Every year brings new tax law changes to keep American taxpayers on their toes, and 2025 is no different. However, the 2025 tax changes are a bit bigger than those of recent years, thanks to the Working Families Tax Cut Act (also known as the One Big Beautiful Bill or OBBB), which became law on July 4, 2025.

 

At a glance:

• The standard deduction has increased, as have contribution limits for retirement accounts.

• Reporting thresholds for Form 1099-K have dropped, meaning more people should receive this form this year.

• Some tax credits also saw changes, including the EITC and Adoption Credit.

 

Federal tax bracket changes for 2025

The Internal Revenue Service (IRS) tweaks the tax brackets with yearly inflation adjustments. This means you could find yourself in a lower tax bracket, even if your income hasn’t changed much.

 

2025 tax rate updates

There are still seven individual income tax rates ranging from 10% to 37%, depending on the following income thresholds for each tax filing status:

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2025 standard deduction rates

The IRS also adjusts the standard deduction to reflect the rising cost of living every year. The standard deduction reduces your taxable income, and the amount you can claim depends on your filing status.Here are the 2025 standard deduction amounts compared with 2024:

 

If you are blind or age 65 and up, you can claim an additional standard deduction:

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New extra standard deduction for seniors

Starting in 2025, seniors (age 65+) can claim an extra $6,000 standard deduction due to a provision in the Working Families Tax Cut Act.

 

This enhanced deduction is temporary, applying only to tax years 2025 through 2028. It also begins to phase out once your adjusted gross income (AGI) exceeds $75,000 for single filers or head of household filers and $150,000 for married couples filing jointly.

 

For example, if you are an eligible single filer over age 65 (and not blind) in 2025, you could combine all three standard deductions, for a total of $23,750.

 

Here’s the math:

$15,750 (single standard deduction) + $2,000 (65+ additional deduction) + $6,000 (temporary extra senior deduction) = $23,750

 

Working Families Tax Cut Act (One Big Beautiful Bill) changes for 2025 tax year

Next, let’s walk through the highlights of the Working Families Tax Cut Act and how its many tax provisions might impact your taxes this year.

 

Child Tax Credit (CTC) increases

The new tax bill also raises the Child Tax Credit to $2,200 per qualifying child for the 2025 tax year (up from $2,000 in 2024). Additionally, more of the credit is refundable, meaning some families may see a larger tax refund even if their tax liability drops to $0.

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The income thresholds for the CTC remain the same — the credit still phases out based on your filing status and modified adjusted gross income (MAGI). For a full walkthrough of eligibility, phase-outs, and how this compares to prior years, check out our complete Child Tax Credit Guide.

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No tax on overtime pay

A new deduction for qualifying overtime pay is now available, effective in the 2025 tax year. You can deduct up to $12,500 if you’re a single filer or up to $25,000 if you’re married filing jointly. The deduction begins to phase out once your MAGI hits $150,000 for single filers or $300,000 for joint filers.

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You can claim the overtime deduction even if you claim the standard deduction. It is a temporary deduction, available only from 2025 to 2028. Read our full No Tax on Overtime Guide.

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No tax on tips for 2025

The Working Families Tax Cut Act also creates a new deduction for certain tip income for 2025 through 2028. You can deduct up to $25,000 in qualifying tips per tax return, and the deduction begins to phase out once your MAGI reaches $150,000 for single filers or $300,000 for joint filers.

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Only certain occupations qualify; check out our No Tax on Tips Guide for all the details.

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Car loan interest deduction

There is another temporary deduction for car loan interest for tax years 2025 through 2028. You can deduct up to $10,000 of interest paid on a qualifying vehicle loan each year through 2028. This tax break begins to phase out once your MAGI exceeds $100,000 (or $200,000 for married couples filing jointly).

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Your vehicle must meet specific requirements (including U.S. final assembly and a valid VIN) to qualify. If you financed your car, read our Car Loan Interest Deduction Guide to see if you qualify to deduct your interest payments.

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SSNs required for certain tax benefits

The bill limits which tax benefits can be claimed with an Individual Taxpayer Identification Number (ITIN). Many popular credits and new deductions — including the Child Tax Credit, Earned Income Tax Credit, education credits, as well as the new tips deduction, new overtime deduction, and the new senior deduction — now require a valid Social Security number (SSN).

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ITINs remain fully valid for filing tax returns, and certain benefits are still available to ITIN filers. However, this change is likely to cause confusion this tax season, particularly for mixed-status families. For a full breakdown of which credits changed and who still qualifies, check out our full article: OBBB Limits Tax Credits for ITIN Filers Without SSNs.

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SALT deduction cap increase

Another tax bill provision temporarily raises the SALT deduction cap beginning in the 2025 tax year. This increase gives some taxpayers in high-tax states more room to deduct state and local tax payments.

The SALT cap rose to $40,000 (up from $10,000) in 2025 and will increase each year slightly through tax year 2029. If your MAGI exceeds $500,000 ($250,000 for those married filing separately), your SALT cap gradually reduces, but it will never be less than $10,000.

