5 Big 2025 Tax Changes That Could Lower Your Bill

Congress made some of the biggest individual tax changes we’ve seen in years, starting with the 2025 tax year. Thanks to the new budget law, several new deductions and limits kick in for 2025–2028, and the standard deduction gets a bigger bump than usual.

Here are the key changes most individuals and families should know about.

1. Higher Standard Deduction for 2025

The standard deduction is getting more than just the usual inflation tweak for 2025 – the law added an extra increase on top of inflation. For tax year 2025 the standard deduction is:

• $31,500 – Married filing jointly & qualifying surviving spouses

• $15,750 – Single and married filing separately

• $23,625 – Head of household

What this means: If you usually take the standard deduction (and most people do), you’ll be able to shield a bit more of your income from federal tax in 2025 without doing anything extra.

Who benefits most:

• Wage earners with modest itemized deductions (mortgage interest, SALT, charity, etc.).

• Retirees who don’t have large itemized deductions but still have Social Security, pension, or IRA income.

2. New Extra Deduction for Taxpayers Age 65+

On top of the standard deduction and the existing extra amount for age 65+, there’s now a new senior deduction starting in 2025.

For tax years 2025–2028:

• Taxpayers 65 or older can claim an additional $6,000 deduction each.

• A married couple where both spouses are 65+ can claim up to $12,000 total.

• This is available whether you itemize or take the standard deduction.

There are income limits:

• Starts phasing out around $75,000 of income for singles and $150,000 for joint filers.

• Fully phases out around $175,000 (single) and $250,000 (joint).

  
  

Planning angle: If you or your parents are 65+ in 2025 and under those income thresholds, this is a meaningful additional deduction layered on top of the higher standard deduction. It can also interact with how much of your Social Security is taxable, so it’s worth running the numbers.

3. “No Tax on Tips” – New Tip Income Deduction

One of the most publicized changes is the new tip deduction for workers in traditionally tipped jobs.

For tax years 2025–2028:

• Workers in eligible tipped occupations (think servers, bartenders, hairdressers, certain hospitality roles, etc.) can deduct up to $25,000 of qualified tips per year from federal taxable income.

• The deduction is available whether or not you itemize.

• It phases out at higher incomes, roughly starting around $150,000 of income for single filers and $300,000 for married filing jointly (exact thresholds are based on modified AGI and indexed over time).

• The IRS has (or will publish) a list of qualifying occupations and more detailed guidance.

Important:

• This is an income deduction, not literally “no reporting” – tips still need to be tracked and reported, and payroll taxes (Social Security/Medicare) can still apply.

• Certain “specified service trades or businesses” (like some performing arts venues) may be excluded, so you can’t assume every tipped job qualifies.

Who should pay attention: Anyone in restaurants, hospitality, salons, ride-share, and similar fields who reports a meaningful amount of tip income.

4. New Deduction for Overtime Pay

Alongside the tips provision, there’s also a new deduction for overtime compensation.

For tax years 2025–2028:

• Employees may deduct the overtime “premium” portion of their pay (the extra half-time) up to:

  • $12,500 for single filers

  • $25,000 for married filing jointly

• It’s an above-the-line type deduction, so you don’t have to itemize.

• Like the tips deduction, it comes with income phaseouts at higher AGI levels and is not available to married filing separately.

Practical takeaway: If you regularly work a lot of overtime, 2025–2028 could be a window where that extra time not only boosts your paycheck but also lowers your taxable income. Documentation from your employer will matter here; the IRS has issued guidance and temporary relief as payroll systems catch up.

5. New Car Loan Interest Deduction

Another unusual addition for individuals: a temporary deduction for interest on qualifying auto loans.

For tax years 2025–2028:

• You can deduct up to $10,000 per year in interest paid on a qualifying auto loan.

• The vehicle must:

  • Be new (not used or leased),

  • Be a passenger vehicle under 14,000 pounds,

  • Have final assembly in the United States,

  • Be bought for personal (not business) use.

• The deduction begins to phase out for:

  • Singles around $100,000 of income,

  • Married filing jointly around $200,000 of income (exact thresholds depend on modified AGI and guidance).

• You can claim this whether you itemize or take the standard deduction.

Planning angle: If you were already planning to purchase a new, U.S.-assembled vehicle and finance it, timing that purchase into 2025–2028 might create a deduction you otherwise wouldn’t have had. This is not a reason by itself to buy a car you don’t need.

6. Higher SALT Cap for Itemizers

Lastly, the law temporarily loosens the cap on state and local tax (SALT) deductions for people who itemize.

Starting in 2025:

• The SALT cap increases from $10,000 to $40,000 per return (with a lower amount for married filing separately).

• The higher cap generally applies to taxpayers with adjusted gross income at or below about $500,000. Above that, the cap is reduced back toward the old $10,000 level.

• The $40,000 cap is temporary and is designed to run through the late 2020s, after which current law reverts to a $10,000 cap.

Who benefits:

• Higher-income homeowners in states with high property and income taxes who itemize deductions.

• Households on the edge of itemizing may now see a benefit from grouping charitable giving or other deductions into the 2025–2028 window.

What to do now

These changes create a lot of planning opportunities, but they also come with fine print income thresholds, phaseouts, and occupation/vehicle requirements.

A few smart next steps:

• Check your 2025 withholding: If you’re a tipped worker, overtime worker, or planning a new car purchase, your effective tax rate may change. Adjusting withholding can prevent surprises.

• Seniors & near-retirees: If you’ll be 65 or older in 2025, it’s worth running projections with the new senior deduction layered on top of the higher standard deduction.

• High-SALT households: If you own property in a higher-tax area, 2025 may be a year where itemizing becomes attractive again because of the higher SALT cap.

• Document everything: For tips, overtime, and auto interest, you’ll want solid records and employer/lender statements. The IRS is still rolling out guidance and forms for these deductions.

This post is for general information only and is not legal or tax advice. The rules above are federal; state tax laws may differ. Before making big decisions—especially on income timing, retirement, or large purchases—talk with a qualified tax professional who can look at your specific situation.