Tax season is in full swing and early IRS data shows that the average refund is currently higher than the same time last year—though final refund amounts vary widely based on income, withholding, and eligibility for new tax provisions. Several provisions enacted in the One Big Beautiful Bill Act, which apply to the 2025-2028 tax years, may impact taxpayers’ returns. Here are five to consider before filing:
1. Tip income: Qualified tip income may be deductible from federal taxable income, subject to limitations. The deduction is capped at $25,000 annually and is available regardless of whether the taxpayer itemizes deductions. The deduction phases out for taxpayers with modified adjusted gross income (MAGI) over $150,000 ($300,000 for joint filers).
2. Overtime pay: A new federal income tax deduction allows eligible workers to deduct up to $12,500 ($25,000 for joint filers) of qualified overtime compensation from taxable income. The deduction phases out for taxpayers with MAGI over $150,000 ($300,000 for joint filers).
3. Senior citizens: Taxpayers who turned age 65 by Dec. 31, 2025, may qualify for an additional $6,000 deduction ($12,000 for joint filers). This deduction stacks on top of both the standard deduction and the existing additional deduction available to taxpayers age 65 and older. Although, this deduction begins phasing out once MAGI exceeds $75,000 ($150,000 joint filers).
4. Vehicle loan interest: Taxpayers may deduct up to $10,000 annually in interest paid on loans for new personal passenger vehicles, provided the vehicle’s final assembly occurred in the United States and other requirements are met. The deduction phases out once MAGI exceeds $100,000 ($200,000 for joint filers).
5. State and local tax: The federal deduction cap on state and local taxes increases from $10,000 to $40,000 for the 2025 tax year. The increased deduction phases out when MAGI exceeds $500,000. Both the deduction and phase-out limits increase 1% annually through the 2029 tax year. This introduces an important tax planning opportunity, as itemizing deductions instead of electing the standard deduction may be more beneficial for certain taxpayers under this new provision.
While not all taxpayers will be able to reap the rewards of these tax breaks, speaking with a tax professional may yield other tax savings. A CPA—a certified public accountant—can help taxpayers identify tax planning strategies, credits, and deductions applicable to them.
The Illinois CPA Society’s free “Find a CPA” directory can help individuals find the trusted, strategic advisor that’s right for them based on location, types of services needed, and languages spoken. Find a CPA at www.icpas.org/findacpa.
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