Tax Changes Affecting Tax Year 2025

Senior Deduction – For tax years 2025 – 2028, qualified taxpayers age 65 and older will receive an additional deduction of $6,000. This is true regardless of whether you take the standard deduction or itemize your deductions. This deduction is subject to phase-out if income exceeds $75,000 for Single filers, and $150,000 for Married filers.

State & Local Tax (SALT) Deduction – The cap for this deduction is increased to $40,000 (from $10,000) for 2025 for taxpayers with income less than $500K, or $250K if Married Filing Separately. This will only apply to taxpayers who have enough itemized deductions to exceed the standard deduction.

Deduction for Tips – Taxpayers reporting Tip Income may be eligible to deduct up to $25K of qualified tips. Phase-outs begin when income exceeds $150K for Single/HOH filers and $300K for Joint filers. The deduction of self-employed taxpayers may not exceed their net income from the trade/business in which tips were earned. Other requirements must also be met.

Deduction for Overtime Pay – Taxpayers who earned overtime compensation may be eligible for a deduction of up to $12.5K for Single filers and $25K for Joint filers. Only the amount that exceeds the taxpayers regular rate of compensation is eligible for deduction. For example, if your hourly rate is $10 and you are paid 1.5x that rate, or $15, for overtime, only the $5 is eligible for the overtime deduction. Phase-outs begin at $150K for Single filers and $300K for Joint filers. Other requirements must also be met.

Deduction for Car Loan Interest – Only certain individuals and vehicles qualify and phase-outs begin at $100K for Single filers and $200K for Joint filers. The main criteria for eligibility are: Loan must have originated after 12/31/24; vehicle must be for personal use and cannot be pre-owned; final assembly must have been in the US. Other restrictions apply.

Clean Vehicle Incentives – Expired on 9/30/25. Eligible vehicles must have been purchased on or before that date to qualify.

Child Related Credits – The Child Tax Credit and Dependent Care Tax Credits are still available to qualifying taxpayers. Other than a small increase in dollar amounts ($2,200 per child vs. $2,000 in prior years), there are no significant changes. There are still phase-outs and limitations depending on taxpayer income.

Paper Checks – The IRS is phasing out both the issuance of paper checks for refunds and the accepting of paper checks for payments. Be prepared to receive your refund via direct deposit or make a payment electronically.