Headlines are once again promising the “largest tax refund season of all time.” Much of that claim is tied to proposed and extended provisions under what’s being referred to as the One Big Beautiful Bill (OBBB).
While the messaging is bold, the real tax impact depends on eligibility, income thresholds, filing status, and execution. For tax professionals and the firms advising them, these changes present both planning opportunities and compliance risks.
Below is a practical breakdown of the major provisions and what they actually mean in practice for the 2025 tax year and beyond.
Increased Standard Deduction
Under the OBBB framework, the standard deduction increases across all filing statuses:
- Single / Married Filing Separately: $15,750
- Married Filing Joint / Surviving Spouse: $31,500
- Head of Household: $23,625
These increases reduce taxable income for millions of taxpayers, particularly non-itemizers. However, higher standard deductions alone do not guarantee larger refunds—especially for higher earners impacted by credit phaseouts and income limitations.
Expanded Child Tax Credit (CTC)
For 2025, the Child Tax Credit increases to $2,200 per qualifying child, up from $2,000.
Key planning considerations:
- This is a permanent increase, not a temporary expansion
- The credit is now indexed to inflation, improving long-term predictability
- The Additional Child Tax Credit (ACTC) remains capped at $1,700, preserving refundability for lower- and middle-income households
While the dollar increase is modest, indexing to inflation makes this a meaningful long-term policy shift.
SALT Deduction Expansion (With Income Limits)
The State and Local Tax (SALT) deduction cap increases from $10,000 to $40,000, but with strict phaseouts:
- Phaseout begins at $500,000 MAGI
- Fully reduced back to $10,000 at $600,000 MAGI
- Applies only to itemizing taxpayers
- Scheduled to expire after 2029, reverting to the $10,000 cap
This change may benefit taxpayers in high-tax states, but only when income is carefully managed. Without planning, many high earners will see little to no benefit.
$6,000 Senior Deduction
Taxpayers aged 65 or older may qualify for a $6,000 deduction, which can be claimed in addition to the standard or itemized deduction.
Eligibility requirements include:
- Age 65+ by December 31
- U.S. citizen or resident alien
- Valid Social Security number
- Married couples must file jointly for the full benefit
Phaseouts apply at:
- $75,000 MAGI for single filers
- $150,000 MAGI for joint filers
This provision creates planning opportunities around retirement income timing, Roth conversions, and filing status decisions.
Auto Loan Interest Deduction (New)
A new deduction allows taxpayers to deduct interest paid on qualified vehicle loans originated after December 31, 2024, regardless of whether they itemize.
Key qualifications:
- MAGI under $100,000 (single) or $200,000 (joint)
- Taxpayer is the first owner of the vehicle
- Vehicle is for personal use only
- Loan is secured by a lien
- Gross vehicle weight rating under 14,000 pounds
- Final assembly must occur in the United States
Verification relies on dealer documentation, VIN analysis, or NHTSA tools—details advisors should address before the purchase, not after.
No Tax on Tip Income
Eligible workers may deduct up to $25,000 in qualified voluntary tip income from gross income.
Important parameters:
- Phaseout begins at $150,000 MAGI (single) and $300,000 MAGI (joint)
- Married taxpayers must file jointly
- Applies whether itemizing or taking the standard deduction
- Applies only to voluntary tips, not mandatory service charges
The IRS is expected to release additional guidance, including a finalized list of eligible occupations. Advisors should proceed cautiously until final regulations are issued.
No Tax on Overtime Pay
For tax years 2025 through 2028, individuals receiving qualified overtime compensation may deduct the portion of pay that exceeds their regular hourly rate (generally the “half” portion of time-and-a-half wages).
Key limits:
- Maximum deduction: $12,500 (single) and $25,000 (joint)
- Phaseout begins at $150,000 MAGI (single) and $300,000 MAGI (joint)
- Available to both itemizers and non-itemizers
Not all workers qualify. Certain employees are exempt under Fair Labor Standards Act (FLSA) rules, making proper classification critical.
What This Means for Tax Professionals
While these provisions may increase refunds for some taxpayers, they do not replace proactive tax planning. Income thresholds, phaseouts, filing status, payroll structure, and documentation will determine who truly benefits.
For S corporation owners, in particular, changes to deductions and income exclusions heighten the importance of defensible reasonable compensation analysis. As wage definitions evolve, the IRS will continue to scrutinize how income is characterized.
Final Takeaway
Big tax promises make headlines—but refunds are never automatic.
The taxpayers who benefit most on their 2025 returns will be those whose advisors understand the rules, apply them correctly, and document decisions defensibly.
Tools like Reasonable Compensation Calculated (RCC) help firms do exactly that—bringing consistency, accuracy, and IRS-aligned support to one of the most scrutinized areas of tax compliance.
