What's New for Tax Year 2025 - Complete IRS Update

Tax Year 2025 introduces extensive changes across individual, business, and informational tax reporting. These updates affect Form 1040, related schedules, information returns, retirement rules, digital asset reporting, disaster relief provisions, and numerous specialized IRS forms. This article provides a complete, structured, and detailed explanation of all updates applicable for the 2025 tax year.

Updates to Individual Income Tax Returns (Form 1040)

Trump Accounts and New Form 4547

Recent legislation allows parents, guardians, or other authorized individuals to establish a new type of individual retirement account known as a Trump Account for qualifying children. Children must be born after 2024 and before 2029, be U.S. citizens, and meet additional eligibility criteria.

Eligible individuals may elect to receive a $1,000 pilot program contribution. Both the election to establish the account and to receive the pilot contribution are made using the newly introduced Form 4547, which can be filed alongside the authorized individual's 2025 income tax return.

Standard Deduction Increased

For 2025, the standard deduction has increased for all filing statuses:

• $15,750 - Single or Married Filing Separately
• $23,625 - Head of Household
• $31,500 - Married Filing Jointly or Qualifying Surviving Spouse

Higher Catch-Up Contribution Limits (Ages 60-63)

Taxpayers aged 60 through 63 who participate in qualified deferred compensation plans may qualify for a higher catch-up contribution limit. For 2025, the maximum catch-up contribution is $11,250 ($5,250 for SIMPLE and certain 401(k) plans).

Main Home Located in the United States

A new checkbox on the front of Form 1040 and Form 1040-SR requires taxpayers to indicate whether their main home was located in the United States for more than half of 2025. This information helps determine eligibility for benefits such as the Earned Income Credit.

Expanded Dependents Section

The Dependents section has been redesigned with numbered rows and additional required details. These enhancements assist the IRS in verifying eligibility for the Child Tax Credit, Credit for Other Dependents, and Earned Income Credit.

Write-In Information Simplified

Beginning in 2025, many items that previously required manual write-in explanations now include dedicated checkboxes or entry fields, improving accuracy and reducing errors.

Death of a Taxpayer

When filing a return for a taxpayer who died before filing their 2025 return, filers must check the "Deceased" box and enter the date of death on the applicable return.

Governmental Paid Family Leave Contributions

Contributions to governmental paid family leave programs must now be included in income. If the taxpayer itemizes, these contributions may be deducted as part of state and local taxes.

New Deductions and Schedules

New Schedule 1-A (Form 1040)

Schedule 1-A has been introduced to allow taxpayers to claim newly enacted deductions whether they itemize or take the standard deduction. These deductions include:

• No tax on tips
• No tax on overtime pay
• No tax on car loan interest
• Enhanced deduction for seniors

State and Local Tax (SALT) Deduction Increase

The SALT deduction limit has increased to $40,000 ($20,000 for married filing separately). Phase-downs apply for taxpayers with modified adjusted gross income exceeding $500,000.

Child Tax Credit and Additional Child Tax Credit

The Child Tax Credit has been permanently enhanced. For 2025:

• Maximum CTC: $2,200 per qualifying child
• Maximum refundable ACTC: $1,700

A valid Social Security Number issued before the return due date is required to claim these credits.

Adoption Credit Enhancements

Up to $5,000 of the adoption credit is now refundable per eligible child. Indian tribal government determinations of special needs adoption are recognized on par with state determinations.

Digital Assets and Information Reporting

Form 1099-DA - Digital Asset Transactions

Brokers must report digital asset sales using the newly introduced Form 1099-DA. Reporting basis is optional for brokers in 2025, but taxpayers remain responsible for accurate gain or loss reporting.

Updated Form 1099-K Reporting Thresholds

Payment platforms will issue Form 1099-K only if both of the following thresholds are exceeded:

• More than $20,000 in gross payments
• More than 200 transactions

Nonresident and Specialized Returns

Form 1040-NR Updates

The due date for Form 1040-NR is April 15, 2026, for employees receiving U.S. wages. The exemption amount for qualified disability trusts is $5,100 for 2025.

