The passage of the One Massive Lovely Invoice Act (OBBBA) in July 2025 introduced certainty to many particular person taxpayers together with federal workers and retirees. Had the OBBBA not been handed and signed into legislation, lots of the vital tax breaks ensuing from passage of the Tax Cuts and Jobs Act (TCJA) of 2017 would have expired on December 31, 2025.
Whereas the OBBBA did create new tax-savings alternatives, the OBBBA created many questions on how you can navigate the brand new guidelines. A number of the OBBBA modifications took impact instantly in 2025, and a number of the modifications will take impact on January 1, 2026. This column discusses tax-planning steps federal workers and retirees ought to take into account between now and the tip of 2025, to benefit from the OBBBA modifications already in impact.
Completely Elevated Normal Deduction
The OBBBA makes everlasting the elevated normal deduction quantities from the TCJA. TCJA doubled the usual deduction for all tax filers elevating the brink for itemizing (submitting Schedule A). The brand new normal deduction quantities taking impact in 2025 are $31,500 for married submitting collectively, $23,625 for head of family and $15,750 for single and married submitting individually tax filers.
Private exemptions for people, spouses and dependents are completely eliminated. For federal workers and retirees, the upper normal of deductions raises the brink for itemizing on one’s federal earnings return slightly than taking the usual deduction, notably these workers and retirees who had been near pre-OBBBA normal deduction ranges. As mentioned beneath, the brand new state and native tax (SALT) deduction, being raised from a restrict of $10,000 to $40,000, and the brand new guidelines on charitable contributions taking impact on January 1,2026 can even have an effect on whether or not an worker/retire ought to take the usual deduction or itemize on their 2025 federal earnings tax returns.
Elevated Deduction for Seniors
People who attain age 65 on or earlier than the final day of December can qualify for an extra $6,000 deduction or $12,000 for married {couples} submitting collectively, during which each spouses are over age 65. The additional deduction is legitimate for tax years 2025 via 2028.
With the intention to declare the deduction, the IRS lists two necessities: (1) The Social Safety variety of the qualifying particular person(s) have to be included on the tax return; and (2) If married, the people should file married submitting collectively. This deduction isn’t out there for {couples} who file married submitting individually.
There’s a “phaseout” for the deduction. People with modified adjusted gross earnings (MAGI) over $75,000 (and $150,000 for married {couples} submitting collectively) will lose some and maybe all the deduction. The “phaseout” is full at a MAGI of $175,000 for singles and a MAGI $250,000 for married {couples} submitting collectively.
Qualifying federal workers and retirees can take the extra deduction whether or not they itemize their deductions or declare the usual deduction. The deduction can also be along with the prevailing further normal deduction for older people and people who are blind. Throughout 2025, these further normal deductions of $1,600 per partner 65 and over, or $3,200 for a married {couples} submitting collectively during which each spouses are 65 and older (plus $1,600 per partner who’s blind), and $2,000 for single filers and head of family filers who’re 65 and older (plus $2,000 if additionally blind).
For federal retirees over age 65 and who’re eligible for the total $6,000/$12,000 deduction, there is a chance to make some deliberate taxable strikes earlier than the tip of 2025 (akin to Roth IRA conversion) with a purpose to benefit from this new deduction. Roth IRA conversions are usually taxable. A married couple who qualifies for the total $12,000 deduction could wish to take into account changing a standard IRA value $12,000, or two conventional IRAs every value $6,000, to a Roth IRA. The $12,000 of taxable earnings ensuing from the Roth IRA conversions may be successfully offset with the $12,000 deduction.
SALT Deduction Restrict Enhance
The State and Native Tax (SALT) deduction supplies a federal deduction for earnings or gross sales; property and private taxes paid on the state and native ranges. The SALT deduction can be utilized solely by people who itemize on their federal earnings tax return. The TCJA places a restrict of $10,000 for all tax filers, it doesn’t matter what their tax submitting standing is.
The OBBBA will increase the restrict on the SALT deduction from $10,000 to $40,000 for tax years 2025 via 2029. The upper SALT restrict phases out for high-income people, starting at modified adjusted gross earnings (MAGI) of $500,000 for each married submitting collectively and single filers. Each the restrict quantity and earnings thresholds will improve one % yearly from 2026 via 2029, after which the SALT deduction restrict will revert to $10,000 efficient January 1,2030.
The upper SALT deduction, notably advantages federal workers and retirees who reside in excessive earnings tax states and who till this 12 months had been restricted to $10,000 for his or her state and native tax deductions on Schedule A. Federal workers and retirees who could profit from this raised SALT restrict are suggested to judge the timing of different Schedule A itemized deductions (akin to charitable contributions) with a purpose to maximize advantages.
Enhanced Little one Tax Credit score
Starting in 2025, the kid tax credit score will increase from $2,000 to $2,200 per qualifying little one underneath the age of 17. The credit score is everlasting and will probably be listed for inflation beginning in 2026. The earnings phaseout thresholds stay unchanged at AGI of $400,000 for married submitting collectively and $200,000 for different tax filers.
The OBBBA tightens eligibility necessities for people taking the kid tax credit score. Efficient in 2025, people taking the credit score and their kids underneath the age of 17 will need to have Social Safety numbers issued to U.S. residents or lawful everlasting residents. Till this 12 months, solely the kid wanted a Social Safety quantity and fogeys may declare the kid tax credit score with a person taxpayer identification quantity (ITIN).
Different Dependent Credit score Made Everlasting
These households with dependents who don’t qualify for the kid tax credit score (akin to a mum or dad or grownup relative) could qualify for the Different Dependent tax credit score. With the OBBBA, the worth of the credit score stays $500 and has been made everlasting.
Auto Mortgage Curiosity Deductible
Curiosity paid on loans for brand spanking new passenger autos for private use bought after December 31,2024 and earlier than January 1,2029 is deductible, as much as a restrict of $10,000 per 12 months. The deduction phases out at MAGI of $200,000 for married submitting collectively tax filers and $100,000 for single tax filers. It’s fully phased out at MAGI of $250,000 for married submitting collectively and $150,000 for single filers.
To assert the credit score on a brand new passenger car, the car will need to have had a ultimate meeting within the U.S. The car identification quantity (VIN) have to be included on the tax return.
The deduction may be claimed even when the usual deduction is claimed.
Inexperienced Vitality Provisions for People
OBBBA ends a number of of the inexperienced vitality provisions for people sooner than beforehand legislated by Congress. People who need tax credit on new or beforehand owned “clear” autos should now place them in service by September 30, 2025. The pre-OBBBA deadline was December 31, 2032.
The deadline for qualifying for the energy-efficient house enchancment credit score is now December 31,2025 and never December 31,2032 because it was pre-OBBBA. The deadline for qualifying for the residential clear vitality credit score is December 31,2025 and never December 31,2034 because it was pre-OBBBA.
