Navigating Your 2025 Taxes: Key Changes You Need to Know

1) No tax on tips (implemented as a deduction)

For 2025 through 2028, employees and self-employed individuals may be able to deduct qualified tips up to $25,000 per year. The deduction phases out for taxpayers with modified adjusted gross income over $150,000 (or $300,000 if filing jointly).

• Only certain occupations qualify. Tips must be earned in an occupation listed by the IRS as customarily and regularly receiving tips on or before Dec 31, 2024. See the IRS list here: IRS list of tipped occupations.
• Qualified tips are voluntary. Mandatory service charges generally do not qualify.
• Reporting and eligibility: Follow the IRS rules for W-2/1099 reporting and, for employee tips reported directly, Form 4137. Not every cash amount reported on a return qualifies. The tip recipient needs an employment-valid SSN. A self-employed person’s deduction is also limited by net income from the business where the tips were earned; review the year’s business-eligibility and transition rules.
• This does not erase payroll taxes. Tips are still income and may still be subject to Social Security and Medicare rules.

2) No tax on overtime (implemented as a deduction)

For 2025 through 2028, the deduction generally covers only the premium above regular pay that is required by the federal Fair Labor Standards Act (FLSA). For standard time-and-a-half, that is the extra half. Overtime paid only because of California daily-overtime rules, a union contract, or employer policy does not qualify unless it is also required by the FLSA. The recipient needs an employment-valid SSN.

• Max deduction: $12,500 (or $25,000 if filing jointly).
• Phaseout: starts above $150,000 modified adjusted gross income (or $300,000 joint).
• It is a deduction on the tax return. You may still see withholding on paychecks, and the final result is handled on the return.

3) No tax on car loan interest (implemented as a deduction)

For 2025 through 2028, individuals may be able to deduct interest paid on a loan used to purchase a qualified vehicle for personal use. The maximum annual deduction is $10,000, and it phases out above $100,000 modified adjusted gross income (or $200,000 joint).

• Loan timing: generally must be originated after Dec 31, 2024.
• New vehicle requirement: the original use must begin with the taxpayer (used vehicles do not qualify).
• Personal use and financing: The vehicle must be purchased for personal use, rather than expected predominantly business/commercial use, and the loan must be secured by a first lien. Do not deduct the same interest again as a business expense.
• Vehicle requirements: Final assembly must occur in the United States, and gross vehicle weight rating must be under 14,000 pounds. Confirm the eligible vehicle type and assembly record.
• VIN required: you must include the vehicle identification number (VIN) on the return for any year you claim the deduction.
• No leases: lease payments do not qualify.

IRS guidance: IRS fact sheet with car loan rules and Treasury/IRS car loan interest guidance.

4) Enhanced deduction for seniors (age 65+)

For 2025 through 2028, an eligible person age 65 or older by year end may claim up to $6,000, with phaseout beginning above $75,000 of modified adjusted gross income ($150,000 jointly). A valid SSN is required. This deduction is separate from the age-based additional standard deduction and is available to eligible itemizers too. It does not change the rules that determine how much Social Security income is taxable.

• If both spouses qualify on a joint return, that can be up to $12,000 total.
• In general, if married, you must file jointly to claim this deduction.