Major Tax Updates for 2025: Things to Keep in Mind
While laws change often over time, certain ones rise above the rest in terms of size and impact on the population. In July of 2025, a major new law was passed, which is commonly referred to as the “One Big Beautiful Bill Act” (OBBBA). The bill introduces a number of serious changes, some of which come in the form of taxes.
While not every provision will affect every household, several key components of the bill are likely to influence the financial plans of many of our clients in some way or another. Below, we have outlined a few of the most relevant changes to be aware of for the years to come.
The current marginal tax brackets have been extended. The brackets you came to know from the Tax Cuts and Jobs Act (TCJA) in 2018 were scheduled to sunset at the end of 2025. These brackets are now permanent, which avoids what would have been a tax hike for many households.
The standard deduction (baseline amount you can deduct from your income without itemizing) has gone up. Below are the new standard deduction amounts by filing status, subject to inflation each year going forward. The difference is not extremely significant, but every dollar counts!
The cap on State and Local Tax (SALT) itemized deductions has increased from $10,000 to $40,000. This could allow households to itemize, when they previously were taking the standard deduction each year. However, this higher limit is temporary and currently set to revert back to $10,000 in 2030. The cap is also subject to phaseout on adjusted gross income over $500,000.
There is a senior tax deduction for individuals aged 65 and over. The deduction amount is $6,000 per qualifying individual, so married couples filing jointly can deduct up to $12,000 if both spouses meet the age requirement. It is currently set to expire in 2029. The deduction begins to phase out at adjusted gross income of $75,000 for single filers and $150,000 for joint filers.
Qualifying auto loan interest is now tax deductible, effective through the 2028 tax year. This deduction applies to interest paid on loans used to purchase new passenger vehicles that are assembled in the US and weigh less than 14,000 pounds. The loan must be originated on or after January 1, 2025, with a cap of $10,000 of deductible interest per year. This deduction begins to phase out at adjusted gross income of $100,000 for single filers and $200,000 for joint filers.
Qualifying tips are now tax deductible up to $25,000 each year, effective through the 2028 tax year. Tip income is still included in wages and adjusted gross income, and must come from an occupation that “traditionally and customarily” received tips prior to 2025. The deduction beings to phase out at $150,000 for single filers and $300,000 for joint filers. This offers meaningful savings for many workers in the service industry.
Qualifying overtime pay is now tax deductible up to $12,500 for single filers and $25,000 for joint filers, effective through the 2028 tax year. Overtime pay is still included in wages and adjusted gross income. Employees can deduct the portion of overtime compensation earned above their regular hourly rate. For example, if a worker’s normal hourly rate is $22, but worked overtime for $33 per hour, the extra $11 per hour qualifies for a deduction. The deduction begins to phase out at $150,000 for single filers and $300,000 for joint filers.
The Child Tax Credit amount is being increased from $2,000 per dependent to $2,200. This amount will be indexed for inflation going forward. Good news for filers with multiple child dependents in the household.
All of these topics are at the top of our mind while making tax planning recommendations for our clients. Please don’t hesitate to reach out with any questions!
