It's a common headline: A billionaire public petitions for higher taxes on the ultra-rich. Yet, you rarely see those same individuals cutting voluntary checks to the U.S. Treasury.

The American tax system isn't built for donations, but rather for taxable income, deductions and incentives. Even if a high-net-worth person sent money to the federal government, that extra cash would simply go toward the nation's $39 trillion national debt — without changing the donor's tax liability.

This disconnect is key, since it helps explain a broader frustration with the IRS tax code.

A recent Pew Research Center study finds that 60% of Americans believe wealthy individuals and corporations don't pay their "fair share" in taxes.

In response, some point out that high earners technically fund a large portion of federal income taxes, but they do so based on income rather than wealth. That difference means more of what makes the ultra-rich wealthy isn't taxed at ordinary rates. This gives wealthier individuals more flexibility to control which assets are taxed and for how much.

Here's how high-net-worth individuals leverage the tax code, who pay the most federal income taxes and what it means for your own income tax bill in 2026.

Why billionaires don't use the 'donation box'

You can't donate to the IRS since your tax bill is a legal obligation, not a charitable choice. You also can't pay another person's income taxes.

However, the U.S. Treasury Department maintains a program called Gifts to Reduce the Public Debt that receives donations to reduce the national debt.

• Since 1996, this program has received roughly $67 million in total donations.
• As of May 2026, the national debt stands at approximately $39 trillion.
• At current federal spending rates (PDF), that 30-year total of donations would fund the U.S. government for about 20 minutes.

As the high-net-worth advocacy group Patriotic Millionaires notes, individual gifts can't replace structural policy.

"A few wealthy people giving our money to the government wouldn't fund a massive investment in our country's infrastructure," the group stated in a release. "Our individual funds simply aren’t enough to make a difference."

Federal income taxes are the bedrock for multibillion-dollar programs such as the Supplemental Nutritional Assistance Program (SNAP), Medicaid and national defense. Since these obligations are generally permanent, they require dependable funds for which the government can budget.

Consistency is key. While the federal government isn't a charity, the importance of consistent revenue is shared with nonprofits.

"Recurring donations are vital to organizational growth and long-term sustainability," NextAfter (PDF), a fundraising research lab, reported in a recent benchmark study. "Not only do they bring consistency ... they also create longer-lasting and more valuable donors."

Who pays the most tax?

According to data from the National Taxpayers Union Foundation (NTUF), the current U.S. tax system is progressive. This means that, as taxable income increases, so does the percentage of federal income tax you pay.

In the most recent reporting cycle (updated April 2026):

What does this table mean? The top 1% earns about 20% of the nation's income, but pay nearly 40% of the taxes. The top 10% earn about 48% of U.S. income but pay about 70.5% of the annual federal income tax bill. Both groups' tax shares exceed their income shares.

It's important to note that the data only covers federal income tax. The table doesn't include payroll taxes (Social Security and Medicare) or state and local taxes, both of which disproportionately affect lower and middle-income earners more than high-income earners, as reported by the Institute on Taxation and Economic Policy (ITEP).

Meanwhile, the U.S. tax gap — the amount of federal taxes owed but not paid — remains a sticking point for your tax dollars. The IRS estimates this gap at roughly $600 billion, with a large share of unreported income coming from the top 1% of earners.

Closing the gap through enforcement on the top 1% alone could theoretically recover $163 billion, per recent Treasury estimates, far more than any donation program could achieve through voluntary checks to the government.

However, the funding levels for IRS enforcement have been a point of significant legislative debate in 2026, impacting how the agency addresses the tax gap and similar initiatives.

How the wealthy employ tax strategies

According to the Pew study, many Americans think some corporations and wealthy people don't pay their "fair share" in taxes. But if the top 10% of earners pay 70.5% of all federal income tax, why the disparity in perception?

Part of the answer lies in the source of income. Most Americans live on "earned income" (W-2 wages, 1099s, etc.), taxed at ordinary federal rates up to 37%, plus subject to payroll taxes such as Social Security and FICA.

But high-net-worth individuals often live on wealth that bypasses these taxes, utilizing a so-called "Buy, Borrow, Die" strategy:

1. Buy. They acquire appreciating assets (stocks, real estate, etc.).
2. Borrow. Instead of selling (which triggers capital gains tax rates), they take low-interest loans against those assets. Loans are not taxable income.
3. Die. Heirs receive the assets at a "stepped-up basis," meaning the capital gains built up over a lifetime are essentially erased for tax purposes.

High-wealth individuals might also make large donations to private foundations to allow for immediate deductions, employ business expense deductions and receive compensation through stock options or distributions (rather than salaries or wages) to further lower their income tax liability.

While these methods are theoretically available to all, unless you have significant capital to begin with, it's difficult to "break in" to the wealth-preservation strategies used by high-net-worth individuals.

Note: These strategies involve significant legal and liquidity risks and are not one-size-fits-all solutions.

The bottom line: Ways to lower your tax bill

Although the average taxpayer might not be able to live off loans against a billion-dollar stock portfolio, you can still move the needle on your own "tax gap" by using the IRS code's intended incentives.

Here are a few ideas for lowering your income taxes (if you're eligible):

• Audit your "voluntary" overpayment. If you're getting a massive refund every year, you're essentially giving the IRS an interest-free loan. Adjusting your tax withholding ensures your money stays in your pocket for investment throughout the year.
• Create your own "tax-free" bucket. You might not have a private foundation, but traditional 401(k)s or individual retirement accounts (IRAs) allow you to shield income from the IRS today. By using pre-tax dollars, you're effectively lowering your taxable income and withdrawing those funds at perhaps a lower rate during retirement.
• Prune your portfolio. Use tax-loss harvesting to offset capital gains with losses (just be mindful of the "wash-sale" rule, which disallows the loss if you buy the same or a "substantially identical" asset within 30 days). Keep an eye on the calendar: Assets held for more than one year qualify for long-term capital gains rates, which, at 0%, 15%, or 20%, are significantly lower than the ordinary income rates applied to short-term gains.

If you're feeling generous …

Starting this year, new charitable deduction rules take effect. Up to $1,000 ($2,000 for married filing jointly couples) in qualified cash donations can be deductible on your federal return, even if you claim the standard deduction.

But whether you send that check to the Treasury to fund a millisecond of federal overhead — or provide thousands of meals at a qualified food bank — the choice is yours. We can't all be billionaires.

This article is for informational purposes only and does not constitute professional tax or financial advice. Tax laws are subject to change and vary by individual circumstances. Consult with a qualified tax professional regarding your specific situation.

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The 2026 FIFA World Cup kicks off this month with a projected record $150 billion in total wagers — driven largely by millions of first-time bettors.

But while new fans may be studying brackets, a different kind of scoreboard lurks off the field: shifts in federal tax law. Under the newly enacted 90% limit on gambling loss deductions, even fans who finish the tournament break-even could face an unexpected bill from the IRS.

Here is how the new "phantom income" tax works, how a surge of casual players will shift the betting lines, and what you need to track to protect your bankroll.

How first-time bettors shift World Cup odds

Favorable match times for the North American audience, a new 48-team format (up from 32), and unprecedented expansion of legal mobile betting platforms have led to a surge in casual U.S. World Cup bettors for 2026.

According to a survey commissioned by the global payment platform Paysafe, 29% of U.S. bettors are gambling for the first time, and about 60% of global fans plan to wager on the World Cup (where betting is legal).

The influx of new bettors is expected to shift World Cup odds as casual fans usually bet on popular, well-known teams. To protect themselves from losing too much money on favored team wins, sportsbooks will employ various methods, like making these favorite bets less rewarding.

So if you are placing your first wagers, keep your eye on three distinct market trends driven by fellow casual fans:

• Overpriced favorites. New bettors love to wager on household names like France and Spain, which can shorten the odds. This means you have to risk more to win less. Evaluate whether those odds offer actual value compared to the team's true probability of winning.
• The "over" bias. Casual fans tend to bet on high-scoring games because rooting for goals is more fun than rooting for a defensive match. This bias artificially drives up the line for the total number of goals expected, making "under" bets a potential value area. Look for defensive matchups or games with poor weather conditions where total points or goals have been driven up.
• Platform slowdowns. High volumes of bettors could lead to slowdowns in online sports betting performances, including app downtime. If you're placing a time-sensitive bet, try using cellular data, force-closing background apps, or switching to a desktop browser for optimal operational efficiency.

Data was aggregated from online sportsbooks like DraftKings and FanDuel as of June 2026. Check the websites for the most up-to-date information.

New tax rules: The 'phantom income' trap

In addition to more bettors than ever, the next biggest danger for a casual 2026 World Cup bet might just be the newly updated IRS rule governing gambling losses.

That's because historical bets allowed you to deduct your losses against your winnings to owe $0 in federal taxes (assuming you itemized).

In the 2026 tax year, however, federal law caps gambling loss deductions at just 90% of your total winnings, creating what tax experts call taxable "phantom income."

How does it work? Let's say you have a rollercoaster World Cup: you win $3,000 on the group stages but lose $4,000 on the finals.

• Winnings: $3,000
• Deductible losses: $2,700 (90% of your $3,000 win)
• Taxable income: $300

Even though you're down $1,000 in cash, the IRS sees $300 in income. This amount is taxed at ordinary rates (10% to 37%), meaning you're paying the government for the privilege of losing money.

Here's the real kicker: If you take the standard deduction — like roughly 90% of Americans do — you can't deduct any losses. You would be legally required to report and pay taxes on the full $3,000 in winnings, and swallow the $4,000 loss out of pocket.

Reporting rules and the $2,000 threshold

It's also a common misconception among first-time bettors that if you don't receive an official tax form from a sportsbook, you don't owe taxes.

That's not true. Although the IRS recently raised the automatic reporting threshold for sportsbooks from $600 to $2,000 (provided the winnings are at least 300 times the wager), federal law still requires you to self-report every dollar of gambling income, regardless of the amount.

So help protect yourself from a tax audit red flag this season by:

1. Tracking every wager. Maintain a clear, chronological log of every single slip, date, stake, and payout.
2. Separating your sessions. The IRS calculates wins and losses by individual betting "sessions," not your total net account balance at the end of the summer.
3. Keeping digital receipts. Do not rely on your sports betting app to keep your records forever; download your detailed betting history statements monthly.

