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Tax Changes 2025

01
Tax Law Changes
  • Overtime Pay: Individuals with overtime pay that exceeds their regular rate of pay may deduct the qualified portion over overtime pay. Maximum annual deduction is $12,500 ($25,000 for joint filers) Phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers). Required to be reported on W-2, Form 1099, a statement for the individual, or directly by the individual.
  • Note: It may not be reflected on your W-2 immediately so you may want to bring last pay stub from December 2025.
  • Car Loan Interest: Individuals may deduct interest paid on a loan used to purchase a qualified vehicle for personal use that meets other eligibility requirements. This is not applicable to lease payments. Loan must have originated after December 31st 2024, used to purchase a vehicle used by the taxpayer, was for personal (nonbusiness) use, and was secured by a lien on the vehicle. Qualified vehicles are cars, minivans, vans, SUVs, pickup trucks, or motorcycles that has a gross weight rating less than 14,000 pounds and underwent final assembly in the United States.
  • Increase Senior Deduction: Qualified individuals over 65 may claim an additional deduction of up to $6,000 per eligible individual (Up to $12,000 for married couples where both spouses qualify).
  • The New, Used, and Qualified Commercial Clean Vehicle Credits are no longer allowed for any vehicles purchased after September 30, 2025.
02
The Child Tax Credit
  • The CTC has been increased to $2,200 per qualifying child, with increased phase-out thresholds:
    $400,000 for married couples filing jointly.
    $200,000 for all other taxpayers.
  • Credit for Other Dependents (ODC): A nonrefundable credit of $500 is available for certain dependents, such as older children or relatives.
  • Refundable Portion of CTC (ACTC): For 2025, the refundable portion of the CTC is limited to $1,700 per qualifying child, adjusted for inflation. This refundable amount can increase up to $2,200.
  • Earned Income Threshold: You need at least $2,500 in earned income to be eligible.
03
Qualifying Relative Dependents
  • A qualifying relative must have a gross income under $5,200, live with or be related to you, be supported by you (more than 50%), and not be a qualifying child of anyone else. Parents or guardians can claim adult children as dependents for education-related credits.
  • U.S. citizens or residents traveling abroad must still file taxes.
  • Note: If you are a dependent of another taxpayer you might still need to file. Check with your Tax Professional.
04
Dependent Child Requirements
  • The child must be under age 19 (or 24 if a full-time student) or any age if permanently and totally disabled.
  • The child must live with you for more than half the year, and you must provide more than half of their support.
  • The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them.
  • An adopted child is always treated as your own child. The term “adopted child” includes a child who was lawfully placed with you for legal adoption.
05
Daycare and Dependent Care Credit
  • The credit for child and dependent care expenses is limited to $3,000 for one qualifying person or $6,000 for two or more. The credit percentage ranges from 20% to 35%, depending on income.
  • Unlike overnight camps, the cost of day camp may count as an expense towards the Child and Dependent Care credit.
06
Earned Income Credit
  • For 2025, the maximum EITC is $8,046 for taxpayers with three or more qualifying children.
07
Education Credits
  • Lifetime Learning Credit: Nonrefundable up to $2,000 per return, available for all post-secondary education and courses to improve job skills, and student does not need to be pursuing a degree or other recognized education credential. Student does not have to be full time. You can claim expenses related to tuition and fees required for enrollment or attendance only.
  • American Opportunity Credit: Refundable (40%) up to $2,500 per eligible student for the first four years of post-secondary education. The student must be pursuing a degree or other recognized education credential, be enrolled at least half time for at least one academic period beginning in the current tax year. Students must have no felony drug convictions as of the end of the current tax year. You can claim expenses related toward tuition, required enrollment fees, and course materials needed for course of study.
  • To qualify for max education credits, modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married filing jointly). You'll receive a reduced amount of the credit if your MAGI is over $80,000 but less than $90,000 (over $160,000 but less than $180,000 for married filing jointly). You cannot claim the credit if your MAGI is over $90,000 ($180,000 for joint filers). You cannot claim benefit if someone else can claim you as a dependent on their return and you do not qualify if married filing separately.
