If you’re looking ahead to the upcoming 2026 tax season, you should take note of the major 2025 federal income tax changes. Many of these new tax rules stem from the comprehensive legislation called the «One Big Beautiful Bill» (also known as H.R. 1) that was passed in July.
The OBBB permanently extended certain tax provisions from the 2017 Tax Cuts and Jobs Act — in particular, the larger standard deduction and lower individual tax rates.
New provisions also include an increased tax deduction for seniors, a higher cap on state and local taxes, as well as reduced taxes on tips and overtime for certain workers.
Read on to get the full details on all of the biggest new changes for filing your taxes in 2026.
Note: This article discusses the tax laws applying to income earned in 2025. Most people will file their 2025 income tax returns during the standard 2026 tax season, from late January to April 15, 2026.
Tax brackets adjusted for inflation
Without passage of the OBBB, the tax rates for the seven income tax brackets would have reverted in 2025 to their pre-2017 levels. For the 2025 tax year, the seven federal tax rates established by the Tax Cuts and Jobs Act are now permanent: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
The specific income brackets for tax filers are adjusted for inflation each year. For example, the top end of the 10% tax bracket for a single filer will increase from $11,600 for 2024 to $11,925 for 2025.
Here are the tax brackets and rates for your 2025 income.
2025 income tax brackets
| Tax rate | Single | Married filing jointly | Married filing separately | Head of household |
|---|---|---|---|---|
| 10% | $1 — $11,925 | $1 — $23,850 | $1 — $11,925 | $1 — $17,000 |
| 12% | $11,926 — $48,475 | $23,851 — $96,950 | $11,926 — $48,475 | $17,001 — $64,850 |
| 22% | $48,476 — $103,350 | $96,951 — $206,700 | $48,476 — $103,350 | $64,851 — $103,350 |
| 24% | $103,351 — $197,300 | $206,701 — $394,600 | $103,351 — $197,300 | $103,351 — $197,300 |
| 32% | $197,301 — $250,525 | $394,601 — $501,050 | $197,301 — $250,525 | $197,301 — $250,500 |
| 35% | $250,526 — $626,350 | $501,051 — $751,600 | $250,526 — $626,350 | $250,501 — $626,350 |
| 37% | $626,351+ | $751,601+ | $626,351+ | $626,351+ |
These tax rates are marginal, meaning that the rates are applied to the next additional dollar of your earned income as you move through the different tax brackets. If you’re a single tax filer, your first $11,925 of income will be taxed at 10%; the next $36,550 will be taxed at 12%; the next $54,874 will be taxed at 22%; and so on.
Increase in standard deduction
Another tax change that the OBBB makes permanent is the increase to the standard deduction — the base amount taxpayers are allowed to reduce their taxable income by without itemizing deductions. Without the OBBB, that deduction would have reverted to its former level, nearly half the current amount.
2025 standard deduction amounts
| Tax filing status | Standard deduction amount for 2025 |
|---|---|
| Single or married filing separately | $15,750 |
| Head of household | $23,625 |
| Married filing jointly | $31,500 |
Like the tax brackets, the standard deduction for income taxes is indexed to inflation. For your 2026 tax return (filed in 2027), the standard deduction will increase to $16,100 for single filers and married couples filing separately; $32,200 for married couples filing jointly; and $24,150 for heads of household.
Extra $6,000 deduction for seniors
One of the biggest tax bonuses of the 2026 tax filing season is an extra $6,000 deduction for filers 65 and older. Eligible seniors can claim it regardless of whether they take the standard deduction or itemize. A deduction is a tax break that reduces the amount of your taxable income.
To qualify for the $6,000 additional deduction, you must be 65 years old by Dec. 31, 2025. Married couples who both qualify and are filing jointly can deduct $12,000. The new $6,000 senior tax deduction is temporary and scheduled to expire after the 2028 tax year.
This tax deduction for seniors begins to phase out at higher incomes (determined by modified adjusted gross income, or MAGI), starting at $75,000 for single tax filers and $150,000 for married couples filing jointly. Each dollar above those amounts will reduce the senior bonus deduction by $0.06.
For example, a person over 65 filing by themself and earning $100,000 will receive a senior deduction bonus of $6,000 — (0.06 x $25,000), or $4,500. At that phaseout rate, the senior bonus deduction becomes $0 at $175,000 MAGI for single filers and $250,000 for married couples filing jointly.
Increased state and local tax itemized deduction
For the 2025 tax year, the primary change to the deduction for state and local taxes (aka SALT) is a temporary increase in the maximum deduction limit from $10,000 to $40,000 per household. That $40,000 limit will increase 1% yearly through 2029, when it will then revert back to $10,000.
The increased SALT deduction limit primarily benefits upper- and middle-income taxpayers in states with high property and income taxes. Like the senior deduction, the SALT deduction can reduce your taxable income, but the SALT deduction is only available to people who itemize.