Also, keep in mind state tax rules. Even though the federal threshold is $2,000, states like Connecticut or Ohio often trigger reporting at just $600. At the same time, if you're betting in "income tax-free" states like Tennessee, you'll likely dodge the state gambling taxes (though rules governing what counts as "legal sports betting" may apply).

And in some states, like California and Alabama, online gambling is illegal. So check your local rules before placing a bet.

Do I have to pay tax on away bets?

If you place an "away bet" — whether in a different state or abroad — you're generally subject to the gambling and tax laws of the location where your wager is physically processed. This can look different depending on where you are, for example:

• Traveling state-to-state: New Jersey (host of the World Cup Final at MetLife Stadium) is highly sports-bet-friendly, but it taxes all forms of mobile and in-person betting. Meanwhile, Washington state does not tax gambling winnings at all, but state law completely bans mobile sports betting, meaning you can only wager in person at Tribal casinos.
• Crossing the border: If you are traveling to catch matches in Mexico or Canada, your U.S. mobile betting apps' "confirm bet" button probably won't work. State regulations require sportsbooks to use strict geolocation tracking, meaning your account will not allow a new bet the moment you cross the border. To wager internationally, you must follow that country's local rules and still report any winnings to the IRS.

The bottom line

Enjoying the 2026 World Cup tournament doesn't have to mean compromising your finances. By maintaining a clean log of your wagers and treating every betting slip as a financial document, you can safely navigate the IRS's new 2026 playbook and ensure an unexpected tax bill doesn't ruin your season.

So stay safe, have fun, and keep the drama on the field, not on your Form 1040.

The information provided in this article is for educational and informational purposes only and does not constitute legal, financial, or tax advice. Wagering decisions are made at the sole discretion of the reader. Consult a qualified tax advisor or certified professional before making financial commitments.

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As we approach the 2026 mid-term elections and the close of a historic tax season, some lawmakers are already pivoting toward new tax relief proposals. Two plans in particular are designed to provide income tax cuts for low- and middle-income households by raising taxes on high earners.

Sen. Cory Booker (D-NJ) recently introduced a plan to almost triple the federal standard deduction to $75,000.

Regarding the proposal, Booker said in a release, "This tax cut would immediately put more money in your pocket every month to deal with the high price of everyday expenses, an unexpected emergency, or to plan for the future."

Meanwhile, Sen. Chris Van Hollen (D-MD) has co-sponsored a plan to exempt up to $92,000 from federal income taxes.

"Far too many Americans are working hard for their paychecks but still having trouble making ends meet," Van Hollen stated in a release about the proposal.

But who actually benefits from these tax-free income proposals, and who would ultimately pick up the tab? Here's what to know.

Cory Booker's no tax on income proposal

Sen. Booker proposed the "Keep Your Pay Act" earlier this month, which would significantly increase the federal standard deduction.

Under Booker's plan, married couples filing jointly would see their 2026 standard deduction rise from $32,200 to $75,000, while single filers would receive a $37,500 deduction (up from $16,100).

Beyond the deduction hike, Booker's plan targets family tax relief:

• Enhanced child tax credit (CTC): Worth up to $4,320 for children under age six and $3,600 for those aged 6 to 17 (up from the current CTC of $2,200).
• Newborn bonus: A new CTC boost of up to $2,400 for the year a child is born.
• Earned income tax credit (EITC) expansion: Tripling the EITC for childless workers (from about $660 to $1,500) by increasing the phase-in and phase-out rates. The proposal also expands the credit eligibility to those 19 and older (removing the age 25-64 restrictions).

To offset these cuts, the Booker proposal shifts the tax burden toward the highest earners and corporations. The plan would:

• Raise the top individual federal tax rates by increasing the 35% and 37% brackets to 41% and 43%, respectively.
• Increase the corporate income tax rate and the stock buyback excise tax rate (specifics have not been announced).

"Americans are working harder and harder, and they're making less and less relative to their parents and grandparents," Booker told NBC News. "....We need big ideas that could redeem the dream of America."

But Booker's proposal isn't the only "big idea" on the table. Another co-sponsored plan seeks to exempt up to $92,00 for the average American worker.

Chris Van Hollen tax plan

Sen. Van Hollen and Rep. Don Beyer (D-VA) have introduced a competing vision for tax relief: the "Working Americans' Tax Cut Act" (WATCA). Instead of creating a higher standard deduction, this plan proposes a new "alternative maximum tax" system.

Under WATCA, the first $46,000 of income for single filers ($92,000 for married couples filing jointly) would be entirely exempt from federal income tax. To qualify, a taxpayer's income would have to be 175% or less of the exemption amount (roughly $80,500 for individuals or $161,000 for couples, per the Penn Wharton Budget Model).

Qualified taxpayers would then calculate their tax bill in two ways and pay whichever is lower:

1. The current federal income tax code.
2. A flat 25.5% rate applied only to adjusted gross income (AGI) above the $46,000 or $92,000 threshold.

Van Hollen proposes a tiered surtax on high earners to ensure the legislation is "fully paid for."

• 5% surtax on incomes above $1 million (or $1.5 million for joint filers),
• 10% surtax on incomes above $2 million (or $3 million for joint filers),
• 12% surtax on incomes above $5 million ($7.5 million for joint filers).

"[The proposal] avoids raising the national debt," Hollen stated in a press release regarding the surtax, "by ensuring the wealthiest pay their fair share."

However, some argue that an enhanced standard deduction provides the most tax relief for middle- and upper-middle-class, since the poorest households often have little federal income tax liability to begin with. Plus, both proposals might be too expensive to implement.

Who would pay lower taxes on 'tax-free' income?

According to Sen. Booker's office, the "median American family would see their taxes cut by roughly 85%." However, a Tax Foundation analysis reveals a massive shift in the federal tax burden from lower-income families to high-net-worth individuals.

Under Booker's plan:

• The top 1% of earners would see an average federal tax increase of $23,050 to $196,183.
• The lowest-income earners (those earning $18,461 or less) would receive the largest tax savings percentage at 11.4%, or $1,257 in after-tax income.
• But those with income between $135,756 and $196,530 would see the largest dollar amount of tax savings, around $6,656.

Meanwhile, under the Van Hollen plan:

• The top 1% of earners could see up to 9.7% increase in their federal income tax bill, hiking taxes by as much as $688,773.
• The largest share of relief (dollar amount and percentage) would target those earning between $40,036 and $76,868, with an average tax savings of $2,273.
• The bottom 20% of earners would receive only a $12 increase in tax savings, or .10%.

While both plans target income tax relief, their differing potential impacts on the national debt have raised concerns over long-term fiscal stability, according to recent projections from The Budget Lab at Yale and the Institute on Taxation and Economic Policy (ITEP).

• The Van Hollen plan is projected to lose at least $100 billion in revenue annually, according to ITEP.
• The Booker plan could result in a $5.4 trillion loss over 10 years, or 540 billion per year, according to Yale.

Furthermore, the Tax Foundation warns that the high marginal rates required to fund these cuts could negatively impact long-run GDP by discouraging investment and reducing labor supply.

Bottom line: Tax-free income in 2026?

With a GOP-controlled Congress and a high price tag — particularly for Sen. Booker's plan — most analysts expect these proposals to stall before reaching a floor vote. However, with mid-term elections coming this November, these "tax-free income" platforms may offer an early look at future economic priorities.

So this may only be the beginning of debates to come. A flurry of competing tax proposals could emerge this spring when Congress reconvenes after spring break. Stay tuned.

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Contrary to what some might believe, retirement doesn’t automatically shrink your tax bill. That's because income sources, such as required withdrawals, Social Security benefits and investment gains, can quietly push you into higher federal tax brackets.

Understanding these and other retirement tax traps can help you avoid surprises in 2026 and make your retirement dollars go further. Let's dive in.

Retirement Tax Traps to Know

1. Required minimum distributions (RMDs)

Starting at age 73, retirees must take required minimum distributions (RMDs) from traditional IRAs and 401(k)s. Missing an RMD or withdrawing the wrong amount can trigger a penalty of up to 25%.

Under the SECURE 2.0 Act, that penalty can drop to 10% if the mistake is corrected in a timely manner using IRS Form 5329. Large withdrawals can also push other income into higher tax brackets.

RMD key points:

• RMDs are calculated based on your account balance and IRS life expectancy tables.
• Each account has its own RMD, so multiple accounts require separate calculations.
• Even small miscalculations can cost thousands of dollars.

Example:

Imagine a retiree with a $400,000 IRA whose RMD for the year is $15,000. If they fail to withdraw it on time, the penalty could be $3,750 (25% of the RMD). By correcting it quickly, that penalty drops to $1,500, saving $2,250 — all without changing their overall retirement plan.

Tax tip. Plan withdrawals strategically. Splitting RMDs across multiple accounts or timing them in lower-income years can help manage your tax burden. Always correct any missed RMDs promptly to minimize IRS penalties.

2. Social Security benefits and how they're taxed

Up to 85% of Social Security benefits might be taxable depending on your "combined income." Other retirement income, such as IRA withdrawals, pensions or investment dividends, increases that amount, which can make more of your Social Security subject to federal income tax.

Key points about taxes on SS benefits:

• Combined income equals AGI plus nontaxable interest plus half of Social Security benefits.
• Even a modest 401(k) withdrawal could push you from 50% to 85% of your benefits being taxable.

Example:

Suppose a single retiree receives $20,000 in Social Security and $15,000 from IRA withdrawals. Their provisional income would be $20,000 divided by 2 plus $15,000 equals $25,000, putting 50% of their Social Security benefits into taxable income. If they withdraw $10,000 more from their IRA, their provisional income rises to $30,000, and up to 85% of benefits could become taxable.

Tax tip. Monitor your combined income. Consider timing withdrawals from taxable accounts to reduce the taxable portion of your benefits.

Note: You might have heard that the Trump/GOP 2025 tax and spending bill eliminates taxes on Social Security benefits. It does not. (The new law doesn't change the Social Security benefit tax formula or the IRS "combined income" thresholds.)

But the 2025 Trump tax bill contains a new tax deduction for older adults.

