2025 Tax Law Study Guide
2025 TAX LAW — COMPREHENSIVE STUDY GUIDE
Individual Income Tax — Filing Season 2026 (Tax Year 2025) — includes OBBBA changes
1. What's New for 2025 — OBBBA Highlights
The One Big Beautiful Bill Act (OBBBA), signed into law in 2025, made permanent several TCJA provisions that were set to expire and introduced several
brand-new, temporary deductions effective for tax years 2025–2028. Test questions that reference "qualified overtime," "qualified tips," or a new senior deduction
are drawing on these changes.
1.1 New Temporary Deductions (2025–2028)
Qualified Overtime Compensation Deduction
• New above-the-line deduction for the portion of pay that is FLSA-required overtime premium (the "half" in time-and-a-half), not the entire overtime wage.
• Maximum deduction: $12,500 ($25,000 if Married Filing Jointly).
• Phases out for MAGI over $150,000 (single) / $300,000 (MFJ) — reduced $100 for each $1,000 over the threshold.
• Available whether the taxpayer itemizes or takes the standard deduction.
• Does not apply to overtime required only by a state law that is stricter than federal law (e.g., daily overtime after 8 hours) — only the FLSA-mandated
premium qualifies for the federal deduction. State-only daily overtime premiums are NOT eligible.
Test tip: If a scenario says an employee's state requires overtime after 8 hours/day (not just 40/week), remember the deduction is limited to the federal (FLSA) overtime
premium — the extra state-only premium does not qualify.
Qualified Tips Deduction ("No Tax on Tips")
• Above-the-line deduction for qualified tips received in occupations that customarily and regularly received tips before 2025 (per Treasury's published list).
• Maximum deduction: $25,000.
• Phases out for MAGI over $150,000 (single) / $300,000 (MFJ).
• Tips must be reported on a W-2, 1099, or directly reported by the employee; does not remove tips from Social Security/Medicare wage base.
Senior Bonus Deduction (Age 65+)
• Additional $6,000 deduction per qualifying spouse age 65 or older (on top of the regular and existing age-65 additional standard deduction).
• Available to itemizers and non-itemizers alike.
• Phases out at MAGI over $75,000 (single) / $150,000 (MFJ).
• Temporary — in effect for 2025 through 2028.
Auto Loan Interest Deduction
• Above-the-line deduction for interest paid on a loan to purchase a new (not used) personal-use vehicle with final assembly in the United States.
• Maximum deduction: $10,000 per year.
• Phases out for MAGI over $100,000 (single) / $200,000 (MFJ).
1.2 Permanent / Extended Provisions
• TCJA individual tax rates and brackets (10/12/22/24/32/35/37%) made permanent.
• Standard deduction amounts made permanent at TCJA-elevated levels (indexed annually).
• SALT (state and local tax) itemized deduction cap raised to $40,000 for 2025 (up from $10,000), phased down (but not below $10,000) for taxpayers with
MAGI over $500,000; the higher cap is scheduled to revert after 2029.
• Child Tax Credit permanently set at $2,200 per qualifying child for 2025 (indexed for inflation thereafter), with the refundable Additional Child Tax Credit
capped at $1,700.
• Qualifying child (and the taxpayer, and spouse if MFJ) must have a work-eligible Social Security Number to claim the Child Tax Credit.
• Personal exemptions remain suspended (still $0).
• Moving expense deduction remains suspended for civilians; still allowed for active-duty military moving under permanent change of station (PCS) orders.
Why this matters on the assessment: Several questions (overtime deduction, unemployment compensation, moving expenses, SALT cap) are testing whether you know
which older TCJA rules still apply and which new 2025 OBBBA provisions layer on top.
2. Calculating Gross Income and Adjusted Gross Income (AGI)
2.1 What Counts as Gross Income
Gross income is all income from whatever source derived, unless specifically excluded by law (IRC §61). It is the broadest income concept on the return — the
starting point before any adjustments, deductions, or credits are applied.
Taxable (included in gross income)
• Wages, salaries, tips, bonuses
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, 2025 Tax Law Study Guide
• Interest income (bank interest, most bond interest)
• Dividends
• Business and self-employment income
• Capital gains
• Rental and royalty income
• Unemployment compensation — fully taxable (there is no exclusion; the temporary pandemic-era exclusion no longer applies)
• Gambling and lottery winnings (fully taxable; losses are only deductible as an itemized deduction, limited to winnings)
• Alimony received — only if under a divorce or separation instrument executed on or before December 31, 2018, and not modified to adopt the new rules
Excluded from gross income
• Gifts and inheritances received (to the recipient)
• Municipal bond interest (federally tax-exempt, though often reported for information/AGI-related phaseout purposes)
• Child support received
• Life insurance proceeds paid by reason of death
• Qualified scholarships used for tuition and required fees
• Alimony received under a post-2018 divorce/separation instrument
Worked example: Delano (unmarried, HOH) has wages $56,500, bank interest $275, municipal bond interest $115 (excluded), a lottery prize $325 (taxable), and a $5,000
gift from his father (excluded). Gross income = $56,500 + $275 + $325 = $57,100. He contributes $1,250 to a deductible traditional IRA. AGI = $57,100 − $1,250 =
$55,850.
