Key takeaways for 2025 tax changes

 

The One, Big, Beautiful Bill Act significantly affects federal taxes, credits and deductions. It was signed into law on July 4, 2025, as Public Law 119-21, and takes effect in 2025.

Individuals

 

**Standard deduction increases

 

Tax year 2026

• $32,200 for married couples filing jointly
• $16,100 for single filers and married individuals filing separately
• $24,150 for heads of household

Tax year 2025

• $31,500 for married couples filing jointly
• $15,750 for single filers and married individuals filing separately
• $23,625 for heads of household

Marginal rates for tax year 2026

• 37% for income over $640,600 (single) or $768,700 (married filing jointly)
• 35% for income over $256,225 (single) or $512,450 (married filing jointly)
• 32% for income over $201,775 (single) or $403,550 (married filing jointly)
• 24% for income over $105,700 (single) or $211,400 (married filing jointly)
• 22% for income over $50,400 (single) or $100,800 (married filing jointly)
• 12% for income over $12,400 (single) or $24,800 (married filing jointly)
• 10% for income up to $12,400 (single) or $24,800 (married filing jointly)

Alternative minimum tax exemption amounts for tax year 2026

• $90,100 for single filers (phased out at $500,000)
• $140,200 for married couples filing jointly (phases out at $1,000,000)

Estate tax exclusion for tax year 2026

• Basic exclusion amount is $15,000,000
• Up from $13,990,000 for 2025 decedents

Adoption credit limits for tax year 2026

• Maximum adoption credit is $17,670, which is higher than the $17,280 limit for 2025.
• Up to $5,120 of this credit may be refundable.

Employer-provided childcare credit expansion for tax year 2026

• Maximum amount increases from $150,000 to $500,000
• Maximum increase to $600,000 if employer is an eligible small business

 

**Deduction for Seniors 

**No Tax on Tips

Overview of the deduction

• Effective 2025 through 2028, employees and self-employed individuals may deduct qualified tips they received in occupations the IRS identified as “customarily and regularly receiving tips” on or before December 31, 2024, and are reported on a Form W-2, Form 1099, another statement furnished to the individual, or on Form 4137 if the individual directly reports the tips.
• “Qualified tips” include voluntary cash or charged tips received from customers, including shared tips.
• Maximum annual deduction is $25,000.
• For self-employed individuals, deduction cannot exceed net income (before this deduction) from the trade or business where tips were earned.
• Phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).

Who qualifies

Individuals who:

• Have a Social Security number (SSN)
• Claim itemized or non-itemized deductions

Who doesn’t qualify

Individuals who are:

• Self-employed in a Specified Service Trade or Business (SSTB) under Section 199A
• Employees of an employer in an SSTB

How to claim the deduction

• Include your Social Security number on the return
• File jointly if you’re married

Reporting requirements

• Employers and other payors must report certain cash tips and the occupation of the tip recipient on IRS (or SSA) information returns.
• Treasury and IRS will provide penalty relief for tax year 2025.

 

**No Tax on Overtime

Overview of the deduction

• Effective 2025 through 2028, individuals may deduct the portion of qualified overtime pay that exceeds their regular rate of pay (for example, the “half” portion of “time-and-a-half”).
• Overtime must be reported on Form W-2, Form 1099, another statement furnished to the individual, or directly by the individual.
• Maximum annual deduction is $12,500 ($25,000 for joint filers).
• Phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).

Who qualifies

Taxpayer who:

• Have a Social Security number (SSN)
• Claim itemized or non-itemized deductions

How to claim the deduction

• Include your Social Security number on the return.
• File jointly if you’re married.

Reporting requirements

• Employers and other payors must report qualified overtime compensation on IRS (or SSA) information returns.
• Treasury and the IRS will provide transition relief for tax year 2025.

 

**No Tax on Car Loan Interest

Overview of the new deduction

• Effective 2025 through 2028, individuals may deduct interest paid on a loan used to purchase a qualified vehicle for personal use that meets other eligibility criteria. Lease payments do not qualify.
• Maximum annual deduction is $10,000.
• Phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers).

What counts as qualified interest

Interest must be paid on a loan that:

• Originated after December 31, 2024
• Was used to purchase a vehicle originally used by the taxpayer
• Was secured by a lien on the vehicle
• Was for a personal-use (nonbusiness) vehicle

If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction.

​​​What counts as a qualified vehicle

A qualified vehicle is a car, minivan, van, SUV, pickup truck or motorcycle that:

• Has a gross vehicle weight rating of less than 14,000 pounds
• Underwent final assembly in the United States.

