The IRS typically updates Form 1040 every year — sometimes a little, sometimes a lot. Given the many tax law changes under the One Big Beautiful Bill Act (OBBBA), there's plenty to talk about this filing season. Here are some highlights.
The OBBBA permanently extends the individual federal income tax rates established under the Tax Cuts and Jobs Act. The thresholds for these rates are annually adjusted for inflation. (See "2025 Federal Tax Rates and Brackets for Individuals" below.)
The law also increased the basic standard deduction for 2025 to:
These amounts will be inflation adjusted for 2026 and beyond.
Additional standard amounts are allowed for individuals age 65 or older or blind. For 2025, the additional amounts are $2,000 for an unmarried individual age 65 or older or blind, or $1,600 for a married person filing jointly age 65 or older or blind. (These amounts are doubled if the individual is both over age 65 and blind.)
For 2025, the OBBBA allows individuals age 65 and older to claim a new "senior" deduction of up to $6,000, subject to an income-based phaseout. This deduction is available whether you itemize or not. For joint filers, if both spouses are age 65 or older, each one is potentially eligible for a bonus deduction of up to $6,000 — for a combined total of up to $12,000.
The senior deduction begins to phase out when modified adjusted gross income (MAGI) exceeds $75,000 for single filers ($150,000 for joint filers). The phaseout is complete when MAGI exceeds $175,000 ($250,000 for joint filers).
For 2025, the OBBBA allows a new deduction that can offset up to $25,000 of qualified tip income received during the year. The tax break is available if you work in an occupation where tips are customarily received, and it can be claimed whether you itemize or not.
For self-employed individuals, the deduction can't exceed the amount of your net income — before the deduction — from the trade or business in which you earned the tips. If you're married, you must file a joint return to claim the tip deduction. And the tax break is available only if you include your Social Security number on your Form 1040.
The tip deduction that would otherwise be allowed (subject to the $25,000 limit) starts to phase out when MAGI exceeds $150,000 for single filers ($300,000 for joint filers). The deduction phases out by $100 for each $1,000 (or fraction thereof) of MAGI above the applicable threshold.
Important: You can't claim the tip deduction for work in a specified service trade or business (SSTB). Ask your tax advisor whether you work in an SSTB.
For 2025, eligible taxpayers can deduct up to $12,500 ($25,000 for joint filers) of qualified overtime pay. This deduction can be claimed whether you itemize or not. However, if you're married, you must file jointly to claim it. And you can't claim the tax break unless you include your Social Security number on your Form 1040.
Qualified overtime pay means extra overtime compensation (the so-called "overtime premium") that was paid to you as mandated under the Fair Labor Standards Act (FLSA). This law requires time-and-a-half overtime pay except for certain exempt workers. Qualified overtime pay doesn't include overtime premiums that aren't required by the FLSA but are mandated by state law or under certain contracts (for example, union-negotiated collective bargaining agreements). In other words, the overtime deduction is unavailable to employees who aren't subject to the FLSA's overtime pay requirements.
For example, suppose you worked 500 hours of overtime last year. In compliance with the FLSA, you were paid $37.50 per overtime hour rather than your regular rate of $25 per hour. In this situation, your qualified overtime pay for 2025 is $6,250 (500 times a $12.50 overtime premium).
The overtime deduction that would otherwise be allowed (after applying the $12,500/$25,000 limit) starts to phase out when your MAGI exceeds $150,000 for single filers ($300,000 for joint filers). The deduction is phased out by $100 for each $1,000 of MAGI (or fraction thereof) above the applicable threshold.
For 2025, the OBBBA grants eligible individuals — including those who don't itemize — a new deduction of up to $10,000 for interest paid on loans taken out to buy a qualifying personal-use passenger vehicle. The loan must be taken out after 2024 and secured by a "first lien" for a vehicle used for personal purposes. Leased vehicles don't qualify.
To qualify for the new deduction, the vehicle must be a car, minivan, van, sport utility vehicle, pickup truck or motorcycle with a gross vehicle weight rating under 14,000 pounds. It must be manufactured primarily for use on public streets, roads and highways. In addition, the vehicle needs to be new (meaning the original use begins with you), and its final assembly must have occurred in the United States. You're required to report the vehicle identification number (VIN) on your tax return. Vehicles assembled in the United States have a special number in the VIN that confirms eligibility.