08
Adoption Credits
  • Up to $5,000 of the adoption credit may be refundable, but credit amounts carried over from prior years may NOT be used to calculate the refundable portion.
  • The maximum adoption credit for 2025 is $17,280, covering qualified adoption expenses.
09
ACA Individual Mandate Penalty is imposed by States
  • There is no federal penalty for not having healthcare coverage, but some states, like California, have implemented their own penalties.
10
Educators
  • Educators can deduct up to $300 of their out-of-pocket classroom expenses, or $600 if both spouses are eligible educators and file jointly.
11
Foreign Earned Income Exclusion
  • The 2025 foreign earned income exclusion is $130,000.
12
Alternative Minimum
  • The AMT exemption for 2024 is $88,100, with phase-outs starting at $626,350 for single filers. ($137,000 for married couples filing jointly, with phase out at $1,252,700, married filing separately exemption amount is $68,650 with phase out at $609,350)
  • The AMT exemption amount for certain individuals under 24 equals their earned income plus $8,800
13
Gift Exclusion
  • The annual gift exclusion increases to $19,000 for 2024. For gifts to spouses who are not U.S. citizens, the exclusion increases to $190,000.
  • Internal Revenue Service requires recipients of gifts from certain foreign persons to report these gifts.
14
Standard Deduction
  • The standard deduction for 2025 is:
  • $15,750 for single filers.
  • $31,500 for married couples filing jointly.
  • $23,625 for heads of household.
  • Additional deductions apply for those who are 65 or older or blind. Individuals age 65 and over may claim an additional $6,000 deduction in addition to the standard deduction.
  • Phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers)
For 2025, the standard deduction amount for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of $5,050.
15
California Residents
  • California taxpayers who itemize deductions or receive refunds will receive Form 1099-G or 1099-INT to report their state income tax refunds or interest payments.
16
Contributions to Retirement Accounts
  • Contribution limits for various retirement plans (HSA, 401(k), IRA, etc.) are increased, with catch-up contributions available for those age 50 or older.
  • HSA (Health Savings Account):
    • Self-only coverage: $4,300
    • Family coverage: $8,550
    • Catch-up contributions (age 55 or older): $1,000
  • 457 Plan:
    • Contibution Limit: $23,500
    • Catch-up Contribution: $7,500
  • 401 (a) Plan:
    • Contribution limit: $70,000 (combined employee and employer contributions)
  • 401 (k) Plan:
    • Contribution limit: $23,000
    • Catch-up contribution (age 50 or older): $7,500 (raising employee deferral limit to $30,500)
  • 403 (b) Plan:
    • Contribution limit: $23,000
    • Catch-up contribution (age 50 or older): $7,500
  • Pre-Retirement Catch-up (403(b) or 457 plans):
    • Lifetime cap: $15,500
  • IRA (Individual Retirement Account):
    • Contribution limit: $7,000
    • Catch-up contribution (age 50 or older): $1,000
17
Health Savings Accounts
  • For 2025, the HSA contribution limits are $4,300 for self-only coverage and $8,550 for family coverage. Those 55 and older can contribute an additional $1,000 as a catch-up contribution.
18
Health Savings Accounts and Other Tax-Favored Health Plans
  • The contribution limits for health flexible spending arrangements (FSAs) increase to $3,300. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $660.
  • For 2025, if you have self-only HDHP coverage, you can contribute up to $4,300. If you have family HDHP cover- age, you can contribute up to $8,550.
19
Tax Filing requirements
  • U.S. citizens and permanent residents must file tax returns if their income exceeds certain thresholds, with specific rules for independent contractors, dependents, and those living abroad.
  • Most U.S citizens or permanent residents who work in the U.S have to file a tax return.
  • Generally, you must file if:
    • Your gross income is over the filling requirement.
    • You have over $400 in net earnings from self-employment (side jobs or other indeipendent work).
    • You had other situations that require you to file.
  • Generally, you must file a return if your gross income from worldwide sources is at least the amount shown for your filing status as follows:
    • Single $15,750
      • Age 65 and older: $17,550
    • Married filing Jointly: $31,500 (both spouses under 65)
      • One spouse is 65 and older: $33,100
      • Both spouses 65 and older: $34,700
    • Married Filing Separately: $5
    • Head of Household: $23,625
      • Age 65 and older: $25,625
    • Qualifying Widower: $31,500
      • 65 and older: $33,100
    • Independent Contractors
      • Net earnings from self-employment of at least $400
Note: Students under age 24 years of age, can file taxes completely independent or as a dependent.