To verify final assembly, check one of these:

• The vehicle label at the dealership
• The vehicle identification number (VIN)
• The National Highway Traffic Safety Administration, NHTSA VIN Decoder (verify vehicle assembly location)

Who qualifies

• Available to both itemizing and non-itemizing taxpayers.
• You must include the VIN on your return for any year you claim the deduction.

Reporting requirements

• Lenders or other recipients of qualified interest must file information returns with the IRS and provide statements to taxpayers showing the total amount of interest received during the taxable year.

 

**Health Savings Account Expansion for Participants

 

Overview of changes and benefits

Telehealth and remote care services

• Telehealth and other remote care services can now be received before meeting a high-deductible health plan deductible.
• People can still contribute to their Health Savings Account (HSA) even after using telehealth before meeting the deductible.
• This rule is permanent for plan years starting on or after January 1, 2025.

Expanded eligibility for Bronze and Catastrophic plans

• Starting January 1, 2026, bronze and catastrophic health insurance plans are treated as HSA-compatible.
• This applies whether the plans are bought through an insurance exchange or not.
• This change makes more people eligible to contribute to an HSA, including individuals who previously could not because their plan did not meet the strict HDHP definition.

Direct primary care arrangements

• Beginning January 1, 2026, people enrolled in certain direct primary care (DPC) service arrangements may:
  • Contribute to an HSA if they otherwise qualify.
  • Use HSA funds tax-free to pay periodic DPC fees.

Call for comments

• Treasury and the IRS invite public comments on the guidance by March 6, 2026, via the federal rulemaking portal or by mail.

 

**Trump Accounts under the Working Families Tax Cuts

 

Overview of Trump Accounts

• Parents, guardians, or others can establish a Trump Account for an eligible child.
• Trump Accounts cannot be funded before July 4, 2026.
• The federal government will make a one-time $1,000 contribution for each eligible child’s account.
• Authorized contributions from individuals and employers are allowed up to $5,000 per year.
• Employers can contribute up to $2,500 per year toward an employee’s or dependent’s Trump Account without it counting as taxable income for the employee.
• Funds must be invested in certain mutual funds or exchange-traded funds that track a U.S. stock index such as the S&P 500.

Withdrawal and use

• Generally, money cannot be withdrawn before the year the child turns 18.
• After that point, the account is treated like a traditional IRA with similar tax rules.

Adoption Credit Enhancement

Overview of the change

• Beginning tax years after December 31, 2024, up to $5,000 (indexed for inflation) of the adoption credit may be refundable.
• Any credit amount carried forward from prior years cannot be used to calculate the refundable portion.

 

Businesses

 

**Passenger Vehicle Loan Interest Transition Relief for 2025

 

Transition relief overview

IRS provides transitional relief for tax year 2025 for lenders and other recipients of qualified interest who must file information returns with the IRS and provide statements to borrowers showing the total amount of interest received on qualified passenger vehicle loans and other relevant information

How the relief applies for 2025

• Applies to reporting requirements under the One, Big, Beautiful Bill for qualified passenger vehicle loans.
• Lenders and other payors should refer to Notice 2025-57 and other related guidance to determine how the 2025 reporting rules apply.

 

**Employee Retention Credit (ERC) Limitation

 

Overview of the limitation

• The One Big, Beautiful Bill Act limits credits and refunds for employee retention credits (ERC) claimed for the third and fourth quarters of 2021 that were filed after January 31, 2024.
• IRS FAQs provide general information, including when a claim was timely filed and what appeal rights apply if an ERC claim is disallowed.

 

Investment and community development

 

**Rural Opportunity Zones

 

Overview of Opportunity Zones

• In 2018, certain economically distressed census tracts in the United States and its territories were designated as Qualified Opportunity Zones (QOZs) by the Treasury Department.
• Taxpayers investing in QOZs receive certain tax benefits as an incentive to support economic growth and job creation in these underserved communities.

Rural area definition under the One, Big, Beautiful Bill Act

• A rural area is any area other than a city or town with a population greater than 50,000, and any urbanized area contiguous and adjacent to such a city or town.
• This definition applies to states, the District of Columbia and U.S. territories.

Changes to substantial improvement requirements

• Beginning July 4, 2025, The Act reduced the substantial improvement threshold from 100 percent to 50 percent for required additions to the basis for property located entirely in rural QOZs.

 

**Tax Benefit for Agricultural and Rural Lending

Overview of the tax benefit

• A new provision, Internal Revenue Code Section 139L, allows eligible lenders to exclude 25% of interest income from federal taxable income.
• The benefit applies only to interest earned on qualifying loans.
• Lenders must still include the remaining 75% of interest income in taxable income.

