The significant tax law updates and filing requirements for the 2026 filing season (covering the 2025 tax year), largely driven by the One Big Beautiful Bill Act (OBBBA) enacted on July 4, 2025.
Standard Deduction and Tax Rates
Standard deduction amounts have increased for the 2025 tax year to $15,750 for single filers/married filing separately, $23,625 for heads of household, and $31,500 for married couples filing jointly.
The seven individual income tax rates established by the Tax Cuts and Jobs Act (TCJA)—10%, 12%, 22%, 24%, 32%, 35%, and 37%—have been made permanent.
Brackets for these rates were slightly adjusted for inflation in 2025.
Personal exemptions for individuals, spouses, and dependents remain permanently removed, with specific exceptions for certain seniors.
New Deductions and Credits (Effective for 2025 Earnings)
"No Tax on Tips": Tipped workers can claim a dollar-for-dollar deduction for qualified tips up to $25,000, though this phases out for those with a Modified Adjusted Gross Income (MAGI) over $150,000 ($300,000 for joint filers).
"No Tax on Overtime": Hourly workers covered by the Fair Labor Standards Act can deduct up to $12,500 ($25,000 for joint filers) of qualified overtime pay, subject to the same $150,000/$300,000 MAGI phaseout.
Senior Citizen Deduction: Taxpayers aged 65 and older can take an additional $6,000 deduction off their taxable income, which begins to decrease for single filers earning over $75,000 ($150,000 for joint filers).
SALT Deduction Increase: The cap for State and Local Tax (SALT) deductions has been raised to $40,000 for taxpayers with incomes under $500,000.
Expanded Child Tax Credit: The credit has increased to $2,200 per child and is now partially refundable up to $1,700.
Car Loan Interest: A new deduction is available for up to $10,000 of interest on loans for new cars, provided the vehicle had its "final assembly" in the U.S..
2026 Filing Requirements and Thresholds
1099-K Reporting: For the 2025 tax year, third-party apps (like Venmo or PayPal) must issue a Form 1099-K only if total payments exceed $20,000 and 200 transactions.
1099-NEC/MISC Changes: Starting in the 2026 tax year (filed in 2027), the reporting threshold for non-employee compensation increases from $600 to $2,000.
Tips and Overtime Documentation: Because 2025 tax forms were not updated in time to include specific lines for the new tips and overtime deductions, taxpayers must rely on Form W-2 Box 7 (Social Security tips), Form 4070, or their own daily logs and pay stubs to substantiate these deductions.
Education Credits: To claim the American Opportunity Credit, taxpayers must now provide the educational institution’s Employer Identification Number (EIN).
Future and Expiring Provisions
Trump Child Savings Accounts: Effective in 2026, these accounts allow tax-deferred earnings on contributions up to $5,000 per year for children under 18.
Government Seed Money: U.S. citizens born between 2025 and 2028 will receive a one-time $1,000 federal contribution to a Trump Account.
Repealed Credits: Clean Vehicle Credits (for EVs) and residential energy credits generally expired or were repealed for items acquired after late 2025.
Foreign Transfer Tax: Starting in 2026, a 1% excise tax applies to money transfers (such as money orders or cashier's checks) sent to foreign locations.
Key Deadlines for 2026
January 15, 2026: Deadline for the final 2025 estimated tax payment.
Late January 2026: The IRS is expected to open electronic filing systems for 2025 returns.
January 31, 2026: Deadline for employers to provide W-2 and 1099 forms to workers.
April 15, 2026 (Tax Day): The deadline to file 2025 returns and pay any taxes owed to avoid penalties.
October 15, 2026: The final deadline for those who requested an automatic six-month extension (though payment was still due in April).
No comments:
Post a Comment