This guide covers the updates you’ll use when filing in early 2026 for tax year 2025—including new deductions enacted in 2025, a draft Schedule 1 adjustment for 1099-K errors/personal sales, inflation updates, and the status of IRS Direct File.
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A) New Law Changes You’ll See for 2026 Filing (Tax Year 2025)
On July 4, 2025, the One Big Beautiful Bill Act of 2025 created several deductions for tax years 2025–2028. These are designed so non-itemizers can benefit too.
1) “No Tax on Tips” — up to $25,000
Deduct qualified, reported tips (for example, tips on your W-2 or via Form 4137) up to $25,000. Income limits and documentation rules apply.
2) “No Tax on Overtime” — up to $12,500 ($25,000 MFJ)
Deduct the premium portion of overtime (the “half” in time-and-a-half) up to $12,500 ($25,000 MFJ). Income limits apply.
3) Personal Car-Loan Interest — up to $10,000
Deduct interest on qualifying loans for new, personally used vehicles placed in service after 12/31/2024. VIN reporting and U.S. final assembly apply.
4) New Senior Deduction — $6,000 each (65+)
An extra $6,000 per eligible taxpayer age 65+ (on top of existing senior amounts). Phase-outs apply.
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B) What Actually Changed on Form 1040 & Schedules (for 2026 Filers)
New Schedule 1 (Draft) line for 1099-K corrections
The draft 2025 Schedule 1 adds a specific entry to remove amounts reported on 1099-K that were included in error or reflect personal items sold at a loss. Always follow the final form and instructions.
Where will the new deductions appear?
Expect the 2025 deductions (tips, overtime, car-loan interest, senior) to be claimed on Form 1040 via Schedule 1 adjustments or designated lines in the final instructions.
USVI amounts on Schedule 3 (context)
Amounts from Form 8689 (U.S. Virgin Islands allocation) remain in the refundable credits area of Schedule 3 unless changed by the 2025 instructions.
C) 2025 Inflation Updates (Used When Filing in 2026)
| Item (Tax Year 2025) | Amount / Threshold | Source |
|---|---|---|
| Standard deduction | $15,000 (Single/MFS) • $30,000 (MFJ/QSS) • $22,500 (HOH) | IRS |
| Top 37% bracket starts at | $626,350 (Single) • $751,600 (MFJ) | IRS |
| AMT exemption | $88,100 (Single) • $137,000 (MFJ) | IRS |
| Max EITC (3+ kids) | $8,046 | IRS |
| Health FSA salary reduction cap | $3,300 (carryover up to $660) | IRS |
| Transit/parking fringe (monthly) | $325 | IRS |
| Foreign Earned Income Exclusion | $130,000 | IRS |
See the Revenue Procedure linked from the IRS release for the full list.
D) 1099-K: Thresholds & Draft Adjustment
Phased thresholds for platforms (PayPal, Venmo, eBay, etc.): more than $5,000 in 2024; more than $2,500 in 2025; and more than $600 from 2026 onward. Regardless of forms you receive, you must report all taxable income.
Draft Schedule 1 entry for 1099-K corrections
Use the dedicated line (once finalized) to remove amounts issued in error or for personal-item sales at a loss. Keep proof (messages, receipts, screenshots) with your records.
E) IRS Direct File: Permanent & Expanding
Direct File is now a permanent IRS option. Availability (states, forms, and situations) expands over time—check the IRS page each season for current eligibility.
F) 5-Minute Pre-Filing Checklist for the 2026 Season
- Confirm your standard deduction & tax bracket using the TY 2025 amounts above.
- Track tips & overtime separately; keep pay stubs and employer statements for new deductions.
- Buying a new car? Save the loan statement and VIN for potential car-loan interest deduction.
- Side income/platforms: Reconcile 1099-K forms and use the Schedule 1 adjustment (when finalized) to remove errors/personal sales.
- Choose your filing method: If eligible, consider IRS Direct File (free).
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G) FAQs for Individual Taxpayers (Filing in 2026)
1) Do the new deductions replace my standard deduction?
No. They’re structured so both itemizers and non-itemizers can benefit. Check the final 2025 Form 1040 instructions for exact placement.
2) My 1099-K includes a personal payment from a friend—what now?
Keep documentation and use the new Schedule 1 adjustment (once finalized) so personal or erroneous amounts don’t inflate your taxable income.
3) Is Direct File nationwide and permanent?
It’s permanent; coverage expands over time. Verify eligibility each season on the IRS site.
4) What are the 2025 standard deduction amounts?
$15,000 (Single/MFS), $30,000 (MFJ/QSS), $22,500 (HOH).
5) What are the 1099-K thresholds?
$5,000 (2024), $2,500 (2025), and $600 (2026 and after).
H) Official Sources
- IRS — One Big Beautiful Bill Act of 2025: provisions & guidance
- IRS — Inflation adjustments for Tax Year 2025
- IRS — 1099-K phased thresholds | IRS 1099-K FAQs
- IRS — Direct File for free | IRS makes Direct File permanent
- IRS — About Form 1040 (recent updates)
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Disclaimer: This article is general information for U.S. individual taxpayers. Numbers and line references reflect IRS releases and draft forms available as of August 13, 2025. Confirm final forms/instructions before filing and consult a qualified tax professional.
