The tax landscape is in constant motion, and for individuals and couples, keeping up can feel like navigating a complex trail without a map. At Lightening the Load, we’re committed to being your tax basecamp, guiding you through every new twist and turn. Recently, new tax legislation has introduced some significant changes that could directly impact your tax return, offering incredible opportunities for tax savings.
Let’s break down some of the key provisions in the new bill that affect individuals and families.
Tax Relief for Tips and Overtime
In a major change designed to help a wide range of workers, the new tax bill introduces a temporary deduction for both tips and qualified overtime pay. This is a game-changer for many service industry professionals and hourly workers.
- Tips: You may now be able to deduct up to $25,000 of qualified tip income for tax years 2025 through 2028. This is a special, “above-the-line” deduction, meaning you can take it even if you don’t itemize.
- Overtime: For qualified overtime compensation, a deduction of up to $12,500 is available for single filers, and up to $25,000 for married couples filing jointly. This applies to the “half” portion of “time-and-a-half” pay and is also an above-the-line deduction.
Both of these deductions have income phase-out rules, so it’s essential to understand your specific situation to know your full eligibility.
Changes to the Child Tax Credit
For families, the Child Tax Credit is a critical source of tax relief. The new legislation has made a few important modifications that could increase the credit amount for many households.
- Increased Value: The credit has been increased from $2,000 to $2,200 per eligible child for the 2025 tax year. This amount will also be indexed for inflation in subsequent years.
- Work-Eligible SSN Requirement: There is a new requirement that the child and at least one filer on a joint return have a work-eligible Social Security Number.
These changes are designed to provide more support for working families and are a key consideration as you prepare for tax season.
Introducing TRUMP Accounts
The new bill also creates a new savings vehicle for children, often referred to as “Trump Accounts.” These tax-advantaged accounts aim to encourage long-term savings for a child’s future.
- Government Contributions: An eligible child born between 2025 and 2028 will receive a one-time $1,000 contribution from the government.
- Tax-Deferred Growth: Like some other popular accounts, contributions and earnings can grow tax-deferred.
- After-Tax Contributions: Individuals and employers can make after-tax contributions up to a combined annual limit.
This new account adds another layer to family tax planning, providing a way to build a nest egg for the next generation.