Senior Bonus Deduction key points:

• Beginning with the 2025 tax year, retirees age 65-plus might be eligible for a “senior bonus” deduction of up to $6,000 ($12,000 for joint filers).
• That's even if they take the standard deduction or itemize.
• You must have a valid Social Security Number to claim the credit.

The new deduction can lower taxable income and thereby potentially reduce the portion of Social Security benefits subject to federal income tax. However, the benefit phases out for higher earners.

For more information, see our report: How the $6,000 Senior Bonus Deduction Works.

3. Taxes on investment gains and dividends in retirement

Even in retirement, sales of stocks, bonds and mutual funds can trigger capital gains taxes. Long-term gains are taxed at 0%, 15%, or 20%, depending on income. Additionally, the net investment income tax (NIIT) of 3.8% can apply to higher earners. Dividends are also taxed differently depending on whether they are qualified.

Key points on capital gains taxes in retirement:

• Capital gains rate thresholds are indexed for inflation each year. Knowing those thresholds can help you time investment sales.
• Tax-loss harvesting or strategic sales in lower-income years can help reduce taxable gains.

Example:

A retiree sells $50,000 worth of stock gains in a year with little other income and pays 0% long-term capital gains tax. In a year with higher withdrawals or pensions, that same $50,000 could be taxed at 15% or higher.

Tax tip. Harvest gains in lower-income years or use tax-loss harvesting to offset taxable gains.

4. How much the IRS takes from your pension or annuity

Most pension payments are taxable as ordinary income. With annuities, the portion representing earnings (not principal) is taxed. Large pension payouts or annuity distributions can unexpectedly push you into a higher tax bracket, affecting other income sources such as your Social Security benefits.

Key points on annuity and pension income tax in retirement:

• Some states also tax pension income.
• Stacking multiple pension or annuity payments, without planning, can create a surprise tax burden.

Example:

Retirees receiving a $40,000 annual pension and $20,000 in IRA withdrawals could find themselves in a higher federal bracket than expected, causing a larger portion of Social Security benefits to become taxable.

Tax tip. If you have multiple income streams, consider staggering distributions to avoid stacking taxable income.

5️. State taxes on retirement income

Relatively few states are truly tax‑friendly on all types of retirement income. Many either tax pensions and IRA withdrawals or offer partial tax breaks on retirement income. Even small changes in residency can affect your taxes.

Key points on state retirement taxes:

• State taxes on retirement income can add thousands in extra costs.
• Rules vary by state and income type. For example, some states might tax pensions but not Social Security, or vice versa.

Example:

Some retirees move from low- or no-income-tax states such as Texas or Florida to higher-tax states to be closer to family or for lifestyle reasons. For instance, a retiree relocating from Florida to North Carolina might find that their IRA and pension withdrawals are now fully taxable, while Social Security remains fully exempt. That could add anywhere from $5,000 to $10,000 or more in state taxes annually, even though their federal tax situation hasn’t changed.

Tax tip. Before relocating, research both federal and state tax implications of your retirement income. A tax-friendly move can protect more of your nest egg, while an overlooked state rule can create unexpected costs.

To learn more, see our guide: Retirement Taxes: How All 50 States Tax Retirees.

Retirement taxes: Bottom line

Even routine distributions and benefits can carry tax consequences. For retirees, monitoring RMDs, Social Security, investment income, pensions and new state tax rules now can help you avoid surprises at tax time.

To stay ahead of the curve, review your expected income streams, plan withdrawals strategically, and consult a tax professional to optimize your retirement tax strategy.

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Every year, the Super Bowl becomes the biggest night for sports betting in the United States as wagers are placed across states and platforms. And this year is no different.

The American Gaming Association estimated that more than $1.76 billion would legally wager on the 2026 NFL championship, in which the Seattle Seahawks defeated the New England Patriots, 29-13.

“No single event brings fans together like the Super Bowl, and this record figure shows just how much Americans enjoy sports betting as part of the experience,” Bill Miller, AGA President and CEO, stated in a release about the big game.

But for 2026, the Super Bowl arrived alongside notable changes to how gambling winnings and losses are taxed, which could impact tax bills even for fans who just break even on the big game. Here's more to know.

Gambling winnings still count as taxable income

Under long-standing IRS tax rules, all gambling winnings, including sports bets, are taxable as ordinary income at the federal level.

• Yes, if you won on a Super Bowl or other bet through a legal sportsbook (like DraftKings, FanDuel, BetMGM, etc.), those winnings must be reported on your federal income tax return.
• For larger wins — typically over $600 — the sportsbook will issue a Form W-2G reporting your gambling income, and may even withhold taxes at the time of your payout.

State income taxes may also apply if you live in (or place the bet in) a state that taxes personal income. So your total tax bill is impacted by both federal and state obligations.

Gambling loss deduction change in 2025 Trump tax bill

One key change from the 2025 federal tax overhaul (informally known as President Donald Trump's "big beautiful bill") is this: For 2026, you can now deduct at most 90% of your gambling losses against winnings on your federal return, instead of the historical 100%.

This may sound minor, but it can create what tax experts call “phantom income” — taxable income that doesn’t reflect actual net gambling gains.

• Under the old rule (which applies to the 2025 tax returns you're filing now in tax season 2026), if you won $10,000 over the year but also lost $10,000, your net would be zero, so no tax on your gambling winnings.
• Under the new 2026 gambling loss limit, you could only deduct $9,000 of your losses against that $10,000. That essentially means $1,000 of theoretical income becomes taxable, even though you didn’t profit overall.

That extra taxable income is subject to your ordinary federal income tax rates, which range from 10 % to 37 % federally, depending on income level.

This change takes effect for tax year 2026 and beyond, meaning bettors who file their 2026 return in spring 2027 will feel the full effects.

Note: Though, as Kiplinger has reported, some lawmakers and industry leaders are looking to reverse the new gambling winnings rule. So, stay tuned.

Itemizing deductions still matters

Remember that gambling losses are deductible only if you itemize deductions on your tax return (using Schedule A).

But…most U.S. taxpayers take the standard deduction, which is higher than ever before but means no deduction for gambling losses. So, as mentioned, if you don't itemize, every dollar you win counts as taxable income regardless of losses.

State gambling tax changes

In addition to federal changes, some state and local governments are adjusting how they tax sports betting revenue. For example:

• Last year, Maryland raised its sports betting tax rates on operators. Some argue this could shrink profit margins and potentially influence odds or promotions
• As of January 1, 2026, Illinois has layered surcharges and progressive tax brackets on sportsbook revenue, and Chicago is enacting a city-level tax on betting revenue.
• Colorado is phasing out and will eventually eliminate its tax deductions for "free bets," meaning operators will pay more tax on gross gaming revenue over time.
• Several other states like Wyoming, Ohio, and North Carolina, have considered tax increases or structural changes to sports betting taxes.

Higher tax rates on operators are sometimes passed through to bettors in the form of reduced payout percentages, fewer free-to-play credits, or steeper early cash-out fees.

Super Bowl 2026 bet strategy: Plan ahead for taxes

With the Super Bowl wrapped and dollars on the line in potential winnings, the hype and excitement are real, but so are the tax implications:

• Know your obligation: Even small winnings are taxable; your friendly sportsbook issuing or not issuing a tax form doesn’t change your duty to report.
• Track wins and losses meticulously: If you itemize, good record-keeping is key to maximizing your deductible losses — capped at 90 % for gambling losses as of 2026.
• Anticipate “phantom income”: This year, it’s possible to owe tax even without a net profit.
• Watch for law changes: Local and state legislatures are actively revising sports betting tax codes, and the Trump administration could look to reverse the gambling loss limits enacted in its 2025 tax bill.

How much gambling winnings are taxable: Bottom Line

Unless Congress acts, new federal tax changes might reduce how much of your losses you can write off next tax season, which could affect your tax bill if you’re a big winner or even a breakeven bettor.

When layered with evolving state and local tax rules, your tax return next year could be as dramatic as this year's game.

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• What's Changed in the New Trump Tax Bill?

If you provide financial help to family, friends, or others — whether paying tuition, covering medical bills, or sending money through an app — you might be wondering about possible IRS or tax implications.

But here’s some good news: most people will never come close to exceeding the lifetime estate and gift tax exemption, which, due to the new 2025 Trump/GOP tax law, will remain extraordinarily high for the average household.

And even before you’d ever get anywhere near that limit, the IRS has several categories of financial gifts that don’t count toward annual gift tax limits, as long as they meet specific requirements — no matter how much you give.

These IRS exceptions can be more generous than many people realize. But before we dive into which gifts the IRS treats as tax-free, it helps to know a little bit about the federal gift tax.

Federal gift tax: Rules to know

The federal gift tax applies when you transfer money or property to someone without receiving something of equal value in return. But even then, the IRS gift tax rules sound scarier than they actually are.

A key rule is that the giver is responsible for any tax, not the recipient. But most people never owe any gift tax because of two protections: the annual gift tax exclusion and the lifetime estate and gift tax exemption.

How much can you give tax-free in 2026?

The main number to know is the annual gift tax exclusion, sometimes called the gift tax limit. Gifts at or below this amount per recipient, per year, do not require a gift tax return and don't use any of your lifetime exemption.

• The annual gift tax exclusion for 2026 is $19,000 per recipient, no change from last year's limit.
• Individuals can give up to $19,000 to any number of people in 2026 without triggering gift tax reporting requirements.
• Married couples can effectively double this amount to $38,000 per recipient.

Besides the gift tax limit, some special categories allow you to give unlimited amounts without touching your annual exclusion or lifetime exemption. Some people use these rules for estate planning. Others use them to help loved ones more efficiently. Either way, knowing the exceptions can make a difference.

Here they are.

1. Tuition gift tax exclusion

The IRS allows you to pay an unlimited amount of someone’s tuition as long as you pay it directly to a qualified educational organization. This only applies to tuition at a qualified educational organization (e.g., many private schools, colleges, trade programs, and graduate programs).

You can combine this with the standard annual gift tax exclusion.

• For example, you could pay a grandchild’s $30,000 tuition bill directly to their college and still give them an additional $19,000 (or whatever the annual exclusion is for that year) for books or living expenses.
• You can also combine unlimited tuition payments and gift-splitting if you are married.
• So a married couple could each pay unlimited tuition for someone and also each gift the annual exclusion amount without worrying about tax reporting.

What doesn’t qualify? Reimbursing tuition or giving the student money to pay the bill doesn't meet the exception requirement. To keep it non-taxable, the tuition payment must go directly to the qualified educational institution. Also, this exclusion applies only to tuition, not to other college expenses like room, board, books, fees, or supplies.

2. Medical expenses gift tax

If you pay someone’s medical bills directly to the provider or insurer, those payments are considered nontaxable gifts, no matter the amount.

However, the expenses must qualify as deductible medical expenses under IRS rules. This can include hospital bills, surgeries, dental procedures, long-term care, insurance premiums (e.g., health, long-term care, and specific Medicare plans), and more.

So, it can exclude costs that are not typically considered qualified medical expenses, like those for:

• some purely cosmetic procedures
• general health or wellness programs
• non-prescription drugs (with limited exceptions) and
• elective procedures not tied to a medical condition.

But just like with tuition, who you pay matters. Paying the bill directly to the hospital, doctor, or insurer doesn't trigger a tax concern. But handing someone money and asking them to pay the bill, or reimbursing them after they pay, is treated as a regular gift and counts toward your annual exclusion.

3. Are gifts to a spouse taxable?

When your spouse is a U.S. citizen, gifts between spouses are considered unlimited and tax-free due to what is known as the "unlimited marital deduction." That provision treats a married couple as a single economic unit for federal estate and gift tax purposes

Larger transfers, like adding a spouse to a home deed or gifting investments, are generally still considered nontaxable gifts. However, it’s often a good idea to keep documentation in case you need it later, since in some cases involving a non-citizen spouse, the transfer might be reportable on your tax return.

If your spouse is not a U.S. citizen, the IRS sets a separate, larger annual noncitizen spouse exclusion limit for them ($190,000 for 2026), which is indexed for inflation. (If you exceed that limit, filing Form 709 is required.)

4. Donations to qualified charities

Gifts to IRS-recognized charities (qualified 501(c)(3) organizations) are not subject to gift tax, and they generally don’t require filing Form 709. They may also be deductible on your income tax return if you itemize and stay within the IRS percentage-of-adjusted gross income (AGI) limits for your type of donation.

This rule applies only to legitimate charitable organizations, not to individuals or non-charitable nonprofits.

For example, donating to an IRS-recognized medical charity would be tax-free for gift-tax purposes. But sending money to a friend’s personal fundraiser or GoFundMe is treated as a regular gift and would count toward your annual exclusion.

Gifts to other types of nonprofits, like 501(c)(4) or 501(c)(6) groups, generally don't qualify as charitable gifts for income-tax purposes and may be treated as taxable gifts.

5. Political contributions

Many people don’t realize that political contributions are exempt from gift tax.

Donations to qualified political organizations, like registered campaign committees, political parties, and PACs that meet IRS requirements, are not treated as gifts and do not require filing Form 709.

However, political contributions are not tax-deductible for income tax purposes, and donations made directly to individuals rather than to a qualified organization do not qualify for this exemption.

How the annual gift tax exclusion works

Outside of these special categories, as mentioned, the annual gift tax exclusion and lifetime exemption protect most everyday gifts from tax.

Even when you exceed the annual exclusion with a taxable gift, actual gift tax is rare because you can apply part of your lifetime unified gift and estate tax exemption before any tax is due.

Still, non-excluded gifts that exceed the threshold require filing a gift tax return, which is why steering big checks into one of the five nontaxable categories can be valuable for some.​

When you might need to file Form 709

If you give more than the annual exclusion amount to any one person in a single year and it doesn’t fall under one of the exceptions, you may need to file Form 709.

But remember: filing doesn’t mean you'll owe tax on the gift. It keeps track of how much of your lifetime exemption you’ve used.

So, if you're paying for someone’s groceries, contributing to rent, helping with a car repair, or giving holiday or birthday gifts, those expenses rarely come close to the IRS threshold.

Also worth noting: Merely sending money via payment apps like Zelle, Venmo, or Cash App, for example, doesn’t make a transaction taxable. Whether the money involved is taxable in the eyes of the IRS depends on the nature of the underlying transaction.

Read More

• What is the Estate Tax Exemption for 2026?
• Here's What's in the 2025 Trump Tax Overhaul
• Gift Tax Exclusion for 2026: What to Know
• Gifting for a Wedding or Graduation? See if You Know IRS Tax Rules

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she's looking at five questions on the gain exclusion tax break when you sell your home. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Will my home sale be taxed?

Question: My husband and I are thinking of selling our home next year that we have owned for many years. Will the gain be taxed?

Joy Taylor: It depends. Generally, if you have owned and lived in your main home for at least two out of the five years before the sale date, up to $250,000 ($500,000 for joint filers) of your gain when you sell the home is tax-free. Any gain above the $250,000/$500,000 exclusion amounts is taxed at long-term capital gains rates of 0%, 15% or 20%, depending on the amount of your taxable income. Losses from sales of primary homes are not deductible.

Here are a couple of examples to illustrate the rule. Say you bought your home in 1995, have a tax basis of $250,000, and are selling the home for $650,000. The entire $400,000 gain is tax-free since you are filing a joint return. Let's now take the same example, but instead of selling the home for $650,000, you sell it for $900,000. Since you are married and, provided you file a joint return, the first $500,000 of the gain is tax-free, and the remaining $150,000 is taxed at long-term capital gains rates.

2. What if I change jobs and sell my home early?

Question: I am married, and I bought my home 14 months ago. My company is relocating, and I must move out of state for work. I plan to sell the home next month. Can I exclude any gain from the home sale?

Joy Taylor: In your case, you don't meet the two-out-of-five-year ownership and use periods to qualify for the full $500,000 gain exclusion for joint filers. However, you are not out of luck. Some people who sell a home early may still be eligible for a portion of the exclusion, depending on the circumstances.

For example, early sales due to job changes, illness or unforeseen circumstances qualify for the partial exclusion. The percentage of the $250,000 or $500,000 gain exclusion that can be taken is equal to the portion of the two-year period that you used the home as a residence. You can use days or months for this calculation.

For example, say you bought your home for $740,000 in September 2024 and you sell it for $790,000 in December 2025 because of your out-of-state job move. The maximum gain exclusion in this instance is $312,500 ($500,000 x (15/24)). So, your $50,000 gain would be fully excluded from income and would be tax-free.

3. What if my unmarried partner and I jointly own a home?

Question: My partner and I own our primary residence together and have lived here for 10 years. We plan to sell it next year. We aren't married and file our taxes separately as single filers.

When we sell the home, can each of us claim a $250,000 gain exclusion? And since there is lots of appreciation in the home since we bought it, are we allowed to split the remaining taxable gain so that we each pay capital gains tax on half of the amount?

Joy Taylor: Since your partner and you would have each owned and used the home as your primary residence for at least two out of the five years before the sale date, then each of you would qualify for the $250,000 home-sale exclusion. Any excess capital gain would be split between you. Each of you on your single-filed tax returns would report your share of the selling price and tax basis in your home to arrive at gain.

Here is a simple example. Say you sell your home for $1.5 million next year, and you have a total tax basis in the home of $200,000. Each of you would calculate your separate gain based on 50% of these figures. On your single-filed tax return, you would calculate gain before the home-sale exclusion of $650,000 ($750,000 sale price - $100,000 tax basis). Your taxable gain is $400,000 ($650,000 total gain - $250,000 home-sale exclusion). You would then report the $400,000 long-term capital gain on your Form 1040. You would use IRS Form 8949 to calculate the taxable gain and transfer the amount to Schedule D of your Form 1040. Your partner would do the same thing on his or her single-filed tax return.

4. Will Congress make all home-sale gains tax-free?

Question: Someone told me there is a congressional proposal in the House to make all gain on home sales tax-free. Is this true, and if so, do you think it will pass?

Joy Taylor: Some Republican lawmakers advocate making the full gain on home sales tax-free. House Representative Marjorie Taylor Greene (R-Ga) has introduced a bill, the "No Tax on Home Sales Act," to end the tax on sales of primary homes, saying her proposal would lead to increased housing supply. And President Trump has chimed in, saying he would be open to ending the tax on home sales.

This idea might sound wonderful, but I don't think it will come to fruition. The proposal would be very expensive and would mainly benefit upper-income individuals.

A more feasible option is a one-time increase in the current $250,000/$500,000 gain-exclusion amounts. Another potential alternative is to annually index the gain-exclusion amounts to inflation. The $250,000 and $500,000 figures have never been adjusted for the appreciation in residential real estate during the 28 years this popular tax break has been in effect. Both alternatives would require congressional action.

5. What is my gain exclusion if I sell my house after my husband dies?

Question: My husband and I jointly owned our home together for many years. He died last year, and I plan to sell my home in 2026. How much of my gain will be nontaxable?

Joy Taylor: If you sell the home in 2026, your home-sale exclusion would be $500,000. A spouse who sells the family home within two years after the death of the other spouse gets the full $500,000 exclusion that is generally available only to joint filers, provided the two-out-of-five-year use and ownership tests were met before death.

There is also a welcome added tax benefit since you owned the home jointly with your spouse. If you don't live in a community property state, half the home will get a step-up in tax basis upon the death of the first-to-die spouse. The rule is more generous if the house is held as community property. The entire tax basis is stepped up to fair market value when the first spouse dies.

Here's an example. Let's say you and your husband bought your home for $150,000 many years ago in a non-community property state, and it was worth $980,000 when your husband died in 2024. Your tax basis in the home jumps to $565,000 (your half of the original $150,000 cost basis plus half of your husband’s $980,000 date-of-death value). Twenty months later, you sell the home for $1,085,000. Of the $520,000 gain from the home sale ($1,085,000 - $565,000), $500,000 is tax-free and $20,000 is taxed at long-term capital gains rates.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, IRAs and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

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• Ask the Editor: What Medical Expenses are Deductible?
• Ask the Editor: Questions on the New Tips Deduction
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The Social Security Administration (SSA) just announced two key updates for 2026: the new cost-of-living adjustment (COLA) and the updated Social Security tax wage base.

You’ve probably heard a lot about the COLA, but fewer people realize there’s a cap on how much of your earnings are subject to the Social Security payroll tax. This “wage base" (also known as the Social Security tax limit or wage cap) sets the maximum amount of income that can be taxed to help fund the program each year.

