Big Tax Law Changes for 2025–2028: What You Need to Know

Federal tax law is changing in several important ways over the next few years. If you live or do business in Wilson County or the surrounding area, these updates may affect your tax return, your deductions, and your financial planning. Below, we break down the most significant changes, explain who qualifies, and provide practical, real-world examples.

1. No Federal Tax on Tips (2025–2028)

Who qualifies?

This provision is designed for employees whose earnings include tips, such as restaurant servers, bartenders, baristas, hotel staff, and others in service industries.

What changes?

From 2025 through 2028, up to $25,000 in tips per person each year can be excluded from your federal income tax. This exclusion is not available if your income exceeds $150,000 as a single filer or $300,000 if you are married and filing jointly. If your income is above these thresholds, you do not qualify for this benefit.

This deduction is considered "above the line," meaning you subtract these tips from your total income before any other calculations on your tax return. This helps lower your overall taxable income and could reduce your total tax bill.

It is important to note that while your tips may not be subject to federal income tax under these rules, they are still subject to federal payroll taxes and withholding.

Example:

Imagine you are a server who earns $8,000 in tips in 2026. If you meet the income requirements, you can deduct that $8,000 from your taxable income when you file your federal return. This means you will pay income tax on a lower overall amount.

Why does this matter?

This law provides meaningful tax relief for lower- and middle-income workers in the hospitality and service industries, helping them keep more of the money they earn through tips.

2. No Federal Tax on Overtime Pay (2025–2028)

Who qualifies?

This exclusion applies to individuals who receive overtime pay and whose total income is less than $150,000 (single) or $300,000 (married filing jointly). Highly compensated employees earning more than these amounts do not qualify.

What changes?

For the tax years 2025 through 2028, the first $12,500 of overtime pay for single filers and up to $25,000 for married filers will not be subject to federal income tax. If you earn overtime pay above these amounts, the excess will be taxed at the usual rates. This deduction also uses the above-the-line method, meaning you subtract eligible overtime pay from your gross income before calculating your taxes.

Example:

If you are single and receive $10,000 in overtime pay during 2026, you can deduct that full amount from your taxable income. For a married couple, if one spouse earns $30,000 in overtime, only $25,000 can be deducted, and the remaining $5,000 is taxable.

Why does this matter?

This change encourages and rewards hard work by allowing many employees to keep more of their overtime earnings. It is especially beneficial for workers in fields where overtime is common, such as healthcare, manufacturing, public safety, and transportation.

3. Extra $6,000 Standard Deduction for Seniors (2025–2028)

Who qualifies?

This deduction is available to taxpayers who are age 65 or older.

What changes?

From 2025 through 2028, individuals who are 65 or older can claim an extra $6,000 on top of the standard deduction that everyone receives. This is a direct increase, regardless of your filing status, and can help reduce your taxable income even if you do not itemize deductions.

Example:

If you are 68 years old and file your taxes as a single person in 2026, your standard deduction increases by $6,000. This could help you move into a lower tax bracket or simply reduce your overall tax owed.

Why does this matter?

This provision provides additional tax relief to seniors, many of whom are on fixed incomes. The extra deduction can help offset medical expenses, housing, and other costs that often increase with age.

4. Car Loan Interest Deduction for New Domestic Vehicles (2025–2028)

Who qualifies?

This deduction is available to individuals who purchase a brand-new car that is both manufactured and assembled in the United States.

What changes?

Between 2025 and 2028, interest paid on loans for new, U.S.-made and assembled vehicles can be deducted from your taxable income. This deduction does not apply to used vehicles, foreign-made cars, campers, or recreational vehicles (RVs). Only new passenger cars that meet the “made and assembled in the USA” criteria qualify.

Example:

If you purchase a qualifying new car in 2026 and pay $1,500 in loan interest that year, you can deduct the full $1,500 from your taxable income.

5. State and Local Tax (SALT) Deduction Cap Increases (2025–2030)

Who qualifies?

This change affects taxpayers who itemize deductions and pay significant state and local taxes. It is especially relevant for those with higher incomes or who live in states with high property or income taxes.

What changes?

Starting in 2025, the cap on state and local tax (SALT) deductions will increase to $40,000 for married couples filing jointly and $20,000 for married filing separately. This cap will increase by 1 percent each year through 2029 (for example, $40,400 in 2026). In 2030, the cap will revert to $10,000.

To qualify for the higher cap, your Modified Adjusted Gross Income (MAGI) must be below $500,000 for joint filers or $250,000 for those filing separately. The deduction phases out completely at $600,000 (joint) or $300,000 (separate). There is also a marriage penalty in the phase-out and cap amounts.

Both the income threshold and deduction cap will grow by 1 percent annually during this period.

Why does this matter?

This expanded cap provides significant savings opportunities for taxpayers in high-tax states and those with larger property or income tax burdens. However, it is only beneficial to those who itemize their deductions.

6. Other Tax Law Updates

Child Tax Credit (2025–2028)

The Child Tax Credit increases to $2,200 per child for tax years 2025 through 2028, up from $2,000. The Other Dependent Credit remains at $500. The phaseout for these credits begins at $200,000 for single filers and $400,000 for married couples filing jointly. This change can provide meaningful tax relief for families with dependent children.

Charitable Contributions

You can now deduct up to $1,000 ($2,000 for married couples filing jointly) in charitable contributions above the line, even if you do not itemize deductions. This makes it easier to receive tax benefits for charitable giving. This adjustment is permanent unless changed by future legislation.

Summary of Key Provisions

• Tips up to $25,000 per person are excluded from federal tax for those under specified income limits

• Overtime pay up to $12,500 for singles and $25,000 per person for married filers is tax-free for those under the income thresholds

• Seniors aged 65 and over receive an extra $6,000 standard deduction

• Interest paid on loans for new cars made and assembled in the USA is deductible

• The SALT deduction cap is temporarily raised for itemizers with incomes below new limits

• The Child Tax Credit is increased and the above-the-line charitable deduction is now permanent

What Should You Do Next?

These changes are likely to benefit a wide range of taxpayers, but the details matter. If you want to make sure you are taking full advantage of these new rules or need help planning for the coming years, our team is here to help. We can review your individual situation, explain how these provisions apply to you, and help you maximize your tax savings.

Contact us today to schedule a consultation or to ask any questions about these new tax laws. We are committed to making tax time less stressful and more manageable for you and your family.