The tax year 2025 adjustments described below generally apply to income tax returns filed in 2026. The tax items for tax year 2025 of greatest interest to most taxpayers include the following dollar amounts:
Earned Income credit maximum credit amounts
The maximum amount of credit:
Increased Child Tax Credit
The OBBBA makes the child tax credit provisions of the TCJA permanent, and increases the maximum from $2,000 to $2,200 for 2025 (adjusted for inflation thereafter).
No Tax on Tips
The OBBBA temporarily makes up to $25,000 of tip income deducible for individuals in traditionally and customarily tipped industries for tax years 2025 through 2028. The deduction phases out by $100 for every $1,000 of modified adjusted gross income that exceeds $150,000 ($300,000 for joint filers).
No Tax on Overtime
The OBBBA temporarily makes up to $12,500 ($25,000 for joint filers) of the premium portion of overtime compensation deductible for itemizers and non-itemizers for tax years 2025 through 2028. The deduction phases out by $100 for every $1,000 of modified adjusted gross income that exceeds $150,000 ($300,000 for joint filers).
Standard deduction increases
Marginal rates
For tax year 2025, the top tax rate remains 37% for individual single taxpayers with incomes greater than $626,350 ($751,600 for married couples filing jointly). The other rates are:
Additional Senior Deduction
The OBBBA temporarily adds a senior deduction of $6,000 for each qualifying individual for both itemizers and non-itemizers. The deduction phases out when modified adjusted gross income exceeds $75,000 ($150,000 for joint filers), and is available from 2025 through 2028.
Increased State and Local Tax (SALT)
Itemized Deduction the OBBBA temporarily increases the cap on the itemized deduction for state and local taxes (SALT) from $10,000 to $40,000 for 2025 and increases the cap by one percent each year from that level through 2029, subject to a phaseout for taxpayers with incomes above $500,000. After December 31, 2029, the cap is scheduled to be reduced to a flat $10,000 thereafter.
Deduction for Interest Payments on Certain Vehicles
The OBBBA temporarily makes auto loan interest deductible for itemizers and non-itemizers for new autos with final assembly in the United States for tax years 2025 through 2028. The deduction is limited to $10,000 and phases out at a 20 percent rate when modified adjusted gross income exceeds $100,000 for single filers and $200,000 for joint filers.
Trump Savings Account
The OBBBA creates a new tax-deferred investment account for children called a “Trump account.” Contributions to a Trump account are limited to $5,000 annually (indexed for inflation) of after-tax dollars. In addition, under a newborn pilot program, the federal government will contribute $1,000 per child for U.S. citizens born between January 1, 2025 and December 31, 2028.
Capital Gains and Losses – Changes for 2025
High-income taxpayers are subject to higher capital gain and qualified dividend tax rates, and these rates generally are adjusted annually. For tax years beginning in 2025, the long-term capital gain and qualified dividend tax rate is as follows:
• The 0% rate applies to
▫ Single filers and married filers filing separately with income up to $48,350,
▫ Head of household filers with income up to $64,750,
▫ Joint filers with income up to $96,700,
▫ Trusts and estates with income up to $3,250;
• The 15% rate applies to
▫ Single filers with income between $48,350 and $533,400,
▫ Married filers filing separately with income between $48,350 and $300,000,
▫ Head of household filers with income between $64,750 and $566,700,
▫ Joint filers with income between $96,700 and $600,050,
▫ Trusts and estates with income between $3,250 and $15,900; and
• The 20% rate applies to
▫ Single filers with income exceeding $533,400,
▫ Married filers filing separately with income exceeding $300,000,
▫ Head of household filers with income exceeding $566,700,
▫ Joint filers with income exceeding $600,050,
▫ Trusts and estates with income exceeding $15,900.
Business Use of a Taxpayer’s Personal Vehicle
The 2025 standard mileage rate applicable to eligible business use of a vehicle is 70¢ per mile, up from 67¢ in 2024. Rather than using the optional standard mileage rates, however, a taxpayer may choose to take a deduction based on the actual costs of using the vehicle.
Personal Vehicle Use for Charitable Purposes
The standard mileage rate applicable to a taxpayer’s use of a personal vehicle for charitable purposes is based on statute and remains unchanged at 14¢ per mile. The taxpayer may also deduct parking fees and tolls, regardless of whether the actual expenses or standard mileage rate is used.
Medical Bills
Medical expenses can be deducted in 2025 for medical expenses exceeding 7.5 percent of adjusted gross income.
The information provided above is just a portion of the changes that has taken place for the 2026 filing season.