That's important since payroll taxes help fund Social Security, which more than 68 million Americans rely on for retirement, disability, or survivor benefits.

But the higher the wage cap, the more income is taxed, which particularly affects higher earners.

Here’s how that limit is changing for 2026 and what it could mean for your paycheck.

Social Security wage base 2026

The Social Security tax limit (aka wage base) will increase by about 4.8% to $184,500 for 2026.

The amount is adjusted annually for inflation. However, it’s important to note that the wage base and SS COLA are calculated using distinct methods and data sets.

The tax limit changes are particularly significant for high-income earners, who may pay more Social Security tax on their earnings next year. So, understanding the adjustment is crucial for effective financial planning.

Social Security tax rate

As noted, the 2026 Social Security tax limit rises to $184,500 for 2026. (The 2025 tax limit was $176,100.)

This 4.77% increase is less than the 5.2% jump from 2023 to 2024 but more than the 4.4% increase from 2024 to 2025.

Still, if you earn more than $176,100 this year, 2025, you haven’t had to pay the Social Security payroll tax on the amount of your income that exceeds that limit.) That can result in considerable tax savings.

• Take, for example, an employee with a 2025 annual salary that exceeded the tax limit by $10,000. Since the Social Security tax rate is 6.2% (your employer also pays 6.2%), they would save $620 on Social Security taxes.
• On the other hand, someone who earns wages exceeding the base by $30,000 would receive a $1,860 tax break.
• The more you make over the tax limit, the more your Social Security tax savings.

However, the Social Security tax limit increases yearly as the national average wage index increases. When that happens, more income is subject to the Social Security tax.

Note: Some people don’t have to pay Social Security taxes. (Exemptions from Social Security taxes may be available if certain requirements are met.)

Also, self-employed individuals pay the full 12.4% rate. However, if you're self-employed, you can deduct the employer-equivalent portion of that amount.

Medicare tax rate 2025 and 2026

It’s also worth noting that, unlike Social Security, the Medicare tax has no income cap.

The standard Medicare tax rate of 1.45% (paid by the employee, 2.9% total when added to the employer portion) applies to all earnings, regardless of income level.

High-income earners can be subject to an additional Medicare surtax of 0.9%. This applies to those with income above $200,000 for single filers or $250,000 for married couples filing jointly.

Self-employed individuals pay the employee and employer portions of Medicare tax but can claim a self-employment tax deduction. The 0.9% on high incomes may apply.

Social Security COLA 2026

Along with the wage tax base rate, the SSA announced the 2026 COLA increase, which is 2.8%.

On average, according to the SSA, Social Security retirement monthly benefits for an "average retiree" are expected to grow by about $57 as of January 2026.

For more information, see Kiplinger's report: The Social Security COLA for 2026: What You Need to Know.

Will the Social Security tax limit be eliminated soon?

As Social Security faces mounting long-term funding pressures, some lawmakers and policy groups are reviving calls to scrap the SS payroll tax income cap.

Removing the Social Security tax wage base/limit would mean high earners pay the 6.2% Social Security tax on all their income, not just earnings below the annual limit.

Right now, some wealthy taxpayers in the U.S. reach the wage limit quickly. For instance, someone earning $2 million a year would surpass the 2025 wage base of $176,100 in less than five traditional work days.

After that point, they no longer pay Social Security tax for the rest of the year, while middle-income workers continue contributing on every paycheck.

• Supporters contend that eliminating the cap would inject new revenue into the Social Security trust fund and make the tax system fairer by ensuring everyone contributes the same share of their pay.
• Some say scrapping the cap would also bring Social Security taxation in line with the Medicare tax, which has no earnings limit.
• But opponents argue that lifting the limit would amount to a tax increase on upper-income workers and small business owners.

Additionally, some point out that while high-income individuals might pay more in taxes, the current Social Security benefit calculation formula could result in them eventually receiving higher benefits in retirement. (That could further strain the system.)

For now, the limit remains in place, but continues to rise each year. So, if you're a high earner, plan accordingly or consult a tax professional to see how this shift might impact your bottom line.

Related

• Social Security Tax Limit 2025: What to Know
• Medicare Tax: Who Pays and How Much?
• Types of Income the IRS Won't Touch

As it does each year, the IRS has announced inflation adjustments to several tax credit and deduction amounts for 2026. This includes new 2026 income tax bracket thresholds, higher standard deduction amounts, and an increase in the additional standard deduction available to taxpayers age 65 and older.

As Kiplinger has noted, this extra standard deduction — which can be claimed in addition to the regular standard deduction — can help lower taxable income for many eligible retirees and older adults.

Adding to those familiar annual adjustments, the Trump/GOP so-called “big, beautiful bill” introduces a new bonus deduction for qualifying older adults. This extra benefit, which is available to itemizers as well, takes effect for the 2025 tax year and remains available through 2028.

Here’s more to know to plan for tax returns you'll file in early 2026 and 2027.

Over 65 additional standard deduction for 2026 announced

For single filers and heads of households age 65 and over, the additional standard deduction increased slightly — from $2,000 for 2025 (returns you'll file earlier next year) to $2,050 for 2026 (returns you’ll file in early 2027).

For 2026, married couples over 65 filing jointly will also see a modest benefit.

• The extra deduction per qualifying spouse increased from $1,600 in 2025 to $1,650 for 2026, a $50 increase per qualifying spouse.
• For couples where both partners are 65 or older, this translates to a total increase of $100 in their additional standard deduction.

New: 2026 Extra Standard Deduction Age 65 or Older (Single or Head of Household)

New: 2026 Extra Standard Deduction Age 65 and Older (Married Filing Jointly or Separately)

Those 65 or older and blind continue to receive double the additional amount. For 2026, that means an extra $4,100 for single filers or heads of household. (Twice the $2,050 for those 65 or older or blind.)

• Meanwhile, the 2026 amount will be $3,300 per qualifying spouse for those married filing jointly (i.e., $1650 x 2).
• These changes are typically an issue for those deciding between taking the standard deduction and itemizing.

While the inflation-adjusted amounts may seem small, depending on the financial situation and federal income tax bracket, some taxpayers over 65 may benefit from a modest tax reduction.

It’s also worth noting that the IRS announced inflation-adjusted federal income tax brackets for 2026.

For more information on 2025 tax changes targeted to taxpayers over age 65, see our report: 2025 Tax Deduction Changes Those Over Age 65 Should Know.

Regular standard deduction rises for 2026

The IRS adjustments to the extra standard deduction for older adults come alongside increases in the standard deduction for all taxpayers.

The Tax Policy Center and other groups estimate that around 90% of people take the standard deduction rather than itemizing.)

• The new Trump tax bill (enacted July 4, 2025) changed the 2025 standard deduction to $15,750 for single taxpayers, $31,500 for joint filers, and $23,625 for head of household.
• With the latest inflation adjustments, the standard deduction amounts are as follows for 2026 (returns filed in early 2027):

New: Standard Deduction 2026 Amounts

For more information, see: Standard Deduction 2026 Amounts Are Here.

$6,000 bonus deduction 2025-2028

Additionally, as Kiplinger has reported, the big bill introduces a new temporary and separate $6,000 bonus deduction for those age 65 and older.

• The bonus deduction is available to individuals age 65 and older, with eligibility set at $75,000 in income for single filers and $150,000 for couples, and phasing above those levels.
• But the provision is temporary. It will only be available from 2025 through 2028.
• It will supplement, but not replace, the existing extra standard deduction already available to older adults who take the standard deduction.

Note: The new bonus deduction applies regardless of whether you itemize or take the standard deduction.

So, it could help those with sufficient deductible expenses to itemize, but who also want to further reduce their taxable income.

For more information, see our report: How the 'Senior Bonus Deduction' Works.

Impact of 2026 deduction changes for 'seniors'

Because Trump's new tax bill was recently enacted, the IRS is working to issue guidance and regulations to implement the many tax changes in the bill.

And while the new bonus deduction for older adults could help many taxpayers, how it impacts you depends on your specific tax situation.

Consider consulting with a tax professional to understand how new inflation-adjusted amounts may (or may not) affect your overall tax liability for the upcoming tax season and beyond.

Related

• The Extra Standard Deduction for People 65 or Older
• New Tax Rules: Types of Income the IRS Won't Touch
• Calculating Taxes on Social Security Benefits
• $6K Bonus Deduction Impact on Retirees: 5 Income Examples

If you're looking to increase or preserve your retirement savings, this year has been a roller-coaster ride — and that's true whether you're still collecting a paycheck or you've already made your exit from the workforce.

Conflicting signals about the economy and the financial markets abound. Inflation is finally under control — no, wait, it may be ticking up again, the latest data suggests. Tariffs are on, then off, higher, then lower, on a continuous loop.

Stocks nosedived in April, then shot up to record highs. As for a possible recession? Economists keep changing their minds, with the latest forecasts putting the chances of a downturn in the next 12 months at 30% to 40%, down from as high as 60% earlier this year.

Faced with these headwinds, many Americans are increasingly stressed about the potential impact on their financial security.

More than half of people ages 45 to 75 now say they're concerned about outliving their money in retirement — a jump of six percentage points from a year ago, according to a recent survey from the Alliance for Lifetime Income by LIMRA.

Nearly half of the pre-retirees and retirees polled are revisiting their retirement plans as a result, with moves that include postponing their retirement, cutting expenses and revamping their investment strategies.

While "stay the course" is standard advice in periods of economic and market turmoil, financial advisers say that reviewing your retirement plan and portfolio now, and tweaking as needed, is critical to ensure you're prepared for whatever comes.

"If you build in protections as part of the planning process, you're not dependent on the markets and the economy doing well to have a successful retirement," says Wade Pfau, a professor at the American College of Financial Services and author of Retirement Planning Guidebook. "Small adjustments can have a really big impact."

That advice feels particularly relevant in periods of heightened uncertainty such as now, when it's tough to know exactly which danger poses the greatest threat. Being proactive can not only help ensure that your savings last your lifetime but can also alleviate the anxiety that bubbles up for many people in the current environment.

"You can't control what the president will do about tariffs, how the Federal Reserve will act on interest rates or what happens in the Middle East," says Michelle Perry Higgins, a principal with California Financial Advisors in San Ramon, California, and a certified financial therapist. "But you can control the level of risk in your portfolio, how much you're spending and how you plan for life's what-ifs, which not only is good for you financially but helps lower your stress level as well."

