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What’s New TY2025

Gena Cadieux

District Training Coordinator

January 2026

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Digital assets

  • Scope has not changed for 2025: a “yes” answer to the 1040 digital asset question makes the return OOS
  • Form 1099-DA is required to be filed effective for 2025 dispositions reported in 2026
  • All 1099-DA forms are out of scope

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Permanent changes affecting 2025

  • TCJA tax rates (annual indexing)
  • Standard deductions (annual indexing)
    • OB3 increased amounts
  • Zero personal exemption amount
  • TaxSlayer handles all these

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Child tax credit, ACTC, ODC

  • $2,200 per child (permanent; annual indexing)
  • Up to $1,700 refundable
  • Taxpayer’s SSN required
    • At least one if MFJ
  • MAGI limits unchanged at $200k ($400k for MFJ)
  • Other dependent credit made permanent
  • TaxSlayer will handle the changes

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New Rules on Who Can Claim Credits

CREDIT TYPE 

FILING STATUS 

TAXPAYER MUST  HAVE

CHILD/DEPENDENT MUST HAVE

Child Tax Credit (non 

refundable) and 

Additional Child  Tax Credit (refundable)

MFJ, MFS, HOH,  or S

SSN or SSN valid for work only with DHS authorization (active work permit)

SSN [Must have SSN by due date of return] 

�

AGE < 17 all year

Credit for Other Dependents 

MFJ, MFS, HOH,  or S

SSN or ITIN 

SSN or ITIN 

No age limit

Dependent and Elderly Care  Credit

MFJ, HOH, or S MFS if treated as  unmarried

SSN or ITIN 

SSN or ITIN 

Age < 13

Earned Income Credit 

MFJ, HOH, or S 

MFS if treated as  unmarried

SSN or SSN valid for work only with DHS authorization (active work permit)

SSN – If no SSN, take EIC w/o child - [Must have SSN by due date of return]

Education Credit 

MFJ, HOH, or S (NOT MFS)

SSN or ITIN (TY25)

SSN or ITIN (TY25)

65+, tips, and overtime deductions

MFJ, HOH, or S (NOT MFS)

SSN or SSN valid for work only with DHS authorization (active work permit)

N/A

TAX IDENTIFICATION NUMBER REQUIRED FOR CREDITS

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SALT cap 2025 – 2029

  • $40,000 subject to phaseout
    • 1% indexing 2026-2029
  • MAGI phaseout starts at $500k ($250k for MFS)
    • Down to $10k at worst
  • Maybe more will itemize(?)
  • Reverts to $10,000 cap in 2030

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Charitable contributions (itemized deduction)

  • Deductible charitable contributions includes all Veterans Services Organizations

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  • Starting 2026: up to $1,000 ($2,000 MFJ) add-on to standard for cash contributions
    • Advise taxpayers to keep receipts!

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Below-the-line deductions:

  • Qualified tips
  • Qualified overtime
  • Qualified vehicle loan interest
  • Seniors - over 65, TSO handles automatically, income phaseout

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Add to standard deduction or itemized deductions

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Tips deduction 2025 – 2028

  • Qualified tips up to $25k
    • Must be voluntary tips paid in cash
    • Employees and self-employed (limited)
  • MAGI phaseout starts at $150k ($300k for MFJ)
  • Add-on to standard or itemized deductions (Sch 1-A, Part II)
  • Reduces QBI for QBID
  • SSN required for tip earner
  • No deduction if MFS

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Draft for TY2025

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Tips deduction 2025 (N-2025-69)

  • Must be reported on a tax form
    • W-2
      • Box 7
      • Box 8
    • F4137 – unreported tips
    • F4070 – tips report to employer
    • 1099-NEC, -MISC, -K
  • Must be in a qualified trade

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Employees

Self-employed

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Self-employed tip earner

  • Must be included in the amount reported on
    • 1099-NEC
    • 1099-MISC
    • 1099-K
  • TP can use documentation such as receipts, point-of-sale system reports, daily tip logs, third party settlement organization records, or other

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Self-reporting not allowed

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Self-employed tip earner

  • Anticipate gig companies to provide the tip amount
  • Taxpayer will need to confirm that tip was voluntary and in a qualified trade
  • Tips deduction is limited to net profit from the business
    • net profit less the adjustment for half of the SE Tax

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Self-employed tip earner

  • Income on Sch C as usual
  • Below-the-line tip deduction (not a Sch C expense!)

