What's Happening?
The Internal Revenue Service (IRS) has commenced the 2025 tax filing season, introducing several changes under the One Big Beautiful Bill Act signed by President Trump. Notable updates include a new federal deduction for seniors, allowing those aged 65
and older to claim a $6,000 deduction on Social Security income taxes. Additionally, temporary tax relief is available for overtime pay and tips, with eligible workers able to deduct significant amounts. The legislation also temporarily raises the cap on the state and local tax (SALT) deduction. The IRS has updated standard deduction amounts for 2026, and taxpayers are encouraged to file electronically for faster refunds.
Why It's Important?
These changes reflect significant shifts in tax policy aimed at providing relief to specific groups, such as seniors and workers with overtime pay. The new deductions could ease financial burdens for these demographics, potentially increasing disposable income and stimulating economic activity. The temporary increase in the SALT deduction cap may benefit higher-income taxpayers in high-tax states, impacting state economies and federal tax revenues. The IRS's emphasis on electronic filing and the gradual phase-out of paper refund checks align with broader efforts to modernize tax administration and improve efficiency.
What's Next?
Taxpayers will need to familiarize themselves with the new deductions and filing requirements, particularly the use of the newly created Schedule 1-A for certain claims. The IRS will continue to provide resources and assistance through programs like Free File and Volunteer Income Tax Assistance. As the tax season progresses, the impact of these changes on taxpayer behavior and federal revenues will be closely monitored. Future legislative adjustments may be considered based on the outcomes of this filing season.