2.2 From Gross Income to AGI
Adjusted Gross Income = Total (Gross) Income minus "above-the-line" adjustments to income. These adjustments are available whether or not the taxpayer
itemizes.
Common adjustments to income (2025)
• Educator expenses (up to $300 per educator)
• Traditional IRA deduction (subject to active-participant phaseouts)
• Health Savings Account (HSA) contributions
• Self-employment tax deduction (one-half of SE tax)
• Self-employed health insurance deduction
• Penalty on early withdrawal of savings
• Student loan interest (up to $2,500, subject to phaseout)
• NEW for 2025: Qualified tips deduction, qualified overtime deduction, senior bonus deduction, and auto loan interest deduction (see Section 1)
2.3 From AGI to Taxable Income
• AGI minus the greater of the Standard Deduction or Itemized Deductions
• Minus the Qualified Business Income (QBI) deduction, if applicable (generally 20% of qualified pass-through business income, subject to limits)
• = Taxable Income
2025 KEY NUMBERS
• 2025 Standard Deduction: Single $15,750 • MFJ $31,500 • HOH $23,625 • MFS $15,750
• Additional standard deduction (65+ or blind): $1,600 married per condition; $2,000 single/HOH per condition
• NEW 2025 Senior Bonus Deduction (65+): additional $6,000 per qualifying spouse (phases out above $75k/$150k MAGI)
• Personal/dependency exemption: $0 (suspended)
3. Wages, Additional Income, Filing Status & Dependency — EITC Qualifying
3.1 Filing Status Overview
Status Who Qualifies Key Notes
Single Unmarried, no dependents, doesn't qualify for HOH Least favorable of the "unmarried" statuses if HOH is
available
Married Filing Jointly (MFJ) Married as of 12/31; both spouses agree to file together Usually most favorable; both spouses jointly and
severally liable
Married Filing Separately (MFS) Married but files own return Loses/limits many credits (EITC generally
unavailable); used for liability separation or student
loan strategy
Head of Household (HOH) Unmarried (or considered unmarried) + paid >half cost Better standard deduction and brackets than Single
of home + qualifying person lived with them >half
year
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2025 TAX LAW — COMPREHENSIVE STUDY GUIDE
Individual Income Tax — Filing Season 2026 (Tax Year 2025) — includes OBBBA changes
1. What's New for 2025 — OBBBA Highlights
The One Big Beautiful Bill Act (OBBBA), signed into law in 2025, made permanent several TCJA provisions that were set to expire and introduced several
brand-new, temporary deductions effective for tax years 2025–2028. Test questions that reference "qualified overtime," "qualified tips," or a new senior deduction
are drawing on these changes.
1.1 New Temporary Deductions (2025–2028)
Qualified Overtime Compensation Deduction
• New above-the-line deduction for the portion of pay that is FLSA-required overtime premium (the "half" in time-and-a-half), not the entire overtime wage.
• Maximum deduction: $12,500 ($25,000 if Married Filing Jointly).
• Phases out for MAGI over $150,000 (single) / $300,000 (MFJ) — reduced $100 for each $1,000 over the threshold.
• Available whether the taxpayer itemizes or takes the standard deduction.
• Does not apply to overtime required only by a state law that is stricter than federal law (e.g., daily overtime after 8 hours) — only the FLSA-mandated
premium qualifies for the federal deduction. State-only daily overtime premiums are NOT eligible.
Test tip: If a scenario says an employee's state requires overtime after 8 hours/day (not just 40/week), remember the deduction is limited to the federal (FLSA) overtime
premium — the extra state-only premium does not qualify.
Qualified Tips Deduction ("No Tax on Tips")
• Above-the-line deduction for qualified tips received in occupations that customarily and regularly received tips before 2025 (per Treasury's published list).
• Maximum deduction: $25,000.
• Phases out for MAGI over $150,000 (single) / $300,000 (MFJ).
• Tips must be reported on a W-2, 1099, or directly reported by the employee; does not remove tips from Social Security/Medicare wage base.
Senior Bonus Deduction (Age 65+)
• Additional $6,000 deduction per qualifying spouse age 65 or older (on top of the regular and existing age-65 additional standard deduction).
• Available to itemizers and non-itemizers alike.
• Phases out at MAGI over $75,000 (single) / $150,000 (MFJ).
• Temporary — in effect for 2025 through 2028.
Auto Loan Interest Deduction
• Above-the-line deduction for interest paid on a loan to purchase a new (not used) personal-use vehicle with final assembly in the United States.
• Maximum deduction: $10,000 per year.
