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Deduction for Seniors Touted as "No Tax on Social Security" Good, but Misleading

7/25/2025

New deduction: Effective for 2025 through 2028, individuals who are age 65 and older may claim an additional deduction of $6,000. This new deduction is in addition to the current additional standard deduction for seniors under existing law.
- The $6,000 senior deduction is per eligible individual (i.e., $12,000 total for a married couple where both spouses qualify).
- Deduction phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers).
Qualifying taxpayers: To qualify for the additional deduction, a taxpayer must attain age 65 on or before the last day of the taxable year.
Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing taxpayers.
- Taxpayers must:
  - include the Social Security Number of the qualifying individual(s) on the return, and
  - file jointly if married, to claim the deduction.

NOTE: Up to 85% of Social Security Benefits remain taxable as they have been in the past. That is something the One Big Beautiful Bill could not change. Instead, the new Senior Deduction of $6,000 is meant to offset most the tax on Social Security for most beneficiaries. Social Security must still be reported for tax purposes and the taxable amount will be combined with other income including interest, dividends, pension and IRA distributions to determine what tax bracket applies. The effect of the Senior Deduction is an 'overall' additional $6,000 on top of the standard deduction for non-itemizers.

“No Tax on Car Loan Interest” Details Released by IRS

7/25/2025

New deduction: Effective for 2025 through 2028, individuals may deduct interest paid on a loan used to purchase a qualified vehicle, provided the vehicle is purchased for personal use and meets other eligibility criteria. (Lease payments do not qualify.)
- Maximum annual deduction is $10,000.
- Deduction phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers).
Qualified interest: To qualify for the deduction, the interest must be paid on a loan that is:
- originated after December 31, 2024,
- used to purchase a vehicle, the original use of which starts with the taxpayer (used vehicles do not qualify),
- for a personal use vehicle (not for business or commercial use) and
- secured by a lien on the vehicle.

If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction.

Qualified vehicle: A qualified vehicle is a car, minivan, van, SUV, pick-up truck or motorcycle, with a gross vehicle weight rating of less than 14,000 pounds, and that has undergone final assembly in the United States.
Final assembly in the United States: The location of final assembly will be listed on the vehicle information label attached to each vehicle on a dealer's premises. Alternatively, taxpayers may rely on the vehicle’s plant of manufacture as reported in the vehicle identification number (VIN) to determine whether a vehicle has undergone final assembly in the United States.
- The VIN Decoder website for the National Highway Traffic Safety Administration (NHTSA) provides plant of manufacture information. Taxpayers can follow the instructions on that website to determine if the vehicle’s plant of manufacture was located in the United States.
Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing taxpayers.
- The taxpayer must include the Vehicle Identification Number (VIN) of the qualified vehicle on the tax return for any year in which the deduction is claimed.
Reporting: Lenders or other recipients of qualified interest must file information returns with the IRS and furnish statements to taxpayers showing the total amount of interest received during the taxable year.
Guidance: The IRS will provide transition relief for tax year 2025 for interest recipients subject to the new reporting requirements.

New “No Tax on Overtime” Details Released by IRS

7/25/2025

New deduction: Effective for 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay – such as the “half” portion of “time-and-a-half” compensation -- that is required by the Fair Labor Standards Act (FLSA) and that is reported on a
- Form W-2, Form 1099, or other specified statement furnished to the individual.
- Maximum annual deduction is $12,500 ($25,000 for joint filers).
- Deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing taxpayers.
- Taxpayers must:
  - include their Social Security Number on the return and
  - file jointly if married, to claim the deduction.
Reporting: Employers and other payors are required to file information returns with the IRS (or SSA) and furnish statements to taxpayers showing the total amount of qualified overtime compensation paid during the year.
Guidance: The IRS will provide transition relief for tax year 2025 for taxpayers claiming the deduction and for employers and other payors subject to the new reporting requirements.

Note: Overtime is broken down into "time" (regular rate of pay) and a "half" (the extra amount received). Only the "half" amount received is eligible for the deduction. The "time" portion of overtime remains taxable.

New “No Tax on Tips” Details Released by IRS

7/25/2025

“No Tax on Tips”

New deduction: Effective for 2025 through 2028, employees and self-employed individuals may deduct qualified tips received in occupations that are listed by the IRS as customarily and regularly receiving tips on or before December 31, 2024, and that are reported on a Form W-2, Form 1099, or other specified statement furnished to the individual or reported directly by the individual on Form 4137.
- “Qualified tips” are voluntary cash or charged tips received from customers or through tip sharing.
- Maximum annual deduction is $25,000; for self-employed, deduction may not exceed individual’s net income (without regard to this deduction) from the trade or business in which the tips were earned.
- Deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing taxpayers.
- Self-employed individuals in a Specified Service Trade or Business (SSTB) under section 199A are not eligible. Employees whose employer is in an SSTB also are not eligible.
- Taxpayers must:
  - include their Social Security Number on the return and
  - file jointly if married, to claim the deduction.
Reporting: Employers and other payors must file information returns with the IRS (or SSA) and furnish statements to taxpayers showing certain cash tips received and the occupation of the tip recipient.
Guidance: By October 2, 2025, the IRS must publish a list of occupations that “customarily and regularly” received tips on or before December 31, 2024.
- The IRS will provide transition relief for tax year 2025 for taxpayers claiming the deduction and for employers and payors subject to the new reporting requirements.

2025 Tax Law Changes Under the One Big Beautiful Bill

7/7/2025

The One Big Beautiful Bill was signed by President Trump on July 4, 2025. Here are some of the tax changes.

