The passing of H.R.1, Public Law 119-21 on July 4, 2025 implemented many new tax changes for individuals and businesses. For individuals, this new law permanently extended many of the provisions in the 2017 Tax Cuts and Jobs Act (TCJA) and has created a new tax form, Schedule 1-A Additional Deductions. This new schedule features new below-the-line deductions (deducted after calculating Adjusted Gross Income) to lower one’s taxable income. These deductions are available to both itemizers and non-itemizers (those who claim the Standard Deduction). Below is a summary of these new Additional Deductions, inflationary adjustments for 2025, and other new items for 2025.
The New Tax Form: Schedule 1-A Additional Deductions
- No Tax on Tips
- For 2025, employees in occupations customarily and regularly receiving tips (cash or charged tips received from customers) may deduct up to $25,000 of “qualified tips” from their income for federal income tax purposes.
- This deduction phases out for those with a modified adjusted gross income over $150,000 (single) or $300,000 (joint filers).
- No Tax on Overtime
- Individuals may deduct the portion of qualified overtime pay that exceeds their regular rate of pay (for example, the “half” portion of “time-and-a-half”).
- Maximum annual deduction is $12,500 ($25,000 for joint filers).
- This deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
- No Tax on Car Loan Interest
- Individuals may deduct interest paid on a loan, that originated after December 31, 2024, used to purchase a qualified vehicle for personal use.
- Maximum annual deduction is $10,000 and lease payments do not qualify.
- The vehicle must be new and cannot have been previously titled, registered, or used by another person.
- Final assembly of the vehicle must be in the U.S.
- The vehicle identification number (VIN) is needed for the tax return.
- This deduction phases out for taxpayers with a modified adjusted gross income over $100,000 ($200,000 for joint filers).
- Enhanced Deduction for Seniors
- This is a $6,000 deduction (in addition to the standard deduction or Schedule A Itemized Deductions) for individuals age 65 and older.
- If both spouses qualify, a married couple can qualify for a combined $12,000 deduction.
- You do not need to receive Social Security Benefits to qualify for this deduction.
- This deduction begins to phase out when the taxpayer’s modified adjusted gross income exceeds $75,000 for single filers or $150,000 for married filing jointly.
- Not eligible for married filing separate filers.
IRS Inflationary Adjustments for 2025
- The Child Tax Credit has increased to $2,200 per qualifying child under the age of 17 as of 31 December 2025. Taxpayers can still claim the $500 Other Dependent Credit for children aged 17 or older and for qualifying relatives, i.e. claiming a parent as a dependent.
- For 2025 the Child and Dependent Care Credit remains at 20% to 35% of up to $3,000 in eligible expenses for a child under age 13 or a disabled person, and up to $6,000 for more than one qualifying child or dependent.
- IRA Contributions: the maximum contributions for Traditional or Roth IRAs for the 2025 tax year is $7,000 if you’re under age 50, and $8,000 if you’re age 50 or older. For 2026, this limit increases to $7,500 with an increased catch-up contribution of $1,100 for those age 50 and older.
- Other IRS Inflationary Adjustments for 2025
- The Standard Deduction increased for all filing statuses: Single & Married Filing Separate is $15,750, Head of Household is $23,625, and Married Filing Joint is $31,500.
- For 2025 and 2026, the annual exclusion for gifts is $19,000.
- Below are the business and medical/moving mileage rates (cents per mile) for 2025 and 2026.
| Purpose | 2025 | 2026 |
| Business | 70 | 72.5 |
| Medical or Military Moving | 21 | 20.5 |
| Charitable | 14 | 14 |
Other New Items for 2025
- Beginning with this filing season, the IRS is not mailing paper refund checks for most taxpayers. If you are expecting a refund, please provide your banking information (routing #, account #, and whether it is a checking or savings account) if we do not already have that information.
- The State and Local Tax (SALT) limitation has been increased from $10,000 to $40,000 for tax year 2025. You may now be able to benefit from itemizing deductions because the combined deductible taxes such as state income tax and property taxes are not capped at $10,000. The limit is $20,000 for married filing separate filers.
- Expansion of Health Savings Account (HAS) eligibility under H.R.1, Public Law 119-21:
- For plan years beginning on or after Jan. 1, 2025, taxpayers can receive telehealth and other remote care services before meeting the high-deductible health plan (HDHP) deductible while remaining eligible to contribute to an HSA.
- As of Jan. 1, 2026, bronze and catastrophic plans available through an Exchange are considered HSA-compatible, regardless of whether the plans satisfy the general definition of an HDHP and these plans do not have to be purchased through an Exchange to qualify for the new relief.
Iowa Tax Updates
- Beginning in 2025, Iowa law has implemented a flat tax rate of 3.8 percent for all levels of taxable individual income. There are no income tax brackets for Iowa in 2025.
- Iowa 529 Plan Deductions. Iowa taxpayers can deduct up to $5,800 for tax year 2025 of their contributions to a 529 plan for each beneficiary. A married couple can contribute to separate accounts for each of their children.
- For tax year 2025, Iowa taxpayers can still make contributions until April 30, 2026 (Iowa’s tax filing deadline) and have those contributions deducted from their 2025 adjusted gross income. If taking this approach, be careful that these contributions are being made for tax year 2025 and not 2026.
For more information, visit these IRS links: