Tax Law Changes

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Tax Law Highlights TY25

Tax-Aide Scope Changes

Form 1040 Sched 1-A (additional deductions)

Form 1098-VLI (vehicle loan interest)

Form 1099-INT box 13 (bond premium on tax-exempt bond)

Form 1099-R, box 7 code 8 (corrective distribution taxable in current year)

Form 1099-G, new box 10 (family leave benefits)

Virginia TY25 Updates

Tax Relief for Working Virginians

Virginia rebate up to tax liability (max $200 per taxpayer) for returns filed by Nov. 3, 2025 - may be taxable if itemized in TY24 and benefited

Standard Deduction

S/MFS: $8,750 MFJ: $17,500

Refundable EITC increased to 20% of federal EITC

Military retiree benefits subtraction (code 60) up to $40,000 regardless of age

Eligible Educator Expense Deduction - expired

Form 1099-K VA reporting threshold still $600 (as of September 1, 2025)

Virginia conformity to new federal items to be determined

Federal TY25 Updates

Tax Brackets

10%, 12%, 22%, 24%, 32%, 35%, and 37% now permanent (no expiration date)

Federal Standard Deduction

S or MFS: $15,750

MFJ or QSS: $31,500

HoH: $23,625

Additional for Age (65+) or Blindness

MFJ/QSS/MFS: $1,600

S/HOH: $2,000

Gross income limit for qualifying relative $5,200

Additional Deductions Below the AGI Line

Age 65+ deduction of $6,000 for itemizers and non-itemizers subject to $60 per $1,000 phaseout range of AGI $75,000-$175,000 ($150,000-$250,000) with valid SSN; must file MFJ if married; MFS not eligible; "below-the-line" deduction does not affect AGI

Tip income (as shown on Form W-2, Form 1099, or other specified statement furnished to the taxpayer or reported directly by the taxpayer on Form 4137) deduction up to $25,000 per return for listed qualifying occupations for itemizers and non-itemizers subject to $100 per $1,000 phaseout starting at AGI $150,000 ($300,000) with valid SSN; must file MFJ if married; MFS not eligible; "below-the-line" deduction does not affect AGI

Premium portion of overtime (as shown on Form W-2, Form 1099, or other specified statement furnished to the taxpayer) deduction up to $12,500 ($25,000) for itemizers and non-itemizers subject to $100 per $1,000 phaseout starting at AGI $150,000 ($300,000) with valid SSN; must file MFJ is married; MFS not eligible; "below-the-line" deduction does not affect AGI

Vehicle loan interest (reported on Form 1098-VLI) deduction for itemizers and non-itemizers up to $10,000 per return for qualified vehicles (new car, minivan, van, SUV, pick-up truck, or motorcycle with gross vehicle weight less than 14,000 pounds) purchased for personal use with final assembly in the U.S. with phaseout of $200 per $1000 over range of AGI $100,000-$150,000 ($200,000-$250,000); VIN required (can be used to determine plant of manufacturer; first digit 1, 4, or 5 indicates U.S. assembly); "below-the-line" deduction does not affect AGI

Forms

Form 1040-SR - draft 9/8/25

Form 1040 Schedule 1-A, Additional Deductions - draft 9/8/25

Form 1040 Schedule A, Itemized Deductions - draft 9/11/25

Form 1099-K reporting requirements reverts to previous threshold of $20,000 AND 200 transactions.

Form 1099-R box 7 distribution code Y for qualified charitable distribution - box 2a will not show a reduction for the QCD

Form 1099-DA, Digital Asset Proceeds from Broker Transactions (OOS)

Expenses

Standard mileage rates:

$0.70 business; $0.21 medical; $0.14 charitable

HSA contribution $4,300 (self) and $8,550 (family) plus $1,000 for 55+

State and local taxes (SALT) deduction maximum $40,000 (MFS $20,000) with AGI up to $500,000 ($250,000 MFS)

Charitable contributions to Veterans Services Organizations now deductible

Tax Credits

Home energy tax credit requires Qualified Manufacturer Identification Number on Form 5695 - credit repealed after December 31, 2025

Earned Income Tax Credit: Maximum investment income $11,950

Child tax credit $2,200 per child under 17; $1,700 refundable per child; a parent and the child must have valid SSN; no credit for MFS; phaseout AGI $200,000 ($400,000) at $50 per $1,000 AGI above the limits

Adoption credit up to $5,000 now refundable (OOS)

Other Items

IRA deduction amount $7,000 ($8,000 for 50+)

Kidde Tax - unearned maximum income $2,700

IRS to phase out paper tax refund checks September 30.

NATP reports (as of 9/5/25) IRS will apply real time validation of SSN for e-filing. Will reject e-filed return with restricted SSN "valid for work only with DHS authorization" if work authorization expired and claiming certain credits

Social Security Fairness Act - Effective January 1, 2024, will result in lump sum payments for 2024 on 2025 SSA-1099s.

Policy and Procedures

Para 6.25 Preparing Friends and Family Returns - If the Counselor chooses to use the IRS provided tax preparation software to prepare an out-of-scope return and/or is preparing the return outside of AARP Foundation Tax-Aide Policies and Procedures, they are no longer protected by the Volunteer Protection Act of 1997 for that return.

Tax-Aide Pubs

NTTC 4491 TY25 - Includes OBBBA updates. Incorporates tax law papers covering Schedule C guidelines; election workers; and gambling income, losses, and expenses. [Papers still available for prior years.] Expanded tax law discussion in various sections.

NTTC 4012 TY24 - Updated to reflect TSO updates made in May 2025 including updated screen shots. Re-writes include Medicaid waiver payment, sale of main home, and SSA-1099 lump sum payments. Release notes.

NTTC 4012 TY25 - Built off of TY24 (not IRS TY25 version). NTTC 4012 pages no longer map to IRS 4012 pages. Includes OBBBA updates and amended returns update. Will include updated screen shots when TSO is updated.

IRS 4012 TY25 - Created before OBBBA and contains old, incorrect information such as standard deduction amounts and who should file thresholds. Written to VITA scope. Delivery expected late December if ordering system opens soon.

Tax Law Highlights TY26

Tax-Aide Scope Changes

TBD

Virginia TY26 Updates

Form 1099-K VA state threshold $600 regardless of transaction volume for payees with Virginia mailing addresses

Federal TY26 Inflation Updates

Federal Standard Deduction

S or MFS: $16,100 MFJ or QSS: $32,200 HoH: $24,150

Additional for Age (65+) or Blindness

Married/QSS: $1,650 S/HOH: $2,050 for each

Dependent

$1,350 or earned income plus $250 not to exceed standard deduction

Gross income limit for qualifying relative $5,300

Adjustments

HSA individual contribution limit $4,300. Family limit $8,550. For 55+ add $1,000. Individual plus family contributions cannot exceed the family limit.

Income

Social Security annual wage base $184,500

Pension

IRA maximum contribution $7,500 plus $1,100 for 50 and older.

Expenses

Standard mileage rates:

$0.725 business; $0.205medical; $0.14 charitable

Tax Credits

Earned Income Tax Credit: Maximum investment income $12,200.

OBBBA TY26 Updates

Charitable Contributions

Charitable contributions deductible for itemizers to the extent they exceed 0.5% of AGI

Charitable contributions limited to 60% of AGI. Carryover of amount in excess of 60% OOS.

Charitable cash contribution deduction for non-itemizers $1,000 ($2,000 MFJ) below AGI line - Schedule 1-A

Educator Expenses

Educator expense deduction up to $350 ($700 MFJ) adjustment above the AGI line - Schedule 1

Itemized educator expense deduction for expenses exceeding $350 ($700)

Sports administrators and coaches added to core group of K-12 teachers, instructors, counselors, principals, and classroom aides

Deductible items include traditional classroom materials and anything used in an "instructional activity" including sports gear used by coaches

Still requires 900 hours minimum at state-certified elementary or secondary school

Gambling Losses

Maximum itemized gambling loss deduction is smaller of 90% of loss or total gambling winnings

Private Mortgage Insurance (PMI) Premiums

Itemized deduction reinstated

Treated as deductible mortgage interest

Allowed deduction amount phases out from $100,000 AGI to $109,000 AGI

Education Credits

AOC/LLC education credits require valid TP/SP/dependent SSNs

Child and Dependent Care Tax Credit (CDCTC)

Still non-refundable credit

Structured as two-tiered sliding phase-out scale

Maximum eligible expenses $3,000 for one qualifying person and $6,000 for two or more

Tier 1 credit rate 50% up to $15,000 decreasing to 35% at $43,000; remains at 35% up to $75,000 (rate drops as income increases from $43,000 to $75,000)

Tier 1 works the same for single/HoH and MFJ

Tier 2 MFJ credit rate 35% up to $150,000 decreasing to 20% floor at $206,000

Tier 2 single/HoH credit rate slides from 35% at $75,000 to 20% at $150,000

CAUTION: Every dollar excluded from tax via a workplace Flexible Spending Account (FSA) reduces the eligible expense cap for the CDCTC dollar-for-dollar

Reporting Thresholds

Forms 1099-NEC and 1099-MISC reporting threshold $2,000

Adjusted for inflation in $100 increments beginning 2027

FORMS

1099-NEC - box 1b Cash tips, box 1c TTOC - Treasury tipped occupation code

box 1d Overtime compensation - total amount of qualified overtime compensation included in 1a - amount above regular rate ("the half" e.g.)

1099-MISC- box 13a - Cash tips, box 13b - TTOC

box 14 - Overtime compensation - total amount of qualified overtime included in box 3 - amount above regular rate ("the half" e.g.)