New Deductions Await VA Taxpayers As Tax Season Opens

Virginia taxpayers will see several changes when they file their 2025 federal income tax returns, including a slew of new deductions that could increase the size of their refunds.

Tax season opens Monday, Jan. 26. The deadline to file federal returns is April 15. State returns for tax year 2025 are due in Virginia on May 1.

President Donald Trump signed the One Big Beautiful Bill Act on July 4, including new budget reconciliation deductions for older filers, an expanded child tax credit, car loan breaks, and deductions for tips and overtime pay.

The tax breaks are expected to increase the size of refunds from the 2025 average of $3,025, but it could take longer to hit taxpayers’ bank accounts due to historic staffing lows at the IRS.

Also important to know, the IRS is phasing out paper refund checks. Taxpayers who previously received a check must arrange for direct deposit before filing their returns.

Below are more things Virginia residents should know about filing their returns:

Standard Deductions And Tax Bracket

The standard deduction for the 2025 tax year is increased significantly due to inflation and a temporary 5 percent boost. It is now:

• $15,750 for single filers, a $1,150 jump from tax year 2024;
• $31,500 for married couples filing jointly, a $2,300 jump; and
• $23,625 for those filing as head of household, $1,725 jump.

The existing seven income brackets and rates (10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent) were made permanent. This provision of the Tax Cuts and Jobs Act of 2017 had been set to expire at the end of 2025.

Child Tax Credit

Families claiming the child tax credit face significant changes. Some families may lose eligibility because the Trump administration’s tightened requirements now mandate Social Security Numbers for taxpayers and their spouses, in addition to the children. This change makes an estimated 1 million children ineligible.

At the same time, the credit’s value increased to $2,200, a $200 increase from 2024, and income thresholds expanded to allow higher earners to claim it.

New Deduction For Older Taxpayers

Taxpayers who are 65 and older may qualify for an additional deduction of $6,000, or $12,000 for married couples if both spouses qualify. The deduction phases out for taxpayers with a modified adjusted gross income of $75,000 or more ($150,000 for joint filers).

This deduction, available to those who itemize and take the standard deduction, continues through tax year 2028.

To claim the deduction, use a new Schedule 1-A attachment to Form 1040.

Auto Loan Break

Taxpayers who financed a new, personal, U.S.-assembled vehicle last year can claim the new auto loan interest deduction, up to $10,000. This “above the line” deduction reduces adjusted gross income and does not require itemizing. It’s available through the 2028 tax year and is claimed using the new Schedule 1-A attachment to Form 1040.

Taxes On Tips And Overtime

Effective in tax year 2025 and continuing through 2028, eligible workers can deduct up to $25,000 in qualified tips, benefiting both itemizers and standard deduction filers.

Despite the name, the “no tax on tips deduction” doesn’t make tips entirely tax-free; tipped workers must still report tips and pay Social Security, Medicare, and applicable state/local taxes. The IRS and Treasury provided a proposed list of qualifying occupations.

Also continuing through tax year 2028 is an overtime deduction, allowing eligible workers to deduct the premium portion of overtime pay (the extra half of “time-and-a-half”) reported on W-2 and 1099 forms. The maximum deduction is $12,500 ($25,000 for joint filers) and phases out for taxpayers with modified adjusted gross incomes over $150,000 ($300,000 for joint filers).

To claim either deduction, use the new Schedule 1-A attachment to Form 1040. Employers must provide taxpayers with statements showing the amount of qualified overtime paid.

SALT Deduction For Itemizers

Taxpayers who itemize can take advantage of the SALT deduction and subtract a portion of their state and local taxes from their federal adjusted gross income and lower their overall tax obligation. The cap was temporarily increased to $40,000 for most filers, up from the previous $10,000 limit.

The deduction generally applies to state and local income taxes, real estate taxes and personal property taxes.

This temporary cap through tax year 2029 increases by 1 percent annually until it expires in 2030 and reverts back to the original $10,000 limit.

Often Overlooked Tax Credits

Taxpayers can reduce their tax bills with credits, but many miss out.

Intuit TurboTax’s Lisa Greene-Lewis notes that 1 in 5 people miss the Earned Income Tax Credit and the Retirement Saver's Credit. The earned income credit, for low- to moderate-income working individuals and families, can offer a significant refund — a family with three kids could get up to $8,046. To qualify, filers need earned income, a valid Social Security number, and must meet income limits.

Another often-missed saving is the enhanced adoption credit of up to $5,000. Other credits, like the clean vehicle and home energy credits, expired in 2025 but may still be claimed based on the purchase or modification date.

‘Trump Accounts’ For Babies

Taxpayers taking advantage of the so-called “Trump accounts for babies” must file IRS Form 4547 along with their 2025 returns to open accounts for children who are eligible for the $1,000 government deposit and tax-advantaged savings plan.

Eligible children in the initial year of the plan are those born between Jan. 1 and Dec. 31, 2025, who have a Social Security number. The one-time $1,000 government contribution will go into accounts in July, and parents or guardians can make additional contributions of up to $5,000 annually

Take A Deeper Dive

• Bigger Federal Tax Refunds Likely In 2026 As New Deductions Take Effect

• What To Know About ‘Trump Accounts For Babies’ Born In 2025