Kara Sears
On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law, introducing significant updates to the tax code and impacting how Americans file their taxes in 2025 and beyond. The new tax laws include extensions of previous temporary changes, adjustments to tax brackets, deductions, and retirement contributions, and changes to taxes on tips, gambling losses, and more. These changes will impact taxpayers when they file their returns in 2026, with some changes already in effect for the 2025 tax year. With so many updates, it can be challenging to understand how these changes affect individual situations, but resources are available to help navigate the new tax landscape.
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What You'll Learn
The One Big Beautiful Bill Act
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law, introducing significant updates to the tax code and changing how Americans file their taxes in 2025 and beyond. Here are the key details of the act:
No Tax on Tips
Effective from 2025 onwards, the "No Tax on Tips" law allows workers in industries where tipping is customary to claim a dollar-for-dollar deduction for a designated amount of their tip earnings. The income eligible for this deduction is capped at $25,000, and it begins to phase out for higher-income workers with a Modified Adjusted Gross Income (MAGI) of $150,000 for single filers or $300,000 for married couples filing jointly.
Charitable Deductions
Starting in 2026, taxpayers who claim the Standard Deduction and don't itemize their deductions will be able to claim a Charitable Deduction for cash contributions to charities. This rule does not apply to property contributions. If a taxpayer itemizes deductions for charitable contributions, they must reduce their deduction by 0.5% of their adjusted gross income.
Gambling Loss Deductions
Also effective from 2026, the new legislation limits how much of a gambling loss can be claimed on taxes each year. Only 90% of wagering losses are now deductible, up to the amount of an individual's winnings. This may result in taxes owed for a portion of their gains.
Premium Tax Credit and Marketplace Eligibility
Changes to premium tax credit rules and underlying Marketplace eligibility and insurer options may decrease the number of individuals with health insurance coverage through the Marketplace. These changes include expanded repayment scenarios and new eligibility restrictions based on household income and legal status.
Retirement Contributions
The annual contribution limit for employees participating in 401(k), 403(b), governmental 457 plans, and the federal government's Thrift Savings Plan has increased to $23,500 for 2025. The catch-up contribution limit for employees aged 50 and over remains at $7,500, while a higher limit of $11,250 applies to employees aged 60-63.
Standard Mileage Rates
The standard mileage rates for the use of a car, van, pickup, or panel truck for business purposes increased to 67 cents per mile in 2024. Starting on January 1, 2025, the optional standard mileage rate for automobiles driven for business increased by 3 cents, while the rate for other vehicles remained unchanged.
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Adjustments to tax brackets
The Alternative Minimum Tax exemption amount for 2023 was $81,300, with a phase-out at $578,150 ($126,500 for married couples filing jointly). The maximum Earned Income Tax Credit amount for taxpayers with three or more qualifying children was $7,430, an increase of $595 from 2022. The monthly limitation for the qualified transportation fringe benefit and qualified parking increased to $300, up from $280 in 2022.
The maximum credit for adoptions in 2023 was $15,950, an increase of $1,060 from the previous year. The personal exemption for 2023 remained at 0, as per the Tax Cuts and Jobs Act. There was no limitation on itemized deductions, as that limitation was also eliminated by the Tax Cuts and Jobs Act. The Child Tax Credit had a maximum of $2,000 per qualifying child, and the refundable portion was adjusted for inflation, increasing from $1,500 to $1,600 for 2023.
Looking ahead, the IRS has also released tax inflation adjustments for the 2025 tax year. The standard deduction for single taxpayers and married individuals filing separately will be $15,000, an increase of $400 from 2024. For married couples filing jointly, the standard deduction rises to $30,000, an increase of $800. The marginal rates for 2025 remain the same as 2023, with the top rate of 37% applying to individual single taxpayers with incomes greater than $626,350 ($751,600 for married couples filing jointly).
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Deductions and retirement contributions
For 2023, there are some changes to tax laws regarding deductions and retirement contributions that taxpayers should be aware of. Firstly, it's important to note that the rules for reporting Form 1099-K have changed. Taxpayers will receive Form 1099-K if they received third-party payments in the tax year 2022 for goods and services exceeding $600. This is a change from previous years, where Form 1099-K was issued only if the total number of transactions exceeded 200 and the aggregate amount exceeded $20,000.
Regarding retirement contributions, there are limits to how much individuals can contribute to their traditional IRAs and Roth IRAs. For 2023, the total contributions to these accounts cannot exceed certain limits. These limits are outlined by the IRS and should be referred to when making retirement contributions. Additionally, individuals need to be mindful that their traditional IRA contributions may be tax-deductible, but this deduction may be limited if they or their spouse has a workplace retirement plan and their income exceeds certain levels.
