Ready to file your taxes? Here’s what’s new this year
Tax season is upon us, and filers should be aware of several changes for the 2025 tax year. Here’s what you need to know.
Tax season is upon us, and there are several changes that filers for the 2025 tax year should watch out for. A new federal law has introduced a slate of deductions, including, among other things, tax-free tips, overtime pay, and breaks for seniors and car buyers.
The measure, the One, Big, Beautiful Bill Act, signed into law by President Donald Trump on July 4, also expands credits many households rely on, such as the child tax credit and the standard deduction. As a result of the changes, taxpayers may need to pay closer attention when filing their returns, said Tim Rupert, a professor of accounting at Northeastern.
“Taxpayers really have to be careful this year,” Rupert said. “Oftentimes, tax returns look pretty much the same as the previous year. Amounts may change due to inflation indexing, but the basic deductions and credits people have tend to stay stable. This year is a little bit different.”
Most of these changes take effect for tax year 2025, meaning they apply to income earned in 2025 and will affect returns filed in 2026.
Here’s what you need to know about the changes.
No tax on tips
The “no tax on tips” provision functions as a deduction, not a full exemption, allowing taxpayers to reduce their taxable income by a maximum of $25,000 annually, regardless of filing method. To claim the deduction, a person must meet specific criteria spelled out by the Internal Revenue Service. To qualify, those tips must have been reported on a W-2, 1099, or 4137 form. Additionally, they must come from a qualifying occupation, like service industry jobs — food, beverage or hospitality — that customarily receive tips.
The deduction also phases out for higher earners, so not all workers who earn tips will receive the full tax break.
Taxpayers may claim the deduction whether they take the standard deduction — available to all individual and married filers — or choose to itemize eligible expenses.
Overtime pay
The law also creates a new deduction for overtime earnings. Eligible taxpayers can deduct overtime pay from their taxable income up to $25,000 for married filers.
As with the tip deduction, taxpayers must meet specific qualifications, and the benefit also phases out at higher income levels.
To qualify, the overtime must be earned in eligible employment and properly reported on a W-2 or equivalent IRS form. Those who take the standard deduction, which any individual or married taxpayer may claim, or who itemize deductions, can claim this overtime deduction to reduce their taxable income.
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Senior bonus deduction
Also new this year is a deduction for taxpayers age 65 and older. Eligible seniors can deduct up to $6,000 from their taxable income, providing an extra break for retirees and older workers.
As with the other new deductions, this benefit phases out for higher-income taxpayers, so the full amount may not be available to everyone. To claim the deduction, seniors must meet the age requirement by the end of the tax year and report their income accurately on IRS forms.
Those who take the standard deduction or itemize deductions can use this provision to further reduce their taxable income.
State and local tax deduction
The One, Big, Beautiful Bill Act also increases the limit on the state and local tax, or SALT, deduction, which lets taxpayers deduct certain state and local taxes from their federal taxable income.
Previously capped at $10,000, the deduction is now capped at $40,000, or $20,000 if you’re married and filing separately. And, as with all the other new deductions, the SALT provision phases out for higher earners, or households earning more than $500,000 annually.
Taxpayers who claim either the standard deduction or itemize can take advantage of the higher SALT cap to reduce their federal tax liability.
Other provisions and changes
The One, Big, Beautiful Bill Act also makes smaller but meaningful changes that could benefit families, Rupert said. The child tax credit has been increased slightly to $2,200 for 2025, providing extra support for households with children under 17. The standard deduction was also raised modestly, giving most taxpayers a little more breathing room when filing.
Additionally, the law created so-called “Trump accounts” for children born in 2025, which may offer new opportunities for families to save or receive tax benefits for newborns.
“If someone had a child born in 2025, that’s definitely something worth looking into, to see whether there’s money that can potentially be put into those accounts,” Rupert said.
The new deductions come with a bit more paperwork. The IRS added a Schedule 1-A to Form 1040, which taxpayers will need to complete to claim the benefits, Rupert said. Most filers will use tax software, which guides users through eligibility questions and automatically calculates any phaseouts for higher-income earners, he added.
“On the software side, there has been an expansion of free-use software, but some of those free options have been eliminated,” Rupert said, noting that the IRS’s Direct File program, which was available in 25 states last year, was terminated.
This year’s filing season comes amid “pretty substantial changes in staffing levels” as a result of workforce reductions, Rupert noted. According to the Associated Press, which obtained an internal IRS letter from the service’s chief executive Frank Bisignano, the agency’s workforce shrank by about 26% following “new priorities and a reorganization of IRS executive leadership.”