Eager to protect your savings from the dangers that seem to be lurking everywhere lately? Financial advisers say that these are your best moves now.

1. Build a strong cash buffer

Your first line of defense in a shaky economic environment is to put together a runway of safe assets that you can tap to fund your living expenses if trouble hits.

That way, if a recession materializes that causes unemployment to jump or there's a prolonged downturn in the stock market, you won't need to pull money from your retirement portfolio at the worst time to pay your bills.

The biggest threat, if you're still working and are several years away from retirement: a lengthy bout of joblessness. That could push you into an early exit from the workforce, cutting years off contributions to a 401(k), or nudge you into taking a hardship withdrawal from your account.

Some 4.8% of 401(k) participants took such a withdrawal last year, up from just 1.7% in 2020, Vanguard reports — and that was when the economy was still robust.

A traditional emergency fund with enough cash to cover at least three months' worth of living expenses — stashed in a safe, liquid vehicle such as a money market account — is a solid starting point. But if the labor market weakens, six to 12 months is better, particularly if you're older.

Recently, according to the Bureau of Labor Statistics, workers ages 55 to 64 have required an average of 26 weeks to find a new job after a layoff, and people 65 and older have needed 32 weeks, compared with 19 weeks for employees ages 25 to 34. And those averages would likely rise in a recession.

But if you're planning to retire in five to 10 years, or you've been retired for a decade or less, the greater danger is a lengthy slump in stock prices.

"If a big bear market clocks your portfolio right at the outset and you don't have safer assets to spend from, you risk not having enough money left to recover when stocks eventually bounce back to sustain you for the rest of your retirement," says Christine Benz, director of personal finance and retirement planning at Morningstar and author of How to Retire.

A Morningstar study last year found that in simulated random trials, about 70% of the portfolios that ran out of money during a 30-year retirement involved retirees who had suffered losses in the first five years of tapping the accounts. The other 30% had gains in those early years but spent too much or experienced big enough losses later on that they ran out of money anyway.

What to do? Benz recommends shifting enough of your portfolio funds to cash to cover your spending needs for two years when combined with your income from other sources, such as a pension, Social Security or wages from part-time work. Keep another five to eight years of spending needs in fixed-income investments.

It's also a good idea to identify other assets outside of your portfolio that you could tap to help cover your bills in a down market, such as a cash-value life insurance policy or a reverse mortgage, Pfau advises.

"These buffer assets can be expensive," he says. "But even with the high fees, their value in helping to extend the life of your retirement investments gives you a better financial planning outcome in the end."

2. Fix your mix — a little

Small tweaks to ensure that you are appropriately diversified and have the right level of risk in your investments for your age and circumstances can go a long way toward extending the longevity of your retirement savings and giving you peace of mind.

"Big, heroic gestures are never the right move," says Benz. "If you build a portfolio plan you know is durable, then make small, periodic adjustments as needed, you don't have to respond to every economic headline, market move or inflationary shock that comes along."

If, for instance, you haven't rebalanced in a while, now is the time to do so, because the big run-up in stocks — not only this year but over the past decade — has probably altered your mix substantially.

Benz calculates that left untouched, a portfolio that was 60% in U.S. stocks and 40% in U.S. bonds 10 years ago would have shifted to 81% in stocks by the end of June.

This exercise is especially important if you're in the critical five- to 10-year period just before or after you stop working because of the damage a market swoon in those years can inflict.

"The biggest mistake I see people make is that they have too much risk in their portfolios when they start needing their money," says certified financial planner Carolyn McClanahan, founder of Life Planning Partners in Jacksonville, Florida. "Don't shoot the lights out trying to make more money in the market at the risk of losing a lot more."

McClanahan often recommends a portfolio split evenly between stocks and bonds for clients at this stage. That allocation historically has generated average gains of 8.2% a year, which is 1.5 percentage points less than the 9.7% annual returns from a more aggressive portfolio of 80% stocks and 20% bonds.

However, the more moderate blend has lost less, too. Its biggest one-year drop: 22.5%, compared with 34.9% for the more aggressive account.

You don't want to swing too far to bonds, though, because of another big risk: inflation. That's especially pertinent now, with many economists concerned that the widespread tariffs imposed by the Trump administration could cause inflation to reignite, although the impact on consumer prices has been muted so far.

"People often think the thing that could really wreck their retirement would be to lose a lot of money in the stock market," says retirement expert Anne Lester, former head of retirement solutions at J.P. Morgan Asset Management and author of Your Best Financial Life. "But inflation eroding how much your money can buy can be worse."

At a recent 2.7% rate, for instance, inflation will cut your purchasing power by half over the course of a typical 25- to 30-year retirement. If, as an analysis by the Federal Reserve Bank of Boston found, tariffs add an estimated one to two percentage points to that rate, it would take just 15 to 18 years to inflict the same damage.

Stocks, the only asset class that historically has beaten inflation by a comfortable margin, are still your best hedge against that outcome, says Peter Lazaroff, chief investment officer at Plancorp, a wealth management firm in St. Louis.

Research shows that all it takes is at least a 30% commitment to stocks in your portfolio to get that long-term protection, he says.

Benz also recommends layering in some inflation-protected securities in the fixed-income portion of your retirement savings.

You might, say, keep anywhere from one-fourth to one-third of your fixed-income holdings in Series I savings bonds and Treasury inflation-protected securities (TIPS), which adjust their rates twice a year to reflect changes in the Consumer Price Index.

This year has also driven home the importance of diversifying more generally, with international assets outpacing U.S. securities by a substantial margin for the first time in many years, notes Lazaroff. He recommends keeping 20% to 30% of your stocks in international holdings and choosing bond funds that include international exposure as well.

"There's a mathematical reason why diversification reduces volatility and returns compound better at lower volatility," Lazaroff says. "But it's also just an exercise in humility, saying we don't know what's going to happen. If you spread your bets, no one thing can topple your entire investment plan."

3. Adapt your spending

In response to growing concerns about the economy, two-thirds of Americans ages 18 to 65 are cutting back on spending, according to a summer survey by Life360, an information technology company. Dining out, online shopping and travel lead the list of expenses on the chopping block.

Meanwhile, 41% of retirees in the Alliance for Lifetime Income survey said they are looking to spend less as well.

It's a smart move, financial advisers say. During your working years, every dollar you don't spend is one you can direct toward saving, either to build up your cash reserves or bulk up retirement accounts. And if you're already retired, every dollar you don't spend is one less you need to pull from savings when stock prices may be down.

McClanahan suggests identifying expenses that you could pare back in advance of another market meltdown or downturn in the economy, even if you're financially comfortable now.

"You don't have to make any changes yet," she says. “But this way, if the world goes crazy and your returns go south, you already have a plan in place."

Conversely, McClanahan also encourages her retired clients to spend more, within reason, when markets are surging.

"Need a new car? Want to take that bucket-list trip? When the market is doing great, it's a good time to take money off the table and do those things," says McClanahan, a former emergency room doctor. "You never know if or when illness or other events will upend your life. So, while you need to plan financially so that your money will last a long time, you also want to make sure you're enjoying your money along the way."

That kind of adaptability to economic and market conditions can greatly extend the life of your retirement portfolio, research shows. Says Benz: "Flexibility is a superpower for retirees."

Among the flexible withdrawal strategies that research has shown to be most effective in helping your money last longer, Pfau says, is installing upper and lower limits on your withdrawals (often called guardrails), depending on how the market is faring.

Rather than following the standard advice to withdraw 4% initially in retirement, then adjust that amount annually for inflation, he says, you might instead take out only, say, 3% from retirement savings in bad years for stocks, but as much as 5% when the market is on an upswing. Another simple option: Give up the inflation raise when stocks are down.

"These small adjustments can have a dramatic impact on the longevity of your assets," says Pfau. "The more flexibility you have to make these adjustments, the easier it is to weather any storm."

4. Don't let fear drive your decisions

Exacerbating the recent stress about the economy is growing anxiety about Social Security. Some 58% of respondents in the Alliance for Lifetime Income survey expressed concern that Social Security benefits will eventually be reduced. As a result, 34% of pre-retirees are considering claiming earlier than planned.

Evidence suggests that's already happening. Initial claims are up 13% so far this year, to nearly 3 million — more than triple the usual rate of increase.

A recent Urban Institute analysis also found that the Social Security Administration has received more early claims in 2025 from higher earners, especially at age 62, than in previous years, concluding that recent staff cuts and policy changes contributed to the numbers by causing fear and confusion among future recipients.

Adding to the concerns: The most recent report on Social Security's financial health indicates that the primary trust fund that pays retiree benefits will run out of money in 2033, failing government action to prevent a shortfall, at which point only 77% of benefits will be paid.

All the worry is understandable, but financial advisers urge that pre-retirees and retirees who have yet to take benefits not act on it.

"If Congress doesn't do something, you're going to get a 23% reduction in benefits, no matter what," says certified financial planner Lee Baker, founder and president of Apex Financial Services in Atlanta. "But if you've claimed early, you'll be facing a double reduction because of the hit you're already taking on Social Security benefits before your full retirement age."

That hit is a hefty one. For every month you collect before your full retirement age, your payments are permanently reduced by a small percentage, which can really add up over time. Depending on when you were born, claiming at age 62 instead of your full retirement age, for instance, will lower your benefits by 20% to 30%, the Social Security Administration reports.

If instead you delay beyond full retirement age, your benefits increase by 8% a year until you turn 70. All told, your monthly payments will be 76% higher if you claim at age 70 instead of age 62, according to Boston University economist Laurence Kotlikoff, founder of Maximize My Social Security, an online tool to help with claiming decisions.

Still, the decision to postpone benefits until 70 is not entirely a slam dunk. Your health, family circumstances and how you would pay your expenses until you begin collecting also affect your timing.

Morningstar research shows, for example, that if you can rely on income from work, a pension or other non-investment sources to cover your bills while you wait, delaying Social Security until age 70 will generally leave you in the strongest financial position over the course of your retirement.

But if you'd need to withdraw money from your portfolio to pay your expenses, the decision is less clear. The study showed that someone who retired and started collecting Social Security at 67 fared slightly better financially during a 30-year retirement than someone who waited until 70 but had to cash in investments until then to make ends meet.