The State and Local Tax Deduction (SALT): Previously capped at $10,000. Now capped at $40,000 for 2025 for taxpayers with adjusted gross income of under $500,000. Those with income over that will have a limit that phases down, but no less than $10,000. Pass through entity (PTE) tax elections for partnerships and S-corporations are still allowed.

New Senior Deduction: An additional $6,000 per individual over 65 from 2025 to 2028. The deduction is reduced for those with adjusted gross income over $75,000 ($150,000 married filing joint).

No Tax on Tips: Temporary deduction for tax years 2025 – 2028 of up to $25,000 for qualified tips received by an individual in an occupation that customarily and regularly receives tips. Allowed in addition to the standard deduction. Deduction is limited for taxpayers with adjusted gross income over $150,000 ($300.000 if married filing joint.

No Tax on Overtime: Temporary deduction of up to $12,500 ($25,000 in the case of a joint return) for qualified overtime compensation received by an individual for tax years 2025 - 2028. Allowed in addition to the standard deduction. Deduction is limited for taxpayers with adjusted gross income over $150,000 ($300.000 if married filing joint).

Car Loan Interest: For the years 2025 through 2028, eligible buyers may deduct up to $10,000 of interest paid on new auto loans if the vehicle is assembled in the U.S. The deduction will be reduced and phase out for taxpayers with income more than $100,000 ($200,000 if married taxpayers filing jointly).

Child Tax Credit: Increases to $2,200 for 2025. $1,400 is refundable if credit exceeds taxable income.

Qualified Business Income Deduction: Remains at 20% but is now a permanent deduction. It was previously set to expire.

Estate Tax Exemption: Increased to $15 million ($30 million married filing joint)

Itemized Deduction Limitation: Now reduced by 2/37th of the higher of itemized deductions or taxable income that exceeds the start of the 37% tax bracket. For most people the reduction amounts to $740 per $10,000 of itemized deductions.

Employee Bicycle Commuting Reimbursements Taxable: The bill permanently excludes qualified bicycle commuting reimbursements from the list of qualified transportation fringe and other commuting benefits, making them taxable to employees.

Moving Expense Deduction: Permanently eliminates deduction for moving expenses, except for members of the armed forces and certain members of the intelligence community.

Gambling losses: Now limited to 90% of the loss amount. Losses are deductible as an itemized deduction only to the extent of gains from gambling during the tax year.

Student Loan Debt Discharge: The bill makes permanent the exclusion from gross income student loans that are discharged on account of death or disability.

Trump Accounts: Tax-free savings accounts for minors, called Trump accounts, a form of individual retirement account (IRA) for the exclusive benefit of individuals under 18. Contributions up to $5,000/yr. can be made in calendar years before the beneficiary turns 18 and distributions with tax free earnings can be made starting in the calendar year the beneficiary turns 18. Employers may contribute to employee accounts. The employee is not taxed on these contributions. A contribution pilot program provides a $1,000 tax credit for opening a Trump account for a child born between Jan. 1, 2025, and Dec. 31, 2028. The bill appropriates $410 million, to remain available through Sept. 30, 2034, to fund Trump accounts.

New Charitable Contribution Deduction: A new deduction of up to $1,000 for single filers or $2,000 for married taxpayers filing jointly for cash charitable contributions. Not required to itemize deductions. May claim in addition to the standard deduction. Personal contributions are reduced by 0.5% of the actual contributions. Corporate contributions are reduced by 1% of the corporation’s taxable income and may not exceed10% of taxable income.

Contributions to Scholarship-Granting Organizations: Allows a credit of the greater of $5,000 or 10% of adjusted gross income for charitable contributions to scholarship-granting organizations. Caveat: The credit comes with a $4 billion annual cap (starting in 2027), and the credit will be allocated on a first-come, first-served basis, up to that cap.

Energy Credits: Discontinued for Federal (State may still allow these credits) as follows:
• Energy-efficient home improvement credit and residential clean energy credit (the solar credits) terminates after Dec. 31, 2025
• Previously owned clean vehicle credit terminates after Sept. 30, 2025
• Clean vehicle credit terminates for vehicles acquired after Sept. 30, 2025
• Qualified commercial clean vehicle credit terminates after Sept. 30, 2025
• Alternative fuel vehicle refueling credit terminates after June 30, 2026
• Energy-efficient commercial buildings deduction terminates for property the construction of which begins after June 30, 2026
• New energy-efficient home credit terminates after June 30, 2026

Bonus Depreciation: Permanently extends the bonus depreciation deduction, allowing a deduction of 100% of property acquired and placed in service on or after January 19, 2025.

Paid Family and Medical Leave Credit: Previously set to expire, is now a permanent credit for employers.

Form 1099 Reporting Threshold: Increases the information-reporting threshold to $2,000 in a calendar year (from $600).

Third-party Network Transaction 1099-K Reporting Threshold: Previously scheduled to be reduced to $600, the annual reporting threshold reverts to $20,000 and or 200 transactions.

Disclaimer: The above information does not represent the full Bill and may be subject to change and interpretation. The State of Hawaii may or may not follow these changes.

Newsline

Deduction for Seniors Touted as "No Tax on Social Security" Good, but Misleading

“No Tax on Car Loan Interest” Details Released by IRS

New “No Tax on Overtime” Details Released by IRS

New “No Tax on Tips” Details Released by IRS

2025 Tax Law Changes Under the One Big Beautiful Bill

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