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This is a particularly useful change if you live in a state or city with higher tax rates. Read our full SALT Deduction Guide for more info.

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1099-K reporting changes for 2025

For those receiving payments through third-party networks like PayPal®, Venmo®, or eBay®, the 1099-K reporting requirements have been a hot topic. Here’s what’s changing for tax year 2025:

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These changes mean that any earnings of $5,000 or more from payment platforms will trigger a 1099-K form in 2025. If you are a side hustler or online seller, make sure you understand this tax form and how to report Form 1099-K on your taxes.

 

Tax Tip: Keep good records of your sales and payments through third-party platforms. It’s better to be over-prepared than to scramble for receipts in April.

 

Capital gains tax rates

Profits from selling assets, including stocks, real estate, crypto, etc., are subject to capital gains tax rates. Short-term gains (assets held for one year or less) are taxed as ordinary income. Long-term gains rates (for assets held over a year) max out at 20%. The 2025 long-term gain tax rates and brackets are:

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Earned Income Tax Credit (EITC) changes for 2025

The EITC is a popular tax credit for low- to moderate-income working taxpayers. The amount you can claim depends on your income, filing status, and the number of children you have.

 

The maximum EITC you can claim for 2025 is $7,830. Below are the 2025 income limits for the credit this year:

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Important contribution changes for 2025

• 401(k) contributions: Individuals can contribute up to $23,000 to 401(k) plans in 2025 (up from $22,500 in 2023). If you are 50 or older, you can contribute up to $30,500.

• IRA contributions: The annual contribution limit for IRAs in 2025 is $7,000 (up from $6,500 in 2023). If you are 50 or older, you can contribute up to $8,000. If you have a SIMPLE IRA, you can contribute up to $16,000 in 2025 (up from $15,500 in 2023).

• Health flexible spending accounts: In 2025, you can contribute up to $3,200 in employee salary reductions to fund your health flexible spending arrangement.

• Medical Savings Accounts (MSAs): Deductible ranges and out-of-pocket expenses for MSAs also increased. For individuals with self-only coverage, the plan must have an annual deductible of at least $2,800, at most $4,150, and an out-of-pocket expense limit of $5,550. For families, the annual deductible must be at least $5,550 but no more than $8,350, with an out-of-pocket expense limit of $10,200.

 

Other 2025 tax changes

• Social Security tax limit: For 2025, the maximum earnings subject to the Social Security payroll tax increased to $168,600 (up from $160,200 in 2023). This means the maximum Social Security tax you can have withheld from your paycheck in 2025 will be $10,453.20.

• Alternative minimum tax (AMT): The Alternative Minimum Tax exemption amount for 2025 is $85,700 (up from $81,300) and begins to phase out at $609,350. The AMT exemption for married couples filing jointly is $133,300 (up from $126,500) and begins to phase out at $1,218,700.

• Bonus depreciation: In 2025, businesses can deduct 60% in first-year bonus depreciation (down from 80% in 2023).

• Fringe benefits: The monthly limit for tax-free qualified transportation and parking fringe benefits increased to $315 (up from $300 in 2023).

• Gift tax exclusions: The annual gift tax exclusion increased to $18,000 for 2025 (up from $17,000 in 2023). You can gift someone up to this amount during the tax year without filing a gift tax return. The lifetime exclusion also increased to $13.61 million (up from $12.92 million).

• Qualified adoption expenses: The maximum credit for adoption expenses increased to $16,810 (up from $15,950 in 2023).

• Foreign earned income exclusion: For 2025, the foreign earned income exclusion (FEIE) available to expats is $126,500 (up from $120,000 in 2023). If you qualify, you can exclude foreign earnings from your income up to this amount.

 

We’ve covered most of the basics, but you can view the official IRS announcement of 2025 inflation changes on irs.gov.

 

What hasn’t changed from last year?

While many things change in tax law from year to year, some things stay the same. Here are a few constants from last year’s tax code that you can still count on in 2025:

• The Child Tax Credit amount remains the same as in tax year 2023 (up to $2,000 per qualifying child).There continues to be no limit on itemized deductions.

• The personal exemption remains at 0 due to the Tax Cuts and Jobs Act.

• The modified adjusted gross income (MAGI) amount used by joint filers to determine the Lifetime Learning Credit (LLC) reduction was not adjusted for inflation.

• The LLC begins phasing out once your MAGI exceeds $80,000 ($160,000 for joint filers).

 

The bottom line

That’s a wrap on what’s new (and what’s not) for 2025 taxes. We know taxes are often the last thing you want to think about, but knowing what has changed from last year can help you better prepare for the coming tax season while minimizing unpleasant surprises (like a large tax bill). Don’t forget to check for any state tax and local tax updates as well, and remember — TaxVance is here to guide you when you’re ready to file.

 

This article is for informational purposes only and not legal or financial advice.