  • You must file a return if any of the seven conditions below apply
    • Owe any special taxes, including any of the following.
      • Alternative minimum tax
      • Additional tax on a qualified plan, including an individual retirement arrangement (IRA), or other tax-favored account. But if you are filing a return only because you owe this tax, you can file Form 5329 by itself
      • Household employment taxes. But if you are filing a return only because you owe this tax, you can file Schedule H by itself
      • Social security and Medicare tax on tips you didn't report to your employer or on wages you received from an employer who didn't withhold these taxes
      • Write-in taxes, including uncollected social security and Medicare or RRTA tax on tips you reported to your employer or on group-term life insurance and additional taxes on health savings accounts. See the instructions for Schedule 2, line 8
      • Recapture taxes. See the instructions for line 16 and Schedule 2, lines 7b and 8
      • You (or your spouse, if filing jointly) received health savings account, Archer MSA, or Medicare Advantage MSA distributions
      • You had net earnings from self-employment of at least $400.
      • You had wages of $108.28 or more from a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes
      • Advance payments of the premium tax credit were made for you, your spouse, or a dependent who enrolled in coverage through the Marketplace. You or whoever enrolled you should have received Form(s) 1095-A showing the amount of the advance payments
      • Advance payments of the health coverage tax credit were made for you, your spouse, or a dependent. You or whoever enrolled you should have received Form(s) 1099-H showing the amount of the advance payments
      • You are required to include amounts in income under section 965 or you have a net tax liability under section 965 that you are paying in installments under section 965(h) or deferred by making an election under section 965(i)

    If you are a U.S citizen or resident alien living or traveling outside the United States, you generally are required to file Income Tax returns, esttate tax returns, and gift tax returns and pay estimated tax in the same way the as those residing in the United States.
20
Dependant Tax Filing Requirements
  • Single and under 65
    • Unearned income of: $1,350
    • Earned income $15,750
    • Gross income was more than the larger of
      • $1,350 or
      • Earned income (up to $15,300) plus $450
  • Single 65+
    • Unearned income of: $3,350 ($5,350 if 65 or older and blind)
    • Earned income $17,750 ($19,750 if 65 or older and blind).
    • Gross income was more than the larger of
      • $3,350 ($5,350 if 65 or older and blind)
      • Your earned earned income (up to $15,300) plus $2,450 ($4,550 if 65 or older and blind
  • Married and under 65
    • Gross income was at least $5 and your spouse files a separate return and itemizes deductions
    • Unearned income was over $1,350
    • Earned income was over $15,750
    • Gross income was more than the larger of
      • $1,350, or
      • Earned income (up to $15,300) plus $450.
  • Married 65+
    • Gross income was at least $5 and your spouse files a separate return and itemizes deductions.
    • Unearned income was over $2,950 ($4,550 if 65 or older and blind).
    • Earned income was over $17,350 ($18,950 if 65 or older and blind).
    • Gross income was more than the larger of
      • $2,950 ($4,550 if 65 or older and blind), or
      • Earned income (up to 15,300) plus $2,050 ($3,650 if 65 or older and blind).

2025 Income Tax Brackets

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2025 Federal Income Tax Brackets
Tax Rate Single Married, filing jointly Married, filing separately Head of Household
10% $0 to $11,925 $0 to $23,850 $0 to $11,925 $0 to $17,000
12% $11,926 to $48,475 $23,851 to $96,950 $11,926 to $48,475 $17,001 to $64,850
22% $48,476 to $103,350 $96,951 to $206,700 $48,476 to $103,350 $64,851 to $103,350
24% $103,351 to $197,300 $206,701 to $394,600 $103,351 to $197,300 $103,351 to $197,300
32% $197,301 to $$250,525 $394,601 to $501,050 $197,301 to $$250,525 $197,301 to $$250,525
35% $$250,526 to $$626,350 $501,051 to $751,600 $$250,526 to $$375,800 $$250,526 to $$626,350
37% $626,351 or more $751,601 or more $375,801 or more $626,351 or more