2025 Tax Updates and The Big Beautiful Bill
The IRS has released more information regarding the Big Beautiful Bill (BBB) and executive order impacts for 2025. The information below is a summary and only mentions items generally applicable to our clients.
No Tax on Tips - This still doesn’t apply to most of you but for those curious about if your industry is affected, the IRS has listed eight categories of occupations this does apply to. The IRS is taking comments on the proposed regulations through October 23, 2025. This deduction is available for both itemizing and non-itemizing taxpayers, but high-income earners should be aware of phase out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers). This change goes into effect for 2025, but the IRS will provide transition relief.
No Tax on Overtime - Starting in 2025 through 2028 there will be a maximum of $12,500 ($25,000 for married filing joint filers) deduction for pay that exceeds their regular rate of pay required by the FLSA. There is a deduction phaseout for folks earning over 150K (300K for joint filers). This deduction is available for both itemizing and non-itemizing taxpayers, but high-income earners should be aware of phase out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers). This change goes into effect for 2025, but the IRS will provide transition relief.
No Tax on Car Loan Interest - Starting in 2025 through 2028 there will be a maximum of $10,000 deduction available for interest paid on a qualified vehicle used for personal use. To qualify for this deduction the interest must be paid on a loan that is used to purchase a vehicle originally used by the taxpayer and secured by a lien on the vehicle. Used vehicles and leased vehicles do not qualify. The loan must be originated after December 31, 2024. An applicable passenger vehicle is defined as a car, minivan, van, SUV, pick-up truck or motorcycle, with a gross vehicle weight rating of less than 14,000 pounds, and that has undergone final assembly in the United States. The final assembly location should be listed on each vehicle on a dealer’s premises or can be found using the VIN Decoder. The deduction is available for both itemizing and non-itemizing taxpayers, but high-income earners should be aware of phase out for folks earning over 100K (200K for joint filers). This change goes into effect for 2025, but the IRS will provide transition relief.
Standard Deduction - Increases to the standard deduction are $15,750 for single filers, $23,625 for head of household filers, and $31,500 for joint filers. Individuals age 65 or older can claim an additional $6,000 ($12,000 for married couples who both qualify) but this additional deduction will phase out for folks with modified adjusted gross income over $75,000 ($150,000 for joint filers). The standard deduction will still adjust annually for inflation.
State and Local Tax Deduction (SALT) - Starting in 2025, the max SALT deduction is now $40,000 and increased through 2029 each year - it was 10K. For folks earning more than 250K (500K for joint filers), the max amount is reduced but not below 5K (10K for joint filers). After 2029, it reverts to $10,000 (the 2024 tax year limit). This is a temporary relief unless it gets extended in the future.
Changes to Child Tax Credit (CTC) - Starting in 2025, maximum credit is $2,200 and up to $1,700 is refundable.
IRS Refund Checks - The IRS and Treasury Department have confirmed that paper refund checks for individual taxpayers will be phased out after September 30, 2025, under a presidential executive order. Beginning with 2025 tax returns, refunds will be issued electronically via direct deposit, prepaid debit cards, or secure digital wallets, with limited exceptions. The change aims to reduce fraud, speed refunds, and cut costs—paper checks are 16 times more likely to be lost or stolen and take weeks longer to process. Currently, 93% of refunds are already delivered electronically, with only 7% still issued by paper check.
Expiring Tax Regulations
The following regulations are set to expire in 2025:
Electric Vehicle Tax Credits - Electric Vehicle (EV) credits expired on September 30, 2025. Alternative Fuel Vehicle Refueling Property Credit expires on June 30, 2026.
Advanced Premium Tax Credit - This was set to expire in 2025, and it was not extended therefore, it will expire as planned. Although not gone completely, it means eligibility will be more difficult. Per usual, I do not recommend receiving PTC for any taxpayers I partner with.
Personal Moving Expenses - This law permanently eliminated all personal moving expenses except members of the armed forces and was set to expire in 2025.
Miscellaneous Itemized Deductions - This law permanently eliminated miscellaneous itemized deductions such as unreimbursed employee business expenses, investment fees and expenses, tax preparation fees, and hobby expenses originally set to be reinstated in 2026. Educator expenses have now been expanded to include more types of educational expenses and will adjust for inflation and are deducted elsewhere on your taxes.
Permanently Extended Regulations
The following regulations have been permanently extended:
Alternative Minimum Tax (AMT) - This was set to expire this year and now makes AMT exemption amounts permanent, adjusted annually for inflation. The exemption amount for unmarried individuals increases to $88,100 ($68,650 for married individuals filing separately) and begins to phase out at $626,350. For married couples filing jointly, the exemption amount increases to $137,000 and begins to phase out at $1,252,700. This will change in 2026 with the BBB but the IRS has not yet released 2026 changes.
Mortgage Interest Limit - This permanently extended the limit on mortgage debt to $750,000 and treated home equity debt as non-deductible personal interest unless used to rebuild or improve your home. It does reinstate mortgage insurance premiums as deductible, but it does phaseout once adjusted gross income exceeds 50K (100K for joint filers).
Restoration of Bonus Depreciation - Starting January 19, 2025, certain business property (including most machinery, equipment, computer software, agricultural equipment) deductions were set to expire and they have been permanently restored.
Section 179 Depreciation - Starting in 2025, the ceiling on qualified property is now $2.5 million instead of $1 million and will be indexed for inflation annually starting in 2026. There is a phaseout for property that exceeds $4 million.
Qualified Business Income Deduction - QBI deduction is now permanent and will not expire at the end of 2025 and there were changes to increase the taxable income threshold amounts.
Student Loan Repayment - If employers offer to pay up to $5,250 towards student loan repayments they can continue to as this tax break was set to expire in 2025 and is now a permanent deferral of wages subject to federal income payroll taxes. If you are not offering this employee benefit, consider including it.
IRS Has Not Updated Their Regulations Yet
The following regulations have not been updated on the IRS website:
529 Education Savings Plans - Expanded specifically include curriculum and curricular materials, books or instructional materials, online education materials and certain tutoring and education classes outside of the home, fees for specified tests, and others starting July 5, 2025.
Trump Accounts - Starting on January 1, 2025, through December 31, 2028, individual retirement accounts for minors and a pilot program where the government will contribute $1,000 to each child with a valid Social Security number. These accounts must be invested in the stock index fund, and no distributions may be made before the child turns 18. Restrictions on rollovers will apply and employers may be able to contribute. This pilot program has a limit of $410 million available.