• Phases out for MAGI over $100,000 (single) / $200,000 (MFJ).
1.2 Permanent / Extended Provisions
• TCJA individual tax rates and brackets (10/12/22/24/32/35/37%) made permanent.
• Standard deduction amounts made permanent at TCJA-elevated levels (indexed annually).
• SALT (state and local tax) itemized deduction cap raised to $40,000 for 2025 (up from $10,000), phased down (but not below $10,000) for taxpayers with
MAGI over $500,000; the higher cap is scheduled to revert after 2029.
• Child Tax Credit permanently set at $2,200 per qualifying child for 2025 (indexed for inflation thereafter), with the refundable Additional Child Tax Credit
capped at $1,700.
• Qualifying child (and the taxpayer, and spouse if MFJ) must have a work-eligible Social Security Number to claim the Child Tax Credit.
• Personal exemptions remain suspended (still $0).
• Moving expense deduction remains suspended for civilians; still allowed for active-duty military moving under permanent change of station (PCS) orders.
Why this matters on the assessment: Several questions (overtime deduction, unemployment compensation, moving expenses, SALT cap) are testing whether you know
which older TCJA rules still apply and which new 2025 OBBBA provisions layer on top.
2. Calculating Gross Income and Adjusted Gross Income (AGI)
2.1 What Counts as Gross Income
Gross income is all income from whatever source derived, unless specifically excluded by law (IRC §61). It is the broadest income concept on the return — the
starting point before any adjustments, deductions, or credits are applied.
Taxable (included in gross income)
• Wages, salaries, tips, bonuses
Page 1 of 10
, 2025 Tax Law Study Guide
• Interest income (bank interest, most bond interest)
• Dividends
• Business and self-employment income
• Capital gains
• Rental and royalty income
• Unemployment compensation — fully taxable (there is no exclusion; the temporary pandemic-era exclusion no longer applies)
• Gambling and lottery winnings (fully taxable; losses are only deductible as an itemized deduction, limited to winnings)
• Alimony received — only if under a divorce or separation instrument executed on or before December 31, 2018, and not modified to adopt the new rules
Excluded from gross income
• Gifts and inheritances received (to the recipient)
• Municipal bond interest (federally tax-exempt, though often reported for information/AGI-related phaseout purposes)
• Child support received
• Life insurance proceeds paid by reason of death
• Qualified scholarships used for tuition and required fees
• Alimony received under a post-2018 divorce/separation instrument
Worked example: Delano (unmarried, HOH) has wages $56,500, bank interest $275, municipal bond interest $115 (excluded), a lottery prize $325 (taxable), and a $5,000
gift from his father (excluded). Gross income = $56,500 + $275 + $325 = $57,100. He contributes $1,250 to a deductible traditional IRA. AGI = $57,100 − $1,250 =
$55,850.
2.2 From Gross Income to AGI
Adjusted Gross Income = Total (Gross) Income minus "above-the-line" adjustments to income. These adjustments are available whether or not the taxpayer
itemizes.
Common adjustments to income (2025)
• Educator expenses (up to $300 per educator)
• Traditional IRA deduction (subject to active-participant phaseouts)
• Health Savings Account (HSA) contributions
• Self-employment tax deduction (one-half of SE tax)
• Self-employed health insurance deduction
• Penalty on early withdrawal of savings
• Student loan interest (up to $2,500, subject to phaseout)
• NEW for 2025: Qualified tips deduction, qualified overtime deduction, senior bonus deduction, and auto loan interest deduction (see Section 1)
2.3 From AGI to Taxable Income
• AGI minus the greater of the Standard Deduction or Itemized Deductions
• Minus the Qualified Business Income (QBI) deduction, if applicable (generally 20% of qualified pass-through business income, subject to limits)
• = Taxable Income
2025 KEY NUMBERS
• 2025 Standard Deduction: Single $15,750 • MFJ $31,500 • HOH $23,625 • MFS $15,750
• Additional standard deduction (65+ or blind): $1,600 married per condition; $2,000 single/HOH per condition
• NEW 2025 Senior Bonus Deduction (65+): additional $6,000 per qualifying spouse (phases out above $75k/$150k MAGI)
• Personal/dependency exemption: $0 (suspended)
3. Wages, Additional Income, Filing Status & Dependency — EITC Qualifying
3.1 Filing Status Overview
Status Who Qualifies Key Notes
Single Unmarried, no dependents, doesn't qualify for HOH Least favorable of the "unmarried" statuses if HOH is
available
Married Filing Jointly (MFJ) Married as of 12/31; both spouses agree to file together Usually most favorable; both spouses jointly and
severally liable
Married Filing Separately (MFS) Married but files own return Loses/limits many credits (EITC generally
unavailable); used for liability separation or student
loan strategy
Head of Household (HOH) Unmarried (or considered unmarried) + paid >half cost Better standard deduction and brackets than Single
of home + qualifying person lived with them >half
year
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