As tax season kicks into high gear, many individuals are preparing to file their returns armed with their W-2 forms. This year, significant changes in tax legislation could impact refunds and deductions, leading to increased savings for some taxpayers.
One noteworthy development comes from President Trump’s “One Big Beautiful Bill Act,” which introduces new tax breaks for workers who earn tips or overtime. Additionally, seniors will benefit from enhanced deductions, marking a shift aimed at easing the tax burden for various demographics.
Cady Stanton, a congressional reporter for Tax Notes, emphasized that while many taxpayers can expect larger refunds this year, the effects are not universally applicable. “On average, the expectation is that refunds are going to increase this year for a lot of people, though that’s not the case for everyone,” she stated.
One of the most significant changes involves the state and local tax (SALT) deductions. Previously capped at $10,000, these deductions have surged to $40,000. This allowance enables taxpayers to subtract certain state and local tax payments from their federal taxable income, addressing the concern of being effectively double taxed — that is, paying federal taxes on income already subjected to state or local taxes.
Seniors aged 65 and older will find relief through an additional $6,000 deduction. This aimed support for older taxpayers could provide much-needed financial relief for those navigating retirement expenses.
Moreover, overtime compensation is now eligible for deductions up to $12,500, presenting an opportunity for workers who often put in extra hours. Similarly, employees who earn money through tips can claim deductions up to $25,000. However, it’s crucial to note that this tax exemption on tips applies only to tipped wages from positions deemed by the Treasury as customarily and regularly earning tips.
Due to the multitude of changes and the complexities involved, taxpayers may want to seek professional assistance this year to ensure they are fully leveraging all available deductions and credits. This could be especially beneficial for those unfamiliar with the intricacies of the new tax regulations.
With the tax landscape evolving, staying informed about these developments will be vital for effective financial planning this tax season.
