Changes to Income Tax, Deductions, and Credits
Lower Income Tax Rates Extended
The individual income tax brackets introduced by the TCJA have now been made permanent. That includes the 37% top marginal rate (instead of returning to 39.6%) and lower rates across most tax brackets. The bracket thresholds have also been adjusted upward for inflation, which may help reduce your taxable income if your earnings have remained steady.
Higher Standard Deduction
The near-doubling of the standard deduction continues instead of ending after 2025. The standard deduction ($15,750 for single filers and $31,500 for married couples filing jointly in 2025) will be adjusted each year for inflation. This may mean fewer taxpayers will need to itemize deductions at all.
Expanded Child Tax Credit
The CTC increases to a maximum of $2,200 per child with a refundable amount of $1,700 in 2025, indexed for inflation in subsequent years. Starting in 2026, eligibility for the full credit amount depends on several factors: low-income families must owe at least $1,700 in federal income taxes to receive the full benefit, and the credit phases out for individuals earning over $200,000 and married couples filing jointly earning over $400,000. A separate $500 nonrefundable credit remains for other dependents who do not qualify for the full amount.
New Car Loan Interest Deduction
Starting in 2025, taxpayers may deduct up to $10,000 in interest on new auto loans, though the benefit phases out for individuals earning over $100,000 ($200,000 for joint filers). The deduction applies only to vehicles with final assembly in the U.S. and is available through 2028. The deduction decreases by $200 for every $1,000 of income above the threshold. For example, a single filer earning $120,000 could deduct $6,000.
Temporary Tax Break on Tip Income
From 2025 through 2028, eligible workers can deduct up to $25,000 per year in reported tip income from their federal taxable income. The break applies to employees who receive tips subject to payroll tax withholding and earn less than $150,000 ($300,000 for joint filers). A list of qualifying tip-based occupations will be published by the Treasury Department this fall.
State and Local Tax Deduction Cap Increased
The cap on SALT deductions was not eliminated, but it is getting a temporary boost. Beginning in 2025, the cap will rise from $10,000 to $40,000, offering potential relief to households in higher-tax states.
However, the expanded deduction begins to phase out for taxpayers with incomes above $500,000. The exact benefit will vary based on filing status and household income.