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Qualified business income deduction (QBID)

  • QBI is reduced for the tips deduction related to the business [draft F8995 instructions]
  • TSO has an entry screen where you must manually adjust the QBI to take out the tips deduction amount

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Tips deduction

  • Must be qualified trade
  • Must have SSN
  • Cannot file MFS
  • Tips must be voluntary (confirm for self-employed)
  • Tips must be in cash (noncash does not qualify)

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Overtime deduction 2025 – 2028

  • Qualified overtime up to $12,500 ($25,000 if MFJ)
    • Cannot use tips qualified for tips deduction
  • MAGI phaseout starts at $150k ($300k for MFJ)
  • Add-on to standard or itemized deductions
  • SSN required for overtime earner
  • No deduction if MFS
  • Sch 1-A, Part III

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Draft for TY2025

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Qualified overtime

  • Fair Labor Standards Act (FLSA) definition of overtime
    • More than 40 hours in a week
    • More than the standard number of hours if not measured weekly (e.g. fire fighters, 4-40)
    • Includes paid comp time off if at overtime rate
  • Overtime rate set at 50% over standard pay rate
  • State laws and employers can be more generous

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Overtime deduction

  • Overtime pay must be included in amount reported on W-2
    • May be on a 1099-NEC or MISC (unusual)
  • Overtime pay may be shown on an employer statement or pay stub (or similar)
  • If over 50% overtime premium, deduction is limited to 50%

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New overtime worksheet

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Interest on passenger vehicle deduction 2025 – 2028

  • Qualified interest up to $10,000
  • MAGI phaseout starts at $100k ($200k for MFJ)
  • Add-on to standard or itemized deductions
  • Must have VIN number to put on the return

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New passenger vehicle

  • Car, minivan, van, SUV, pickup, motorcycle
  • Commercial vehicle ok if used personally
  • Two wheels or more
  • Gross vehicle weight less than 14k pounds
  • Intended for use on the road
  • Final assembly in the U.S. (lookup function available)
  • Bought after 2024
  • Collateral for car loan

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Car loan interest – Sch 1-A

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New QVLI worksheet

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Other form changes F5695, Part II

  • Energy efficient home improvement credits requires more information for the qualifying expenditures
    • Must include show qualified manufacturer identification number

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Resources to Look up VIN and QMID

  • Virginia Tax Aide site – bookmark in your Foundation account!
  • Demo

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Preview of Next Year, TY2026

  • OB3 changed some things, but not until 2026
  • TPs may be confused!
    • PMI will become deductible
    • New charitable non-itemized deduction
    • Change to deductibility of gambling losses
    • Change to deductibility of charitable contributions when itemizing

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Virginia Fall Tax Rebate

  • Individuals received $200, couples received $400
  • Might be taxable income, just like any other state income tax refund
  • Easy clues that NOT taxable:
    • Did not itemize for TY2024
    • Itemized but amount of SALT taxes not deductible exceeded amount of the refund
    • Itemized but used state sales tax and not income tax – check the X

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Taxability of State Income Tax Refund

  • If the easy clues don’t solve the problem, there is a Colorado Toolbox Worksheet for that!
  • Scroll the whole way down to “Taxable Refund and Recovery Calculator”
  • Also works for situation where the taxpayer got a rebate on their ACA premiums
  • Need last year’s return for information
  • Demo!

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Remember to Update your Quadfold if you use it

  • Your LC should have sent you an email with the four or five pen and ink changes
  • New threshold for qualifying person income for 2025 = $5200

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TSO Changes and Enhancements

  • SSA 1099 data entry – you can enter Part B and Part D premiums separately and let TSO do the math
  • One-click print preview (don’t click again)
  • Exiting returns to client list (instead of to main menu)
  • W-2 Retirement plan checkbox 
    • automatic for some Box 12 codes 
  • Form 1099-R direct link to Form 5329 for Box 7 Code 1
  • Form 1099-R QCD entry

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National Tax Training Committee

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Paper Refund Checks – Difficult to get at best!

  • The IRS issued guidance in fall 2025 that it was going to stop issuing paper checks
  • More guidance is expected soon
  • Current understanding is that folks can still opt to receive paper checks but they can expect significant additional delays and additional communications from the IRS seeking their bank account numbers

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Quiz Questions Review

24. The One Big Beautiful Bill Act (OBBBA) that was signed into law on July 4, 2025 provides an additional $6,000 ($12,000 if MFJ) income deduction to taxpayers who are over 59 1/2 (true/false).

25. OBBBA also provides for deduction of interest paid on (choose correct answer)

a. credit cards issued by U.S. banks

b. loans on 2025 vehicles bought in the U.S.

c. loans on 2025 vehicles with final assembly in the U.S.

d. personal loans to pay for health care

26. Deduction of mortgage insurance will be allowed if you itemize deductions

(Schedule A) - (true/false)

National Tax Training Committee

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