their federal income tax bills, with the Internal Revenue Service reporting that average refunds rose by 11 per cent during the 2026 filing season.
The figure appeared in an IRS update published on 29 October, which linked the delivery of new tax benefits to the president’s Working Families Tax Cuts. The agency also reported a 17 per cent increase in the total value of refunds claimed compared with the previous filing season.
The practical benefits include deductions for qualifying tips, overtime earnings and taxpayers aged 65 or over. For eligible households, these provisions can reduce the amount of income subject to federal tax.
A tax break for workers who earn tips
Under the measure commonly described as “no tax on tips”, eligible workers can deduct up to $25,000 in qualified tips each year.
The IRS says qualifying tips include voluntary cash and card payments, as well as eligible shared tips. Workers must meet the occupation and reporting requirements, while the deduction begins to reduce when modified adjusted gross income exceeds $150,000, or $300,000 for joint filers.
The relief can help qualifying workers retain more of their earnings. Social Security and Medicare taxes generally still apply, and compulsory service charges do not count as qualified tips.
Extra hours can bring an extra tax benefit
The law also allows eligible taxpayers to deduct up to $12,500 in qualified overtime compensation, rising to $25,000 for a married couple filing jointly.
The deduction covers the qualifying premium above regular pay required under the Fair Labor Standards Act. For standard time-and-a-half overtime, that generally means the additional “half” portion.
For example, a qualifying employee whose regular rate is $20 an hour and whose overtime rate is $30 would generally have a $10 qualifying premium for each eligible overtime hour.
This deduction also begins to phase out above modified adjusted gross income of $150,000, or $300,000 for joint filers. The benefit concerns federal income tax; payroll taxes generally remain payable.
Up to $12,000 in additional deductions for an older couple
Americans aged 65 or over may qualify for an additional $6,000 deduction each. A married couple filing jointly can claim up to $12,000 if both spouses qualify.
The IRS says this comes on top of the existing additional standard deduction available to eligible older taxpayers. The new benefit is also available to qualifying taxpayers who itemise.
It begins to phase out when modified adjusted gross income exceeds $75,000 for an individual, or $150,000 for joint filers.
Relief continues beyond one filing season
The tips, overtime and enhanced senior deductions apply to tax years 2025 through 2028 under current law.
These amounts reduce taxable income; they are not equivalent cash payments. The actual saving depends on the taxpayer’s circumstances, while the size of a refund also reflects tax already paid or withheld.
As Americans prepare to file their 2026 returns in 2027, the provisions remain relevant. Checking eligibility and keeping accurate records of qualifying earnings can help households claim the relief available under Trump’s tax law.
