Major tax changes for the 2025 tax year (returns filed in 2026) were introduced by the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025.
These changes include new income-specific deductions and a significant increase in the standard deduction and child-related credits.
New 2025 Tax Deductions
For tax years 2025 through 2028, eligible taxpayers can take advantage of four new deductions by filing the new IRS Schedule 1-A (Form 1040). These include:
- No Tax on Tips: Deduct up to $25,000 of qualified tip income for workers in regular tipped occupations, with phase-outs based on modified adjusted gross income (MAGI).
- No Tax on Overtime: Deduct up to $12,500 per person ($25,000 for joint filers) for qualified overtime pay, also subject to MAGI phase-outs.
- Enhanced Senior Deduction: A new deduction of $6,000 ($12,000 for married couples if both qualify) for those age 65 or older by year-end, with full availability for those below certain MAGI thresholds.
- Car Loan Interest Deduction: Deduct up to $10,000 in interest paid on loans for new, U.S.-assembled vehicles purchased for personal use, with phase-outs based on MAGI.
Updated 2025 Standard Deductions
The OBBBA increased standard deduction amounts:
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- Single / Married Filing Separately: $15,750
- Married Filing Jointly / Surviving Spouse: $31,500
- Head of Household: $23,625
Expanded 2025 Tax Credits
Significant changes were made to several tax credits:
- Child Tax Credit (CTC): Increased to $2,200 per qualifying child under 17, with up to $1,700 being refundable.
- Adoption Credit: The maximum credit is $17,280 per child, with up to $5,000 being refundable.
- SALT Deduction Cap: Temporarily raised to $40,000 for married couples filing jointly with MAGI up to $500,000.
Expired or Eliminated Credits
The OBBBA phased out or eliminated certain clean energy incentives:
- Electric Vehicle (EV) Credits: Eliminated for vehicles purchased after September 30, 2025.
- Residential Energy Credits: Incentives for home energy improvements expire on December 31, 2025.
Filing Recommendations
E-filing is strongly recommended:
- Automatically integrates Schedule 1-A deductions
- Ensures correct phase-outs and limits
- Supports direct deposit of refunds for faster processing
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