5. Keep your hand in

There are plenty of good reasons to work longer. Besides helping you bridge the years until you collect Social Security without breaking into your nest egg, it gives you more years to save, shortens the number of years those savings have to last and reduces the chances you'll be forced to tap your portfolio during a market downturn. "Your human capital is your safest asset," McClanahan says.

Given all the benefits, it's not exactly a shocker that many people these days are embracing the work-longer approach. Both the average retirement age and the percentage of people 65 and older in the workforce have been steadily creeping up, the Center for Retirement Research at Boston College reports.

And many people plan to keep drawing a paycheck after they've quit their career job: A recent Northwestern Mutual study found that 48% of Gen Xers and 30% of baby boomers plan to work or are already working in retirement.

Of course, keeping a job isn't always in your control; health problems and layoffs often force older workers into retirement earlier than planned. Then, too, after an adult lifetime spent toiling 40 or more hours a week and answering to a boss, you may simply not want to work that much or that hard anymore.

Working longer, though, doesn't have to mean working as hard as you did at the peak of your career. Part-time or occasional freelance work can allow you to postpone withdrawals from savings, take less money out when you do, and provide an income bridge that allows you to delay Social Security.

You may be able to find opportunities at websites such as RetirementJobs.com, SideHusl.com and Upwork.com.

"Find something you're passionate about to supplement your income," says Baker. One of his clients, a pickleball fan, earns extra money by coordinating local championship matches. Another, who is more than comfortable financially, works part-time at Trader Joe's just because he thinks it's a cool place.

"Working some in retirement is not just helpful for the nuts and bolts of financial planning," says Baker. "Staying engaged and interacting with people is incredibly helpful for your physical and mental well-being, too."

6. Consider the what-ifs

What's the worst that could happen if a recession, prolonged bear market or spike in inflation comes to pass?

Although it may seem counterintuitive, thinking about how the economic scenarios that worry you could play out and how you would manage the personal fallout can be an anxiety-reducing exercise, advisers say.

"You want to consider emergency decisions when you're not in an actual emergency and can think strategically, not from a place of heightened emotion or panic," says Lester. "It's why we do fire drills."

Take the market outlook, for example. While stock prices bounced back quickly this year from their April slump, a downturn historically is more likely to last about 18 months, and stock prices were down or sideways for more than a decade in the 1970s and early 1980s.

"That's not a probability now, but it is a possibility, so maybe that belongs on your bingo card," says Lester, noting the point of the exercise is not to scare you but to prepare you.

In this case, she says, in addition to making sure your portfolio doesn't have too much risk and you're well diversified, you might want to think about adding an immediate annuity to your mix so that you have a source of steady income outside of your investment portfolio (you can find options at immediateannuities.com).

Higgins suggests that you also think about the trade-offs you might be willing to make if, as a result of renewed inflation or a bad bear market, you can't cover your spending at current levels.

"Ask yourself what you would be willing to change," she says. "Could you work two more years than you planned? Where could you cut expenses? Are you willing to downsize? You want to go into the storm with a plan."

Realizing you have a variety of options is crucial not just to be prepared financially but for your peace of mind as well. "There are a lot of tools you can use, not just one solution," says Pfau. "The key is to think ahead about how the different tools fit together so they can help you build a stronger foundation for your retirement."

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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The 2025 tax landscape has changed due to the GOP tax and spending law, referred to by some as the “big, beautiful bill,” signed by President Trump on July 4, 2025.

This multibillion-dollar legislation impacts everything from car loan interest to overtime pay and reported cash tips.

While it may provide some taxpayers with opportunities to save, the bill also creates some confusion regarding which income types are really non-taxable and what, if any, new rules apply.

So, here’s more to know about non-taxable income and updates from the 2025 tax law that could affect your next tax bill.

Taxable and nontaxable income examples

When people talk about income and taxes, it’s important to distinguish between nontaxable income and tax deductions.

• Nontaxable income is exactly what it sounds like: income that the IRS doesn’t consider taxable.
• It is excluded from your gross income/exempt from federal income tax by law.
• You generally don’t report most of this income on your tax return, since it’s not subject to tax. (More on types of nontaxable income below.)

On the other hand, tax deductions reduce your taxable income but don’t necessarily transform taxable income into nontaxable income.

So, for example, you may have heard about the new car loan interest deduction, which allows eligible taxpayers to deduct up to $10,000 of interest paid on new U.S.-assembled, qualifying vehicle loans.

That tax break will reduce taxable income for those who properly claim it, but it doesn’t mean that car loan interest is “nontaxable income.” (Loan interest isn't classified as income to the borrower — it's an expense, and sometimes, expenses are tax-deductible).

Understanding the difference is key to interpreting tax changes and managing expectations when it comes to your tax burden. So, let’s dive into some types of income the IRS doesn’t tax.

How much of a financial gift is tax-free?

Financial gifts are a well-known category of non-taxable income. That's due in part to the generous annual federal gift tax limit.

The annual federal gift tax exclusion increased to $19,000 per individual for 2025, enabling folks to give that amount to any recipient without triggering gift tax or filing requirements. Recipients also don’t pay tax on these gifts.

• Unfortunately, gifts given by employers to employees that are akin to cash, i.e., gift cards, are usually considered taxable by the IRS.
• Charitable gifts are generally nontaxable (the donor doesn't pay tax on the amount given). Be sure to get receipts and ensure the charities you give to are legitimate, since the gift/donation may reduce taxable income as a deduction.

Related Deduction: Starting in 2026, taxpayers who take the standard deduction can claim an above-the-line deduction for charitable contributions — up to $1,000 for individuals and $2,000 for joint filers. Donations to donor-advised funds and private foundations will be excluded.

Are inheritances taxable?

Inheritances remain non-taxable at the federal level. That includes inheritances of cash, property, etc.

But remember that if the money you receive from an inheritance subsequently generates income, like the earnings from an interest-bearing account, it might be taxable.

Also, states like Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania continue to impose inheritance taxes at varied rates.

• Meanwhile, the current federal estate tax exemption amount for 2025 is $13.99 million per individual and $27.98 million for married couples filing jointly.
• This means estates valued below these thresholds generally avoid federal estate tax in 2025.
• About a dozen states have estate taxes.

Notable: Under the 2025 Trump tax law, the estate tax exemption amount will increase to $15 million per individual and $30 million for married couples beginning in 2026, indexed for inflation thereafter.

Roth account rules

Qualified distributions (i.e., from a Roth account at least five years old since you first contributed and when you're age 59½ or older) are tax-exempt.

The IRS now allows you to make regular contributions to your Roth IRA at any age. You can leave any amount in your Roth IRA for as long as you live.

• Earnings are tax-free if the account has been open for at least five years and the owner is 59½ years old or older.
• Early withdrawal of earnings is taxable and penalized unless exceptions apply (e.g., disability, first-time homebuyer expenses).

Are Roth Conversions Taxable? Roth conversions are taxable. The amount converted is added to your taxable income for the year of the conversion and taxed at ordinary income tax rates. Consult a trusted tax professional with questions or concerns about your retirement savings account(s).

Nontaxable fringe benefits and HSA contribution tax benefits

Employer-paid health insurance remains tax-exempt, along with up to $50,000 of group term life insurance and employer contributions to Health Savings Accounts (HSAs).

Qualified HSA distributions for medical expenses are tax-free; non-qualified distributions face tax and a 20% penalty unless the account holder is age 65 or older.

Is Social Security taxable in 2025?

Disability payments, workers’ compensation, Supplemental Security Income (SSI), and Veterans Affairs disability pensions generally remain non-taxable.

Important: Despite the Trump administration's claims to the contrary, Social Security benefits are not universally tax-free in 2025. Instead, up to 85% of benefits remain subject to federal tax depending on your income level.

For more information, see No Social Security Tax Changes in Trump's New Bill.

Also, some states tax Social Security income in 2025.

Life insurance proceeds

Life insurance death benefits paid to beneficiaries generally escape income tax.

However, interest earned on the proceeds might be taxable, and tax rules can get complex if the policyholder surrenders the policy for cash. Loans against policies are usually non-taxable if policy conditions are met.

Note: The IRS has an online tool that can help determine whether life insurance policy proceeds you've received are taxable.

Capital gains and muni bond interest

Interest from government-issued bonds is mostly tax-exempt, though some municipal bond interest may be taxable. U.S. Treasury securities are taxable federally, while corporate bond interest is taxable at both federal and state levels.

The capital gains exclusion for primary residence is $250,000 for single filers and $500,000 for those married filing jointly, subject to ownership/use rules.

Capital losses can offset gains, with up to $3,000 deductible annually, and excess losses may be carried forward.

What about overtime pay and no tax on tips?

The new tax deductions for overtime pay and reported tips allow some workers to reduce their taxable income by amounts up to set limits.

But it's important to remember that overtime pay and tips are still considered taxable income subject to payroll taxes and reporting.

‘No tax on tips’ explained

Under the 2025 tax bill, eligible workers can deduct up to $25,000 annually from taxable income for “qualified tips" starting in 2025 and through 2028.

The deduction phases out above $150,000 MAGI for singles and $300,000 for joint filers.

The IRS and Treasury Department have identified 68 occupations that typically receive tips, including but not limited to:

• Food and beverage workers (bartenders, wait staff, cooks)
• Entertainment workers (musicians, dancers, DJs)
• Hospitality staff (bellhops, maids, concierges)
• Home service providers (plumbers, electricians)
• Personal care professionals (hairstylists, massage therapists)

Tips must be voluntary cash or equivalent (includes electronic tips).

No tax on overtime pay?

Under the 2025 tax bill, eligible workers can deduct up to $12,500 of overtime pay ($25,000 for joint filers) from their federal taxable income for tax years 2025 through 2028.

The tax break applies to the portion of overtime pay that exceeds your regular hourly rate — typically the half-time premium mandated under federal labor law.

• The benefit phases out for incomes above $150,000 (single) or $300,000 (married filing jointly).
• This deduction applies only to W-2 employees whose overtime meets federal standards and reduces income tax liability without affecting payroll taxes like Social Security or Medicare.

