Jul 30, 2025

With the passage of HR.1 (a.k.a., One Big Beautiful Bill Act) there were multiple changes to individual tax filing rules and calculations. Some of these changes are effective for this tax year (2025) and others in subsequent years.  The information below should be used as an informal reference, and is not exhaustive.  Consult with a tax professional for detailed tax planning.

Tax Rates and Brackets:

• No change to tax rates.  The lowest two brackets will get an initial inflation adjustment, to be documented by the IRS.

Standard Deduction:

• Change for 2025: Standard deduction is increased from previous 2025 amounts 

  • • • Single or Married Filing Separately:  from $15,000 to $15,750

      • Head of Household: from $22,500 to $23,625

      • Married Filing Jointly or Qualifying Surviving Spouse: from $30,000 to $31,500 

• Change for 2026: May increase annually

Senior Citizen Deduction: 

• • Change for 2025: Increased deduction of $6,000. (for persons born before Jan. 1, 1961) 

  • Change for 2026: Effective 2025 through 2028

  • Notes: Previously, the Senior additional amount above the standard deduction was $1,550. This added deduction is subject to a 6% phaseout based on a modified adjusted gross income (MAGI) exceeding $75,000 for single filers and $150,000 for joint filers.

Child Tax Credit:

• • Change for 2025: Increased from $2,000 to $2,200 per child

  • Change for 2026: Scheduled to be adjusted annually according to inflation.

Child and Dependant Care Credit:

• • Change for 2025: No change. Remains 35% of allowable expenses, with income phaseout

  • Change for 2026: Increased to 50% of allowable expenses, with adjustments to income phaseout that favors lower income households

Dependent Care FSA’s:

• Change for 2025: Remains as a contribution limit of $5,000 or $2,500 for Married Filing Separately

• Change for 2026: Contribution limit increased to $7,500 ($3,750 MFS)

State and Local Tax Deduction:

• Change for 2025: Increased from $10,000 to $40,000

• Change for 2026: Increases by 1% each year

• Notes: Reverts to a $10,000 limit in 2030.

No Tax On Tips:

• Change for 2025: New for 2025

• Change for 2026: Effective 2025 through 2028

• Notes: There are specific rules for reporting, the types of jobs eligible and limits on amount that can be excluded, as well as income phaseouts.  As an example, up to $25,000 in tips can be excluded for a single filer earning less than $150,000. Phaseout amounts may increase annually.

No Tax On Overtime:

• Change for 2025: New for 2025

• Change for 2026: Effective 2025 through 2028

• Notes: Overtime pay is the amount above the normal pay rate due to overtime work. For example, if regular pay is $20/hour and overtime pay is $30/hour, the incremental $10/hour is the amount that can be deducted. There are specific rules for reporting, whether the overtime meets FLSA standards, limits on the amount that can be excluded, as well as income phaseouts.  As an example, up to $12,500 in overtime pay can be excluded for a single filer earning less than $150,000.

Deductible Car Loan Interest:

• Change for 2025: New for 2025. Interest paid on a loan to purchase a qualifying passenger vehicle for personal use may be deducted. To qualify, the loan must be incurred after Dec. 31, 2024, and secured by a first lien on the vehicle.

• Change for 2026: Effective 2025 through 2028 

• Notes: Refinancing of such loans is also eligible for the deduction, but only to the extent the refinanced amount does not exceed the original loan principal.  Other restrictions apply.

Mortgage Interest Deduction:

• Change for 2025: No Change in 2025

• Change for 2026: Adds a deduction for PMI - mortgage insurance premiums

Charitable Contributions:

• Change for 2025: No change. If itemizing deductions, charitable contributions are deductible 100% up to 60% of adjusted gross income.

• Change for 2026: The first 0.5% of Adjusted Gross Income  is excluded from the deduction.

Educator Expenses:

• Change for 2025: No change. $300 in eligible expenses may be deducted.

• Change for 2026: Starting in 2026, if the taxpayer itemizes deductions, eligible amounts over $300 can be deducted.  The definition of eligible expenses has been expanded to those incurred outside the classroom. 

• Notes: Clarification from the IRS is needed eligible expenses.

Gambling:

• Change for 2025: No change. Gambling losses offset gambling gains 100%.

• Change for 2026: The rules for deducting gambling losses become more restrictive. Taxpayers may deduct only 90% of their yearly gambling losses. Second, those deductible

• losses cannot exceed total gambling winnings, maintaining a key restriction from prior law. 

Trump Accounts:

• Change for 2025: New for 2025. An IRA-like account for those under age 18 to promote financial education, retirement readiness and asset accumulation.  Contributions are capped at $5,000 per year per child.

• Change for 2026: Contribution limits may be indexed to inflation.

• Notes: For children born after Dec. 1, 2024 and before Jan. 1, 2029 the US Government will make a one-time contribution of $1,000.  IRS guidance is pending regarding distributions (withdrawals)

529 Education Savings Plans

• Change for 2025: Expands the list of expenses eligible for spending

• Change for 2026: Raises cap on K-12 529 account spending limit from $10,000 to $20,000

Individual Green Energy Tax Credits:

• Change for 2025: None

• Change for 2026: Phaseout of these tax credits for clean vehicle credit, energy-efficient home improvements and residential clean energy.

Exclusion of Scholarships Tuition:

• Change for 2025: None

• Change for 2026: For scholarships received after 2026, a new federal income exclusion for certain K-12 scholarships.

Estate and gift tax exemption:

• Change for 2025: none

• Change for 2026: Base exemption raised from $5M to $15M. Indexed for inflation after 2026.

Adoption Credit

• Change for 2025: Up to $5,000 credit is now refundable, along with clarification of rules for carry forward.