Who qualifies

The benefit is available to qualified lenders, which generally include:

• U.S. banks and savings associations
• Certain regulated insurance companies
• Farm Credit System institutions
• Other lenders that meet IRS eligibility requirements

What counts as a qualified loan

To qualify for the tax benefit, a loan must:

• Be secured by farm or rural real property
• Involve property primarily used for agricultural or rural purposes
• Be made on or after July 4, 2025
• Be secured by the property itself (not based only on how loan funds are used)

The guidance also explains how refinanced loans and property value limits are handled.

 

Clean energy

 

**Clean Vehicle Credit Expirations

Overview of credit expirations

The Act accelerates the end of several clean vehicle credits:

• New Clean Vehicle Credit (30D): Not allowed for any vehicle acquired after September 30, 2025
• Used Clean Vehicle Credit (25E): Not allowed for any vehicle acquired after September 30, 2025.
• Qualified Commercial Clean Vehicle Credit (45W): The credit will not be allowed for any vehicle acquired after September 30, 2025.

 

**Home Energy Credit Expirations

 

Overview of credit expirations

The Act accelerates the end of the following home and residential energy credits:

• Energy Efficient Home Improvement Credit (25C): Not allowed for any property placed in service after December 31, 2025.

• Residential Clean Energy Credit (25D): Not allowed for any expenditures made after December 31, 2025.

 

**Carbon Capture and Sequestration Credit

 

Overview of the new guidance

• Explains how taxpayers can qualify for the credit
• Applies to qualified carbon oxide captured and stored securely underground
• Covers activities that occur during calendar year 2025
• Provides safe harbor method for reporting and certification

Tax exempt entities and charitable giving

 

**Indian Tribal Governments and the Adoption Credit

 

Overview of the change

• The Act recognizes Indian tribal governments for purposes of determining whether a child has special needs for the adoption tax credit.
• Provides parity with state governments, by giving tribal governments the same ability to determine whether a child has special needs for purposes of the adoption tax credit.

 

**Tax Credit for Donation to Scholarship Organizations

 

Overview of the credit

• Beginning January 1, 2027, individual taxpayers may be able to claim a federal tax credit for certain donations they make.
• The credit applies to cash contributions to Scholarship Granting Organizations (SGOs).
• An SGO is a nonprofit that awards scholarships to help students pay for elementary and secondary education.
• The tax credit is nonrefundable, which means it can reduce your federal tax bill but will not result in a refund if the credit is larger than what you owe.
• The maximum credit an individual can claim each year is $1,700.

Important details

• A state or the District of Columbia must choose to participate in the program before the credit can be claimed for contributions to SGOs within that state.
• States must provide the IRS with a list of qualifying SGOs that meet legal requirements.
• The IRS notice asks for input from the public about issues that should be addressed in future rules.
  • Interested parties may submit comments through the Federal e-Rulemaking portal or by mail by December 26, 2025.

 

Other taxes

 

**Dyed Fuel Claims

 

Overview of the new claim

The Act creates a claim for payment, without interest, equal to the federal excise tax previously paid on clear diesel fuel or kerosene that is later indelibly dyed and removed at a terminal for a nontaxable use.

Claim Requirements

Applies to eligible dyed diesel fuel and kerosene removed on or after December 31, 2025.

Eligible fuel includes:

• Previously taxed fuel (that was not credited or refunded),
• Indelibly dyed by mechanical injection, and
• Removed from an approved terminal for a nontaxable use.

Important Details

• Guidance on the process for submitting claims will be issued in early 2026.
• The forthcoming guidance will enable refunds to taxpayers that paid the tax on the dyed fuel to which the claim relates.
• Do not file claims until guidance is issued. The IRS will not process any claims until that time.

 

**Excise Tax on Certain Remittance Transfers

Overview of the excise tax

Beginning January 1, 2026, remittance transfer providers must:

• Collect the 1% excise tax on applicable remittance transactions when the sender pays with cash, a money order, a cashier’s check, or a similar physical instrument.
• Make semimonthly deposits.
• File quarterly returns with the IRS.

Important details

• The first semimonthly deposit is due January 29, 2026.
• Treasury and the IRS will provide limited penalty relief. This relief applies for the first three quarters of 2026 under Treasury and IRS guidance. Providers may avoid deposit penalties if they make timely deposits (even if the amount is later adjusted) and pay any underpayment by the due date of the applicable quarterly return (Form 720). Safe-harbor rules under excise-tax regulations may also apply.