The deduction begins to phase out when MAGI exceeds $100,000 for single filers ($200,000 for joint filers). If your MAGI is above the applicable threshold, the amount that you can deduct (subject to the $10,000 limit) is reduced by $200 for each $1,000 (or fraction thereof) of excess MAGI.
Before the OBBBA, the itemized deduction for state and local taxes (SALT) was limited to $10,000 per return ($5,000 for married individuals who file separately). For 2025, the OBBBA increased the SALT deduction limit to $40,000 per return ($20,000 for married filing separately).
As before, you can choose to deduct general state and local sales taxes instead of income-related SALT. This is a helpful option if you owe little or nothing for income-related SALT. If you choose it, your SALT deduction will be based on the amount of general state and local sales taxes you paid, plus your state and local property taxes, if applicable.
For 2025, the higher SALT deduction limit begins to phase out at $500,000 per return ($250,000 for married filing separately). The phaseout reduces the otherwise allowable SALT deduction limitation by 30% of MAGI above the applicable threshold, but not below $10,000 per return ($5,000 for married filing separately).
The dependents section of the 2025 Form 1040 also requests more information about you and your dependents than in previous tax years. The IRS uses this information to determine eligibility for certain tax benefits, such as the Child Tax Credit, the Credit for Other Dependents and the Earned Income Credit.
For 2025, the OBBBA increases the Child Tax Credit to $2,200 per qualifying child under age 17. The refundable portion of the credit is $1,700 for 2025. You can collect the refundable credit amount even if you don't owe any federal income tax. Beginning in 2025, a valid Social Security number is required to claim the Child Tax Credit.
Additionally, starting in 2025, up to $5,000 of the adoption credit amount is refundable. This amount will be inflation adjusted after 2025. You can collect a refundable credit amount even if you don't owe any federal income tax.
Section 529 accounts are a tax-favored way to save for and pay qualified education expenses. In 2025, account owners could take tax-free withdrawals of up to $10,000 to pay tuition for a public, private or religious K-12 school. Starting in 2026, the annual limit increases to $20,000.
For withdrawals taken after July 4, 2025, the OBBBA expanded the definition of qualified K-12 expenses to include curriculum materials; fees for nationally standardized tests, books and other instructional materials; dual-enrollment fees for college courses taken in high school; online educational materials; tutoring or educational classes taken outside the home; and specialized strategies to support students with disabilities.
For withdrawals taken after July 4, 2025, tax-free treatment is allowed for withdrawals to cover qualified postsecondary credentialing expenses. Such expenses include:
You can also use tax-free 529 account withdrawals to cover 1) expenses for the beneficiary to attend a registered apprenticeship program, and 2) principal or interest payments on qualified education loans owed by the account beneficiary or a sibling of the account beneficiary, subject to a lifetime limit of $10,000.
The OBBBA allows parents, guardians and other authorized individuals to elect to establish new Trump Accounts (TAs), which are similar to traditional IRAs set up for under-age-18 account beneficiaries. For children who are U.S. citizens born in 2025, an authorized individual can elect to have a tax-free $1,000 pilot program contribution made to the TA in question. Elections to establish a TA and receive the $1,000 contribution can be made on the new Form 4547, "Trump Account Election(s)," which may be filed with your tax return.
Important: After July 4, 2026, authorized individuals can start making annual nondeductible TA contributions of up to $5,000 until the year the account beneficiary turns age 18.
Did you use a broker in 2025 to sell a digital asset, such as Bitcoin? If so, the broker should send you a Form 1099-DA, "Digital Asset Proceeds From Broker Transactions," to report the transaction. On that form, your broker may report your tax basis in the digital asset you sold — but isn't required to do so.
If your broker doesn't report your basis on Form 1099-DA, you must use your own records to determine the basis. And regardless of whether you receive a Form 1099-DA, you're required to answer the digital assets question on your return and report any gains or losses from digital asset transactions during the year.
As you can see, there are more than a few changes to consider when filing your 2025 return. Your tax advisor can provide further specifics and help you take full advantage of any tax-saving opportunities available to you.
For 2025, the federal tax rate brackets for ordinary income and short-term capital gains are as follows:
2025 Federal Tax Rates on Ordinary Income and Short-Term Capital Gains
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