2025 Tax Year — Key Federal Tax Changes for Individual Taxpayers Filing in 2026

As we approach the 2026 tax filing season, individual taxpayers should be aware of important changes to federal income tax rules, deductions, credits, and filing procedures that may affect your tax return. These updates include routine inflation adjustments and new provisions from recent tax legislation (the One Big Beautiful Bill Act) that influence your taxable income, deductions, and filing choices.

• The IRS will begin accepting 2025 tax returns on January 26, 2026, and the deadline to file and pay taxes remains April 15, 2026.
   
• Individuals can access tools like the IRS Individual Online Account for balance info, payments, and transcripts.
   

2. Standard Deduction Increases

For the 2025 tax year, the standard deduction amounts were raised both through routine IRS inflation adjustments and further increases enacted under the One Big Beautiful Bill Act (OBBBBA):

Filing Status 2025 Standard Deduction:

Single & Married Filing Separately - $15,750

Married Filing Jointly / Surviving Spouse - $31,500

Head of Household - $23,625  

Under the OBBBBA, taxpayers age 65 or older can claim an additional federal tax deduction beyond the standard deduction for 2025:

• $6,000 additional deduction for an individual age 65+
   
• Up to $12,000 for married couples if both spouses qualify
   

This deduction is in addition to the existing extra standard deduction for seniors and phases out at higher income levels. 

A new IRS Schedule 1-A may be used to claim certain recently enacted deductions (e.g., no tax on tips, overtime, and car loan interest under the new law).

Under the One Big Beautiful Bill Act, individuals who receive qualified tips or overtime compensation in 2025 may be eligible for new federal income tax deductions when they file their 2025 tax returns in 2026. These benefits reduce taxable income but begin to phase out at higher income levels: 

🔹 Tips Deduction
Workers in occupations that customarily and regularly receive tips (as defined by IRS guidance) may deduct up to $25,000 of qualified tip income. 

However, the deduction phases out once your modified adjusted gross income (MAGI) exceeds $150,000 for single filers or $300,000 for married filing jointly. As income increases above those thresholds, the allowable deduction reduces until it is fully eliminated. 

🔹 Overtime Deduction
Similarly, individuals who receive qualified overtime compensation — defined as the additional “premium” pay above the regular rate can deduct up to $12,500 (single) or $25,000 (joint). 

This deduction also begins to phase out at the same MAGI levels: above $150,000 (single) or $300,000 (married filing jointly). Higher earners see a gradual reduction in the deduction as income rises above those points.

What the deduction is:

For the 2025 tax year, taxpayers can claim up to $10,000 of interest paid on a loan used to purchase a new vehicle assembled in the United States for personal use. This is a new above-the-line deduction, meaning you can take it even if you do not itemize your deductions. 

Key eligibility criteria:
✔ New vehicle purchase: Loan must be for a new car, truck, SUV, van, motorcycle, or similar vehicle, not used and not a lease.
✔ Made in America: The vehicle must have had its final assembly in the United States. The VIN (Vehicle Identification Number) can help verify this.
✔ Personal use only: The car must be for personal, non-business use.
✔ Loan timing: The auto loan must originate after December 31, 2024. 

How much you can deduct:
You may deduct up to $10,000 per year of interest paid on the qualifying loan. 

Auto Loan Statement or Year-End Interest Statement

This is the most important document.

✔ Shows total interest paid during the year
✔ Usually provided by the lender (similar to a mortgage interest statement, but often informal)
✔ Can be monthly statements or a year-end summary

You deduct interest only, not principal.

Income limits & phase-outs:
The deduction is phased out for taxpayers with higher modified adjusted gross income (MAGI):

• Begins to phase out over incomes above $100,000 (single) or $200,000 (married filing jointly).
   
• Fully eliminated at higher income levels (e.g., ~$150,000 single / ~$250,000 joint).
   

No itemization requirement:
You do not need to itemize (Schedule A) to claim this deduction it can be claimed on Schedule 1 of your Form 1040. 

Child Tax Credit (CTC)

• The maximum CTC increased to $2,200 per qualifying child for 2025.
   
• This amount is indexed for inflation but the refundable portion remains limited.
   

Earned Income Tax Credit (EITC)

• The maximum EITC amount also increased modestly for qualifying taxpayers.
   

Gift Tax Exclusion

• The annual gift tax exclusion remained at $19,000 per recipient.