For those with a workplace retirement plan, it's important to refer to the relevant tables provided by the IRS to determine if their modified AGI affects the amount of their deduction. Furthermore, employer matching contributions are permitted, and employers can make matching contributions for employees who contribute elective deferrals. These employer matching contributions can be discretionary or mandatory, depending on the company's decision.
In terms of tax refunds, the IRS cautions taxpayers not to rely on receiving a 2022 federal tax refund by a certain date. Some returns may require additional review and take longer to process if there are errors, missing information, or suspected identity theft or fraud. To avoid processing delays, taxpayers should ensure their tax records are complete and accurate before filing. The fastest way to receive a tax refund is by filing electronically and choosing direct deposit.
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Child Tax Credit increase
The Child Tax Credit (CTC) is a tax break for families with qualifying children. For the 2023 tax year, the initial amount of the CTC is $2,000 for each qualifying child. The credit amount begins to phase out where modified AGI income exceeds $200,000 ($400,000 in the case of a joint return). The amount of the CTC that can be claimed as a refundable credit is limited, as it was in 2020, except that the maximum ACTC amount for each qualifying child increased to $1,600.
To qualify for the full amount of the 2024 Child Tax Credit for each qualifying child, taxpayers must meet all eligibility factors and have an annual income of not more than $200,000 ($400,000 if filing a joint return). Parents and guardians with higher incomes may be eligible to claim a partial credit. To qualify as a dependent for the 2024 tax year, the individual must be under 17 at the end of the tax year, be claimed as a dependent on the return, and meet other eligibility criteria.
Estimates reflect a Rescue Plan Child Tax Credit of $3,600 for children aged 5 and younger and $3,000 for children aged 6 to 17 in the tax year 2024. However, children in U.S. territories like Puerto Rico, Guam, and the U.S. Virgin Islands are not included in these estimates due to data limitations.
During the 2025 tax debate, a key priority for policymakers is expanding the Child Tax Credit to benefit the roughly 19 million children excluded from receiving the full credit due to their families' low incomes. Lawmakers are urged to reinstate the 2021 American Rescue Plan expansion of the Child Tax Credit, including making the full credit available to children in low-income families and increasing the maximum credit amount to $3,600 for children aged 5 and younger and $3,000 for children aged 6 to 17.
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Marginal rates
Marginal tax rates are the percentage of tax applied to each additional dollar of income as a taxpayer moves through different tax brackets. In other words, it represents the percentage taken from your next dollar of income above your current income level. Marginal tax rates only apply to the portion of income within each bracket, not your entire income.
For the 2025 tax year, the seven federal tax rates put in place in the TCJA are now permanent: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The top marginal income rate of 37% will apply to single filers with taxable income of $626,350 and, for married couples filing jointly, taxable income above $751,600. The other rates are: 35% for incomes over $250,525 ($501,050 for married couples filing jointly); 32% for incomes over $197,300 ($394,600 for married couples filing jointly); 24% for incomes over $103,350 ($206,700 for married couples filing jointly).
The marginal tax rate is the tax rate paid on the last dollar of taxable income. It typically equates to your highest tax bracket. For example, if you're a single filer in 2025 with $35,000 of taxable income, portions of your income would be taxed at 10% and 12%. If your taxable income went up by $1, you would pay 12% on that extra dollar, too.
Your marginal tax rate is the highest tax rate you’ll pay on your taxable income. It’s based on the federal income tax bracket you're in, which depends on your taxable income and filing status. You might be able to lower your marginal tax rate if you can reduce your taxable income. Certain investment strategies can reduce your marginal tax rate, too.
Marginal tax rates have changed significantly over time. For instance, the top marginal rate declined from 91% in 1962 to a low of 28% in the late 1980s. Since then, the top rate has fluctuated between 31% and 39.6%. Changes to the top rate have been accompanied by changes to the level of income to which it applies.
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Frequently asked questions
The income tax brackets have changed, with wider brackets due to rising inflation. The Social Security annual wage base has increased to $160,200, and the limit on employee contributions to a healthcare flexible spending account (FSA) has increased to $3,050. The standard mileage rates for the use of a car have increased to 67 cents per mile driven for business use.
Some tax credits have returned to 2019 levels, meaning affected taxpayers will likely receive a smaller refund compared to the previous year. This includes amounts for the Child Tax Credit (CTC), Earned Income Tax Credit (EITC), and Child and Dependent Care Credit.
Yes, if you receive a 1099-K form for the 2023 tax year, you must report the income on your tax return. The reporting threshold for third-party networks that process payments has also lowered, so a single transaction exceeding $600 can require the third-party platform to issue a 1099-K form.
Yes, there is tax relief for victims of federally declared disasters, such as hurricanes, tornadoes, and wildfires. Individuals can deduct personal disaster losses, even if they don't itemize.
