Guidance for Tax Year 2025

tysllpBusiness News, Tax Accounting

Big Beautiful Bill Act

H.R. 1 – The One Big Beautiful Bill Act:

The Internal Revenue Service has announced that, as part of its phased implementation of H.R. 1, there will be no immediate changes to certain information returns or withholding tables for Tax Year 2025. This decision is aimed at providing a smooth tax filing season and allowing the IRS, businesses, and payroll providers adequate time to effectively implement the new provisions.

Key Points for Tax Year 2025

  • Forms Remain Unchanged: For Tax Year 2025, there will be no changes to key payroll and information returns, including Form W-2, existing Forms 1099, Form 941, and other related payroll forms.
  • Withholding Tables Not Updated: Federal income tax withholding tables will not be adjusted to reflect the new provisions of H.R. 1 for Tax Year 2025.
  • Current Procedures Continue: Employers and payroll providers should continue to use the current procedures for reporting and withholding throughout the 2025 tax year.

Critical Additional Information for a CPA

While the IRS has delayed changes to forms and withholding, the provisions of H.R. 1 are still effective for Tax Year 2025. This means that while employers will not be tracking these changes on a per-paycheck basis, taxpayers will claim the new deductions and credits when they file their 2025 tax returns in 2026. This creates an important distinction for tax planning and communication with clients.

Here are some of the key provisions of H.R. 1 that a CPA would need to consider for 2025 tax planning, even with the delayed implementation on forms:

  1. Tip and Overtime Pay Deduction:
  • New Deduction: For Tax Year 2025 through 2028, individuals may deduct up to $25,000 for qualified tips and up to $12,500 ($25,000 for joint filers) for qualified overtime pay.
  • Phase-Out: These deductions phase out for taxpayers with a modified adjusted gross income over $150,000 ($300,000 for joint filers).

Action for TYS Clients: Clients who are employers in industries with tipped or overtime workers should advise their employees to maintain good records of their income. While there is no immediate change to payroll reporting, this deduction will be a significant benefit for eligible employees when they file their tax returns.

  1. Senior Deduction:
  • New Deduction: Individuals aged 65 and older may claim an additional $6,000 deduction for Tax Year 2025 through 2028. This is in addition to the standard deduction for seniors already in place.
  • Phase-Out: This deduction is subject to an income phase-out for taxpayers with a modified adjusted gross income over $75,000 ($150,000 for joint filers).
  • Action for businesses: Businesses with employees or retirees who are 65 or older should be made aware of this additional benefit for their personal tax planning.
  1. SALT Deduction Cap:
  • Change: The State and Local Tax (SALT) deduction cap is increased from $10,000 to $40,000 for single filers and married couples filing jointly.
  • Duration: This increased cap is in effect from January 1, 2025, to December 31, 2029.
  • Action for TYS Clients: This is a crucial detail for clients in high-tax states. It will have a direct impact on their personal tax liability when they file their 2025 returns.
  1. Qualified Small Business Stock (QSBS):
  • Enhanced Benefits: For stock issued after July 4, 2025, the new law increases the maximum gain exclusion to the greater of $15 million or 10 times the stock’s basis (up from $10 million). It also reduces the holding period required for a full exclusion, with partial exclusions now available after three and four years.
  • Increased Asset Limit: The gross asset threshold to be considered a Qualified Small Business has been increased from $50 million to $75 million.
  • Action for TYS Clients: This is a key development for business owners and investors. While not a payroll-related item, it is a critical tax planning consideration for any client involved in private companies.
  1. Bonus Depreciation and Section 179:
  • Bonus Depreciation: The law permanently extends the 100% bonus depreciation deduction, which was scheduled to be reduced.
  • Section 179: The maximum Section 179 deduction is increased to $2,500,000 for property placed in service after December 31, 2024.
  • Action for TYS Clients: Businesses considering new equipment or machinery purchases in 2025 should be aware of these enhanced deductions, as they can significantly impact their tax liability.

In summary, while the day-to-day payroll and reporting will not change for the rest of 2025, the new law has created substantial tax-planning opportunities and complexities that businesses should be aware of. It is essential for them to consult with one of our tax professionals to help you understand how these provisions will affect their 2025 tax returns. Contact us today.