A sweeping new federal tax law—enacted July 4, 2025—brings major updates to the tax code, especially for individuals and families. Here’s a breakdown of the biggest changes and how they might affect your personal tax situation.
💵 Tip Income Deduction (2025–2028)
Good news for service industry workers—cash and card-based tips are now eligible for a deduction of up to $25,000 per year.
✅ Tips must be reported on a W-2, 1099, or via IRS Form 4137
✅ Applies to qualifying tipped occupations (IRS list coming soon)
✅ Still subject to Social Security and Medicare taxes
🚫 Does not apply to service charges or non-cash tips
🔺 Deduction phases out for those earning over $150,000 (single) or $300,000 (joint)
⏱ Overtime Deduction (2025–2028)
You may now deduct the “time-and-a-half” portion of your qualified overtime pay—up to $12,500 for individuals or $25,000 for joint filers.
✅ Employer must report qualified overtime separately on your W-2
✅ Phased out starting at $150,000 (single) or $300,000 (joint)
🚫 Payroll taxes still apply
👵 Senior Deduction (65+)
If you’re age 65 or older, you may claim a new $6,000 deduction per person ($12,000 if both spouses qualify) from 2025–2028.
✅ MAGI phaseout begins at $75,000 (single) or $150,000 (joint)
❗Yes, you still owe taxes over 65! This deduction simply helps lower your taxable income.
✅ You must include your (and your spouse’s) Social Security number to claim it
👶 Child Tax Credit Increased
The Child Tax Credit increases to $2,200 per qualifying child starting in 2025 and is now permanent.
✅ SSNs required for both child and taxpayer
✅ No expiration date on the enhanced credit
🚗 Car Loan Interest Deduction (2025–2028)
You can now deduct up to $10,000 in interest paid on new car loans—even without itemizing.
✅ Car must be new, personally owned, and assembled in the U.S.
✅ Deduction phases out above $100,000 (single) or $200,000 (joint)
✅ VIN must be reported on your tax return
🚫 Leased, commercial, or used vehicles don’t qualify
👶 New Youth Savings Accounts (Starting 2026)
A new tax-deferred savings account—designed for children under 18—will launch in 2026.
✅ Parents or guardians can contribute up to $5,000 per year
✅ Strict investment limits apply (low-fee index funds only)
✅ No withdrawals allowed before age 18
✅ Special rollovers allowed to ABLE accounts at age 17
✅ Government pilot program may offer a $1,000 credit for newborns
🧾 Miscellaneous Itemized Deductions Eliminated (Starting 2026)
Beginning in 2026, miscellaneous itemized deductions are gone for good.
❌ Unreimbursed employee expenses
❌ Tax prep fees
❌ Investment expenses
✅ Educators get expanded deductions, including coaches and administrators