2025 Tax Law Changes: One Big Beautiful Bill Act

For Individuals:

• Tax Rates & Standard Deduction: The lower individual tax rates from the 2017 Tax Cuts and Jobs Act are now permanent, with the top marginal rate remaining at 37%. The standard deduction increases to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married couples filing jointly.
• Child Tax Credit: The child tax credit is increased to up to $2,200 per qualifying child under age 17, with a refundable portion capped at $1,700. The phaseout thresholds remain at $200,000 for single filers and $400,000 for joint filers.
• Itemized Deductions – State and Local Tax (SALT): Temporarily increases the SALT deduction cap to $40,000 for taxpayers with income under $500,000 ($1,000,000 for joint filers) from 2025–2029, reverting back to $10,000 in 2030.
• Charitable Donations: Starting in tax year 2026, there is a new above-the-line charitable deduction of $1,000 ($2,000 for joint filers) for non-itemizers.
• Clean Energy Credits: Many clean energy tax credits, including those for electric vehicles, home energy improvements, and residential solar or geothermal systems, are set to expire or change after 2025. Taxpayers should plan qualifying purchases before December 31, 2025, to take full advantage of current incentives. Some credits may continue with reduced benefits or stricter rules, so acting soon can help maximize savings.

Temporary New Deductions for Individuals (2025–2028):

• No Tax on Tips: Up to $25,000 of qualified tips can be deducted from income per tax return. This deduction is not available to those filing as married filing separately and phases out for taxpayers with modified adjusted gross income (AGI) over $150,000 ($300,000 for joint filers). Only available for occupations on an IRS-published list and not for those in specified service trades or businesses (SSTBs) under section 199A. Applies to both itemizers and non-itemizers.
• No Tax on Overtime:Up to $12,500 ($25,000 joint) of qualified overtime pay (the “half” portion of time-and-a-half) required by the Fair Labor Standards Act can be deducted. Same phaseout and eligibility rules as the tip deduction.
  • Note: The IRS has confirmed Form W-2, existing Forms 1099, and Form 941 and other payroll return forms remain unchanged for Tax Year 2025. Employees with qualified overtime pay or qualified tip income will claim these new deductions on Form 1040, likely using a new attachment (expected to be Schedule 1-A) once released. Employer reporting and withholding updates are anticipated for 2026.
• No Tax on New Car Loan Interest: Up to $10,000 of interest paid on a loan for a new, personal-use vehicle (final assembly in the U.S., not for business use, secured by a lien) can be deducted. Phases out for AGI over $100,000 ($200,000 joint).
• Senior Deduction: Additional $6,000 deduction per taxpayer age 65+ ($12,000 for two qualifying spouses), in addition to the standard deduction. Phases out for AGI over $75,000 ($150,000 joint) and fully phased out at $175,000 ($250,000 joint).
• Trump Accounts: New tax-advantaged accounts for newborns start after July 4, 2026, featuring a $5,000 annual contribution limit and a $1,000 government-funded pilot deposit for eligible newborns.

Other Tax Provisions:

• Gift Tax: A married couple can give up to $38,000 to one person—$19,000 from each spouse—without triggering gift tax. Gifts over that limit require filing IRS Form 709, but no tax is owed unless total lifetime gifts exceed the $13.99 million exemption per person. Future adjustments indexed for inflation.
• Education: Starting in tax year 2026, 529 college savings plans will allow up to $20,000 in K-12 annual distributions per student and expand qualified expenses to include tutoring, standardized testing fees, and certain therapies.
• Remittance Tax: Starting January 1, 2026, a new 1% excise tax will apply to certain remittance transfers from the U.S. to foreign countries. The tax targets transfers funded with cash, money orders or similar instruments, and must be collected by the service provider at the time of transfer. Transfers funded through U.S. bank accounts or debit/credit cards are exempt. The provider is responsible for collecting, depositing, and reporting the tax.

For Businesses

• Reporting Thresholds: The IRS reporting threshold for most types of miscellaneous income (Forms 1099-MISC/NEC) remains $600. Starting in tax year 2026, the threshold increases to $2,000, with future adjustments indexed for inflation.
• Business Meals: Business meal expenses remain subject to the 50% deduction limitation unless a specific exception applies.
• Qualified Business Income (QBI) Deduction: The 20% QBI deduction is made permanent.
• Section 179 Expensing: The Section 179 expense limit is increased to $2.5 million, with a phaseout starting at $4 million, both indexed for inflation.
• Bonus Depreciation: Full expensing for qualified business property is made permanent.
• Research & Experimental (R&E) Expenditures: Domestic R&E expenses can be fully expensed immediately; foreign R&E expenses are still amortized over 15 years.
• Paid Family & Medical Leave Credit: Starting in tax year 2026, the credit is made permanent and expanded to allow employers to claim it based on qualifying insurance premiums paid for family and medical leave, instead of wages. This offers more flexibility in how the credit is applied.