What the 2025 tax law changed on your return this year
New deductions for tips, overtime, car loan interest and seniors, a larger standard deduction and child credit, a higher SALT cap, and what to keep records of.
Quick answers
- Is overtime pay tax free in 2025?
- No. Part of it is deductible, up to the cap in the key figures table on this page, and the deduction reaches only the premium the Fair Labor Standards Act requires rather than the whole overtime paycheck. It needs a Social Security number, and a joint return if you are married.
- How does the no tax on tips deduction work?
- You deduct qualified tips, up to the cap in the key figures table on this page, whether or not you itemize. Your occupation has to appear on the IRS list of jobs that customarily received tips before 2025, you need a valid Social Security number, and married filers must file jointly.
- Can I deduct car loan interest now?
- Only within narrow conditions. The loan has to originate after 2024, the vehicle must be new, assembled in the United States, mainly for personal use and secured by a first lien, and the vehicle identification number goes on the return. Leases do not qualify.
The law passed in 2025 changed enough of the return that most households will see something different this filing season. Four of the new deductions live on a brand-new form, Schedule 1-A, and you can take them whether you itemize or use the standard deduction.
| Standard deduction, single | $15,750 | 2025 Instructions for Form 1040, Standard Deduction Chart |
|---|---|---|
| Standard deduction, married filing jointly | $31,500 | 2025 Instructions for Form 1040, Standard Deduction Chart |
| Child tax credit per qualifying child | $2,200 | 2025 Schedule 8812 line 5 |
| Qualified tips deduction cap | $25,000 | 2025 Schedule 1-A line 7 |
| Qualified overtime deduction cap, single/HOH | $12,500 | 2025 Schedule 1-A line 15 |
| Qualified overtime deduction cap, married filing jointly | $25,000 | 2025 Schedule 1-A line 15 |
| Car loan interest deduction cap | $10,000 | 2025 Schedule 1-A line 24 |
| Enhanced deduction for seniors, per person | $6,000 | 2025 Schedule 1-A line 35 |
| State and local tax deduction cap | $40,000 | 2025 Instructions for Schedule A, SALT worksheet line 1 |
A larger standard deduction
The standard deduction rose to $15,750 for a single filer, $31,500 on a joint return and $23,625 for head of household. It is now high enough that itemizing makes sense for fewer households than before, though the higher SALT cap below pushes in the other direction.
A larger child tax credit
The child tax credit is $2,200 per qualifying child under 17. There is a new condition attached: beginning with 2025 you need a Social Security number yourself, not only the child, and on a joint return at least one spouse must have one.
No tax on tips
If you work in a tipped occupation, you can deduct up to $25,000 of qualified tips. The cap is per return, not per spouse, and the deduction shrinks once modified adjusted gross income passes $150,000, or $300,000 jointly.
Three conditions catch people out. The occupation has to appear on the IRS list of occupations that customarily received tips before 2025, so a tip in a job that is not on the list does not qualify. You need a valid Social Security number. And if you are married, you have to file jointly to take it at all.
No tax on overtime
Overtime is deductible up to $12,500, or $25,000 on a joint return, with the same income phase-out and the same joint-filing and Social Security number conditions as tips.
Only part of your overtime pay counts. The deduction reaches the premium the Fair Labor Standards Act requires — the extra half in time-and-a-half — not the whole of the overtime paycheck. Shift differentials, holiday pay that is not tied to hours over forty in a week, and overtime owed only under state law for a job the federal act exempts are all outside it.
Car loan interest
Interest on a car loan is deductible up to $10,000, phasing out above $100,000 of modified adjusted gross income, or $200,000 jointly. The conditions are narrow: the loan originated after 2024, the vehicle is new rather than used, it underwent final assembly in the United States, the loan is secured by a first lien on it, and the car is mainly for personal use. Leases do not qualify. You have to put the vehicle identification number on the return.
A deduction for seniors
Anyone 65 or older by the end of the year gets an extra $6,000, and both spouses can claim it if both qualify. It phases down above $75,000 of modified adjusted gross income, or $150,000 jointly, and a valid Social Security number and, if married, a joint return are required. This is on top of the additional standard deduction for age that already existed.
The SALT cap
The deduction for state and local taxes is capped at $40,000 rather than the older, lower limit. Above $500,000 of income the cap phases down, but never below $10,000. In Texas, where the deduction is mostly property tax and sales tax rather than state income tax, this is what makes itemizing worth recomputing for homeowners who stopped bothering years ago.
The 1099-K threshold went back up
Third-party payment platforms report on Form 1099-K when payments for goods and services exceed $20,000 across more than 200 transactions. The much lower threshold that was scheduled is gone. Income you earned is still reportable whether or not a form arrives.