1. Standard Deductions Went Up
For many taxpayers, the standard deduction is one of the most important factors in determining taxable income. For the 2025 tax year, the IRS has announced new, higher amounts which were boosted further by recent legislation under the One Big Beautiful Bill Act:
• Married couples filing jointly: $31,500 (up $2,300 from 2024)
• Heads of household: $23,625 (up $1,725)
• Single filers and married individuals filing separately: $15,750 (up $1,150)
Taxpayers age 65 or older still receive an extra standard deduction, and thanks to the new law, that additional amount is now $6,000 per eligible person. This means an older married couple filing jointly could claim up to $43,500 in total deductions before paying federal income tax.
These changes mean more of your income will be shielded from taxes, potentially lowering your overall tax bill. If you usually take the standard deduction instead of itemizing, this adjustment could result in noticeable savings in 2025.
2. Alternative Minimum Tax Exemptions Increased
The alternative minimum tax (AMT) exists to ensure that high-income earners pay at least a minimum amount of tax. For 2025, the AMT exemption amounts are increasing:
• Unmarried individuals: $88,100
• Married individuals filing separately: $68,650
• Married couples filing jointly: $137,000
The income threshold at which these exemptions begin to phase out has also increased. For married couples, the phase-out now starts at $1,252,700. This means that fewer taxpayers may be affected by the AMT, potentially reducing their tax liability.
3. Earned Income Tax Credit (EITC) Increased
The earned income tax credit (EITC), a valuable benefit for low- to moderate-income workers, is also increasing for 2025. The maximum EITC for taxpayers with three or more qualifying children rises to $8,046, up from $7,830 in 2024.
This credit can significantly reduce the amount of tax owed and, in many cases, lead to a larger refund. Even lower-income taxpayers who don’t owe taxes may qualify for a refundable portion of the credit.
4. Retirement Contribution Limits Changed
The IRS has also announced updates to retirement-related contribution limits:
• The 401(k) contribution limit increases to $23,500 (up from $23,000 in 2024). This applies to 401(k) plans, 403(b) plans, governmental 457 plans, and the Thrift Savings Plan.
• The 401(k) catch-up contribution limit for those 50 and older remains at $7,500.
However, under SECURE 2.0, starting in 2025, workers aged 60 to 63 can make higher catch-up contributions of up to $11,250 to their retirement plans, exceeding the standard catch-up limit for those aged 50 and older.
The IRS has also adjusted the income phase-out ranges for Roth IRA contributions:
• Single filers and heads of household: $150,000 – $165,000 (up from $146,000 – $161,000)
• Married couples filing jointly: $236,000 – $246,000 (up from $230,000 – $240,000)
If you’ve been on the edge of eligibility for Roth IRA contributions, this adjustment might allow you to contribute more to your retirement savings tax-free.
5. New No Federal Income Tax on Tips
Starting in 2025, certain workers will see major tax relief on tips thanks to a new federal deduction. For tax years 2025 through 2028, you can deduct up to $25,000 in qualified tip income from your federal taxable income.
• Applies to employees and self employed individuals in jobs where receiving tips is customary and regular, as defined by IRS guidelines.
• Qualified tips include voluntary cash tips, charged tips, and tips shared with other employees.
• Deduction phases out for individuals with modified adjusted gross income (MAGI) over $150,000 and joint filers over $300,000.
• Available whether you itemize or take the standard deduction.
• Employers must still report tips to the IRS on Forms W 2 or 1099.
• This eliminates federal income tax on up to $25,000 in tips, but Social Security and Medicare (FICA) taxes still apply.
This new deduction could mean a significant boost in take home pay for service industry workers. If you earn tip income, track it carefully so you can claim the full benefit when you file your taxes.
6. No Federal Income Tax on Overtime Pay
For 2025 through 2028, certain overtime earnings will no longer be subject to federal income tax, giving millions of workers a break on extra hours worked.
• You can deduct up to $12,500 in qualified overtime pay each year (up to $25,000 for married couples filing jointly).
• Qualified overtime pay is the additional compensation you receive above your regular hourly rate for hours worked beyond 40 in a week, typically the “half time” portion of time and a half pay.
• Deduction phases out for individuals with MAGI over $150,000 and joint filers over $300,000.
• Available whether you itemize or take the standard deduction.
• Employers must separately report qualified overtime pay to the IRS.
• This deduction reduces federal income tax only. Payroll taxes (Social Security and Medicare) still apply to overtime earnings.
If you regularly work extra hours, you can now hold on to more of those hard-earned dollars. Planning ahead to invest or save your overtime tax savings can help maximize this temporary benefit.
7. New Tax Deduction for Interest on New Auto Loans
A new federal tax deduction is available starting in 2025 for interest paid on loans used to buy new vehicles for personal use. This deduction can lower your taxable income and help you pay less in taxes. Certain limitations and restrictions apply.
• Eligible vehicles must be new and must have completed final assembly in the United States. This excludes popular imports such as Toyota, Honda, Hyundai, Nissan, and Kia, which typically assemble vehicles outside the U.S.
• You must be the first owner of the vehicle.
• The deduction applies to cars, minivans, SUVs, pickups, vans, and motorcycles that weigh under 14,000 pounds.
• You can deduct up to $10,000 each year for the interest paid on loans used to buy these new vehicles.
• Loans can only be started between January 1, 2025, and December 31, 2028. Leases and used car purchases are not eligible.
• Taxpayers must include the vehicle identification number (VIN) on their tax return to claim the deduction.
• The amount eligible for deduction is adjusted for individuals with modified adjusted gross incomes over $100,000 and joint filers over $200,000.
• The deduction is available whether you itemize or take the standard deduction.
• Refinanced auto loans generally remain eligible for the deduction on the refinanced portion.
This tax benefit is distinct from dealership financing promotions and offers an important opportunity for members to increase their financial wellness by redirecting tax savings toward long-term goals or other financial needs.
What’s Staying the Same?
While many tax provisions are changing, a few key elements remain unchanged:
• Personal exemptions remain at $0 due to the Tax Cuts and Jobs Act (TCJA).
• The child tax credit stays at $2,000 per qualifying child, with a refundable portion of $1,700.
How to Prepare for Tax Year 2025
Now is an ideal time to review your income tax strategy. If you’re unsure how these updates will affect you, consider:
• Adjusting your tax withholdings to take advantage of increased deductions and credits.
• Maximizing your retirement contributions before the year ends to reduce taxable income.
• Consulting a tax professional for personalized advice based on your financial situation.
The IRS updates tax laws annually, so staying informed can help you make the most of available deductions and credits. Visit IRS.gov for the latest details, and start planning now to optimize your 2025 federal income tax return.
