These key tax changes from the ‘big beautiful bill’ could impact your 2025 return

A sweeping federal law passed last year could have impacts on 2025 tax returns for millions of American taxpayers.

The ‘big beautiful bill’ introduced a host of changes to the U.S. tax code, some of which went into effect for returns filed for tax year 2025, according to the IRS and other agencies.

Here are some of the facets of the bill that could impact taxpayers as they prepare to file their returns.

Taxes on Tips

One of President Donald Trump’s campaign pledges was to eliminate taxes on tips for American workers, and while those taxes aren’t completely eliminated, there are significant deductions that can be made on returns.

According to the IRS, taxpayers can deduct up to $25,000 in tips if their modified adjusted gross income for tax year 2025 was below $150,000 for single taxpayers, or below $300,000 for those filing jointly.

That deduction can be applied for taxpayers who itemize their deductions, or for those who do not and take the standard deduction instead, according to the IRS.

Taxpayers should be aware however that some payroll taxes can still apply to tips, and that tips are still likely taxed at the state or local level, depending on where they live.

More information can be found on the IRS’ website.

Overtime Tax Deductions

Taxes on overtime pay have also changed with provisions of the bill. Federal officials are cautioning workers that if their overtime pay is impacted by collective bargaining agreements, then they may not be eligible for the deduction, so residents will need to consult with an accountant or a tax preparation service for more information.

For those eligible, overtime pay can also be deducted up to $12,500 per taxpayer, with phaseouts beginning at a modified adjusted gross income of $150,000 for single taxpayers or $300,000 for those filing jointly.

Like the tax on tips, the change is only in effect temporarily.  

Child Tax Credit Increased

According to the IRS, the Child Tax Credit has increased from $2,000 per qualifying child to $2,200 for tax year 2025.

To qualify, a child must be under the age of 17 at the end of the tax year, and be a dependent of the taxpayer in question. They must also have lived with the parent or guardian for more than half the tax year.

There is a phaseout for taxpayers whose annual income is over $200,000 for single filers, or $400,000 for joint filers.

More information can be found on the IRS’ website.                    

Standard Deduction Increases

The standard deduction for single taxpayers increased to $15,750 for tax year 2025. It also increased to $23,625 for the head of household, and to $31,500 for those taxpayers who are filing jointly.

State and Local Tax (SALT) Deduction Increases

For those taxpayers who itemize their deductions rather than taking the standard deduction, the SALT Deduction has increased to $40,000 from its previous level of $10,000.

That deduction can be important to taxpayers who work in states with higher tax rates, according to experts. More information can be found here.

Deductions for Interest Paid on “Made-in-America” Cars

The bill also includes new deductions for newly-purchase vehicles that are either built in the United States or were assembled in the United States.

According to federal officials, a vehicle qualifies as an “Applicable Passenger Vehicle” if it has a vehicle weight of less than 14,000 pounds, and that is for primarily personal use.

Anyone who purchased a new vehicle in tax year 2025 and who paid at least $600 in interest on that vehicle is eligible for the deduction of up to $10,000.

More Information

More information on other tax benefits, including the set-up of “Trump Accounts” for children born after January 1, 2025, can be found on the IRS’ website.