The SALT deduction limit begins to decrease once an individual taxpayer’s MAGI reaches $500,000, and it’s reduced to $10,000 for those with modified gross adjusted incomes over $600,000. That means that every dollar earned over $500,000 reduces the limit for the SALT deduction by $0.30.
State and local deduction phaseout
| Modified adjusted gross income | State and local tax deduction Limit |
|---|---|
| $1 — $500,000 | $40,000 |
| $520,000 | $34,000 |
| $540,000 | $28,000 |
| $560,000 | $22,000 |
| $580,000 | $16,000 |
| $600,000+ | $10,000 |
Car loan interest (at least some of it) is now deductible
Taxpayers can deduct interest paid on a loan used to purchase a new qualified vehicle purchased in 2025, specifically, cars, minivans, vans, SUVs, pickup trucks and motorcycles that weigh less than 14,000 pounds and have undergone «final assembly» in the US. The vehicle must be used for personal purposes and meet other eligibility criteria, and lease payments don’t apply. You’re limited to $10,000 in deductible interest.
Taxpayers can reduce their taxable income by claiming the car loan deduction regardless of whether they take the standard deduction or itemize. The deduction starts to phase out at $100,000 for single tax filers or $200,000 for joint filers at a rate of $200 for each $1,000 earned over that threshold, expiring completely at $150,000 and $200,000, respectively.
Car loan deduction phaseout
| Single filer MAGI | Married jointly MAGI | Max car loan deduction |
|---|---|---|
| $0 — $100,000 | $0 — $200,000 | $10,000 |
| $110,000 | $210,000 | $8,000 |
| $120,000 | $220,000 | $6,000 |
| $130,000 | $230,000 | $4,000 |
| $140,000 | $240,000 | $2,000 |
| $150,000+ | $250,000+ | $0 |
Income taxes have been reduced on tips and overtime pay
The OBBB doesn’t completely eliminate all federal income taxes on tips and overtime, but it does provide some tax breaks for these sources of income that take effect this upcoming season.
No tax on tips
Starting with 2025 income taxes, workers in jobs that traditionally receive voluntary tips will be able to deduct up to $25,000 of «qualified tips.» Taxpayers can claim the extra deduction on tips, regardless of whether they use the standard deduction or itemize.
The tax deduction on tips phases out for single-filing taxpayers at $150,000 and for married taxpayers filing jointly at $300,000.
No tax on overtime
The reduction of taxes on overtime pay works very similarly to the rules for tips. Single filers can deduct up to $12,500 of overtime income, and married couples filing jointly can deduct $25,000.
The same phaseouts of $150,000 and $300,000 that apply to the tax deduction for tips also apply to the tax deduction for overtime.
Child tax credit gets a small boost for 2025
For parents of dependent children younger than 17 on Dec. 31, 2025, the child tax credit increases this year, but there’s a catch. While there’s a slight boost of $200 to raise the total amount to $2,200 per child, the refundable amount (claimed via the additional child tax credit) remains the same at $1,700.
Refundable tax credits can be claimed whether you owe taxes or not — putting money directly in your pocket — while non-refundable credits can only be used to offset money that you owe the IRS.
The amount of the child tax credit will now be indexed to inflation, meaning it will increase in line with the cost of living, starting in 2026.
The Tax Cuts and Jobs Act introduced a requirement that qualifying children must have Social Security numbers, and the new OBBBA rules take this a step further, requiring parents to also have SSNs to be eligible. Before 2017, taxpayers and dependents only needed taxpayer identification numbers to qualify. The California Immigrant Policy Center estimates that the new SSN requirements will exclude 2.66 million children from being eligible for the CTC.
Another reporting change for income from Venmo and PayPal
The tax reporting rules for income from online payment systems, such as Venmo, PayPal, Google Play, and CashApp, seem to change almost every year. While these systems were originally designed for sending money to friends and family, many independent freelancers, gig workers and small business owners earn income using them.
The threshold for receiving a 1099-K form, which documents your online income, is significantly higher than it was last year. You will only receive a 1099-K for income from online payment platforms if you:
- Receive more than $20,000 in total online payments
- Conducted more than 200 transactions on a single payment platform
Last year, the threshold for receiving a 1099-K because of online payments was only $5,000, and, before the passage of the OBBBA, the threshold was scheduled to drop to $2,500 in 2025.
Tax rules may change again before the 2026 tax season
On Sept. 30, the IRS released an initial version of its 2025-26 Priority Guidance Plan, which establishes the issues that are high priorities for 2025 tax guidance. Many IRS forms and interpretations of new rules for 2025 are still in progress. We’ll continue to update this article as the agency comes out with more information about filing your 2025 tax returns.
None of the information in this article is intended to be financial or tax advice. We recommend you discuss any specific tax strategies or tax questions you may have with a tax professional.