Form 1040-SS Changes

The Qualifying Children section has been updated with numbered rows. A valid Social Security Number is required to claim the Additional Child Tax Credit.

The maximum income subject to Social Security tax is $176,100 for 2025 and $184,500 for 2026.

Business, Farming, and Rental Activity Changes

Bonus Depreciation Restored

100% bonus depreciation has been restored for qualified property acquired after January 19, 2025. Certain phase-down rules apply to property placed in service earlier.

Section 179 Deduction Limits

For 2025, the maximum Section 179 deduction is $2,500,000, with a phase-out beginning at $4,000,000.

Domestic Research and Experimental Expenditures

Domestic research expenditures may be deducted currently or amortized over time. Foreign research expenditures must be capitalized and amortized over 15 years.

No Tax on Car Loan Interest

Self-employed individuals may deduct personal-use car loan interest on Schedule 1-A and business-use interest on applicable business schedules.

Farmland Sale Installment Election

Taxpayers selling qualified farmland to qualified farmers may elect to pay the resulting tax in four equal annual installments beginning with the year of sale.

Disaster Relief and Special Loss Provisions

Expanded Disaster Tax Relief

Mandatory postponement periods for filing and payment deadlines have been expanded for federally and state-declared disasters occurring after July 24, 2025.

Losses From Financial Scams

Taxpayers who are victims of profit-motivated financial scams may now qualify for theft loss deductions under expanded provisions.

Information Returns and Employer Forms

Forms W-2 and W-3

Forms W-2 and related forms have been updated with a new OMB number. New procedures allow employers to request extensions for furnishing recipient copies.

Form 1042-S Enhancements

New income codes, status codes, reporting checkboxes, and extension request procedures have been added to improve international withholding reporting accuracy.

Energy, Retirement, and Other Notable Changes

Energy Credits Termination

Residential clean energy and energy-efficient home improvement credits terminate for expenditures made after December 31, 2025.

Retirement and Exclusion Updates

The foreign earned income exclusion increases to $130,000 for 2025. The Windfall Elimination Provision has been repealed for Social Security benefits.

Increased Penalties

Penalties for failure to file, failure to furnish, and intentional disregard have increased due to inflation adjustments.

Schedules A, D, E, F, 8812

• SALT cap increase confirmed on Schedule A.
• New Schedule 1-A for special deductions.
• Digital asset reporting codes added to Schedule D.
• Section 179 limit increased to $2.5M; SUV cap $31,300.
• 100% bonus depreciation restored post-Jan 19, 2025.
• No tax on personal car loan interest via Schedule 1-A.

Business, International & Specialty Forms

• Form 1116: Part IV mandatory; foreign tax credit limits updated.
• Form 3800: New transfer reporting; biodiesel credit restored.
• Form 4562: Expanded depreciation reporting and aircraft disclosures.
• Form 461: Excess business loss limitation made permanent.
• Forms 5471 & 5472: CAMT Schedule H-1; updated foreign person definition.
• Form 5695: Residential energy credits terminate after 2025; QMID required.
• Form 4136: Fuel credit revisions; SAF credit expires 9/30/2025.
• Form 4684: Expanded disaster relief and scam loss deductions.
• Form 2555: Foreign earned income exclusion increased to $130,000.

Tax Rates & Other Highlights

• Seven tax brackets retained (10%-37%) with updated thresholds.
• Enhanced senior deduction ($6,000 per eligible taxpayer) for ages 65+.
• Windfall Elimination Provision (WEP) repealed.
• Mandatory e-filing threshold reduced to 10 returns.
• IRIS expanded for information return e-filing.

Conclusion: Tax year 2025 introduces major structural changes, new deductions, enhanced credits, expanded electronic filing, and restored depreciation and research incentives. Careful form selection and reporting accuracy are critical under the updated rules.