Other types of non-taxable income

Long-Term Care Insurance: Benefits received from tax-qualified long-term care policies are generally tax-free.

Alimony and Child Support: Alimony payments received under divorce or separation agreements executed after 2018 are not taxable income to the recipient, nor deductible by the payer. Child support payments are nontaxable income and aren’t tax-deductible.

Annuities: Generally, annuities purchased with after-tax dollars are not taxed on the principal when withdrawn; only earnings (investment gains) are taxable when payments or withdrawals are made. Annuities funded with pre-tax dollars have different rules.

States with no income tax

As mentioned, some states tax inheritances, estates, or Social Security benefits even though they are federally exempt.

If you live in one of the nine states without personal income tax — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming — you won't be taxed on your earned income at the state level. But worthy of note:

• Washington State has a capital gains tax.
• New Hampshire eliminated its interest and dividend income tax.

Additionally, while some portion of your Social Security benefits might be subject to federal tax, most states don't tax Social Security income.

For more information, see Kiplinger's list of states that still tax Social Security.

Tax changes 2025: Bottom line

New rules and changes in the 2025 tax law mean it’s more important than ever to understand taxable and nontaxable income.

Consult a tax professional for personalized advice to help ensure you take full advantage of federal and state tax incentives available to you and avoid any potential pitfalls that could arise.

Related

• New No Tax on Tips Deduction: What to Know
• What's Happening With Taxes on Overtime Pay?
• The 2025 Gift Tax Exclusion: How Much Is It?
• QUIZ: How Much Do You Know About Income Tax Brackets?

You’ve heard about the recent “Trump megabill,” but how will it affect your tax refund? While some provisions could increase your tax liability next year, others might give you a serious payday.

For instance, the IRS reports that nine out of 10 taxpayers don’t itemize deductions. If that’s you, a permanently higher standard deduction could give you more money back.

However, new provisions, such as some involving the federal child tax credit, might squeeze your bottom line if you’re a noncitizen, potentially costing you more in taxes.

Several provisions in the new tax law are temporary. Those new tax benefits could go away as early as 2029.

Here are five tax policies in the so-called “One Big Beautiful Bill” (OBBB) that might increase or decrease your bottom line come tax season.

Related: Claiming the Standard Deduction? Here Are Ten Tax Breaks For Middle-Class Families in 2025

Standard Deduction

1. The standard deduction affects tax refunds

While the IRS already increased the standard deduction last fall due to inflation, the OBBB further raises it. For 2025, the standard deduction amounts are as follows:

• Married couples filing jointly receive $31,500.
• Single filers receive $15,750.
• Heads of household receive $23,625.

If you’re someone who claims the standard deduction (rather than itemizing), you could see a bump in next year’s tax refund or a corresponding reduction in your tax liability.

For instance:

• If you’re single, you’ll get $1,150 more in standard deduction dollars on your 2025 federal return compared with last year.
• If you’re married and filing a joint return, you’ll see a $2,300 increase in your standard deduction compared with last year’s return.

Note: The above amounts reflect the IRS's change to the 2025 standard deduction plus the OBBB increases.

If you’re an older adult, you could receive even higher savings on next year’s federal return under the new tax law, because the OBBB added a new bonus standard deduction of $6,000 (in addition to the usual extra standard deduction for older adults).

However, the temporary bonus deduction is dependent on modified adjusted gross income (MAGI), so you could miss out on this benefit.

The limits are $150,000 for married, filing jointly couples and $75,000 for single filers. The phaseout is 6% for every dollar above the income limits.

Here's an example to show how this works.

• A married, filing jointly couple who earns $150,000 and where both adults are 65 and older could receive a full $12,000 bonus deduction on their return.
• Yet, if that same couple were making $160,000 ($10,000 above the limit), the deduction is reduced by $1,200 (6% x $10,000 multiplied by two, since both adults are above 65).
• This would result in a deduction of $10,800 for the couple, rather than the full $12,000 benefit.

It’s also important to note that the OBBB permanently ended the personal and dependency exemption, which was $4,050 per qualifying taxpayer, spouse and child (indexed for inflation).

That change is likely to permanently decrease your tax refund, especially if your household has many people who would’ve qualified for the exemption.

SALT Deduction Cap

2. The ‘SALT refund’: How much is it?

If you itemize your federal return and live in a high-cost area, you could see a reduction in your tax liability. That’s because the state and local tax deduction (SALT) changed under the OBBB.

Most taxpayers claim the standard deduction these days. However, more Americans itemized their deductions before the 2017 Tax Cuts and Jobs Act (TCJA) capped SALT at just $10,000. Before that, the deduction was unlimited.

States with high property taxes and/or state income taxes, such as New York, New Jersey or California, might have suffered the most from the $10,000 cap on the SALT deduction, since they haven’t been able to fully deduct these types of taxes on their federal return since the TCJA was enacted.

But the OBBB temporarily increases the SALT cap to $40,000, meaning you could save more on federal 2025 taxes if you live in a high-cost area.

Let’s look at an oversimplified example to see how that might work:

• A couple with $200,000 in income claims the standard deduction for tax year 2025 and has no other credits, deductions or alternative minimum tax (AMT) liability. Their taxable income is $168,500 ($200,000 gross income minus $31,500 standard deduction).
• If that same couple were to pay $43,000 in state and local taxes that year, they might choose to itemize. This would reduce their taxable income to $160,000 ($200,000 gross income minus the $40,000 SALT cap).
• The net effect is an $8,500 reduction in taxable income on their federal return.

It’s worth mentioning that the SALT cap increase is temporary and will revert to $10,000 in 2030.

Taxpayers with $500,000 or more will have a 30% phaseout for every dollar their income exceeds the limit. The SALT cap reverts completely to $10,000 for incomes of $600,000 and higher.

Are you a high-income taxpayer? If so, here’s a simple example of how the new SALT cap deduction might impact you:

• A single filer makes $505,000 per year in MAGI and wishes to itemize to take the SALT deduction.
• Yet, $505,000 is $5,000 above the income limit, meaning the deduction is reduced by $1,500 ($5,000 times 30%).
• The total SALT deduction for this filer would be $38,500.

Child Tax Credit

3. How much money will I get back for a child tax credit?

The OBBB also changed the federal child tax credit (CTC) for qualifying children 17 and under by increasing the maximum amount from $2,000 to $2,200 (adjusted annually starting in 2026).

If you’ve got qualifying kids, the extra $200 you’re getting from the child tax credit could raise your next tax refund (or at the very least, lower your tax bill).

• For example, a couple with $350,000 and two children under 17 would see $4,400 in child tax credit savings.
• That’s $400 higher than last year’s federal return.
• Families with four children could also see an increase in child tax credit breaks from $8,000 to $8,800.

However, the CTC is reduced by $50 for every $1,000 (or fraction thereof) that your MAGI is above specific income thresholds.

These income caps remain at $200,000 or more (for single filers) and $400,000 or more (married filing jointly couples). If you make above those amounts, you’ll likely see less benefit from the new child tax credit in your tax refund:

• A single filer with one child age 17 and under and an income of $200,000 would see $2,200 in child tax credit savings.
• But if that same filer made $205,000 instead, their maximum child tax credit would be reduced by $250 ($5,000 is five times above the income limit, so $50 times 5 is $250).
• The total tax credit would then be $1,950 ($2,200 minus $250).
• Before the OBBB, the single filer with $205,000 would’ve seen a total tax credit of $1,750 ($2,000 minus $250).
• The net gain under the new law is $200.

But the new child tax credit doesn’t benefit everyone. Households with noncitizen parents might see an increase in their 2025 tax bill. That’s because the child tax credit now requires parents to have a Social Security Number (SSN).

As Kiplinger reported, this means that nearly 2.7 million children in the U.S. who previously qualified will no longer be eligible for the credit due to their parents’ immigration status, leading to a potential $5.94 million loss in tax savings ($2,200 multiplied by 2.7 million).

Tax on Tips and Overtime

4. Will I get a bigger tax refund if I work overtime or for tips?

Tax on tips also changed under the new Trump tax bill, though perhaps in an unexpected way. Prior law dictated that cash tips (including credit and debit card charges) were taxed like ordinary income.

Now, under the OBBB, there’s a temporary deduction for tips up to $25,000, subject to an income phase-out (more on that below).

Are you a service worker? Here’s a simple example of what the no tax on tips law might look like for you:

• A server at a popular restaurant earns $20,000 in annual tip income.
• On last year’s tax return, the server claimed the standard deduction and had no other income or tax breaks. The total taxable income on their federal return was $5,400 ($20,000 minus the $14,600 standard deduction for single filers).
• In 2025, that same server could have zero federal income tax if they claim the tip deduction ($20,000 minus $15,750 standard deduction, minus the $25,000 maximum tip deduction).

It’s important to note that the IRS hasn’t yet squared away the definition of what a “tipped employee” is, yet. It’s unclear which workers will be affected.

Once more, workers who don’t ordinarily receive tips, such as retail sales clerks, cooks or childcare workers, will most likely not gain a benefit from this law. Meanwhile, tipped workers earning more than $150,000 (or $300,000 for joint filers) will see a phaseout of the tip tax deduction.

For more information, check out Kiplinger’s report New 'No Tax on Tips' Bill Approved for 2025: What to Know Now.

Similarly, overtime rules changed with the new tax bill. The OBBB created a no tax on overtime deduction worth up to $12,500 for tax years 2025 through 2028. The deduction has the same income phaseouts as “no tax on tips” at $150,000 for single filers and $300,000 for married, filing jointly couples.

Are you an overtime worker? The “no tax on overtime” could increase your tax refund or lower your federal tax liability, regardless of whether you itemize or claim the standard deduction.

Note: Non-cash tips (like artwork) are still fully taxable as ordinary income and not eligible for a tip income deduction. Payroll taxes and state/local income taxes also still apply.

Business tax provisions

5. Key small business taxes: QBI, bonus depreciation and more

Several key tax provisions affecting small businesses are included in the OBBB. Here are a few:

• Permanently extending the “Qualified Business Income” (QBI) tax rate. QBI is the income your business earns after deducting qualified expenses (such as rent, utilities, business loan interest, etc.). The OBBB made the 20% deduction rate permanent.
• Making permanent “bonus depreciation.” Qualified property that you buy and place into service after January 19, 2025, is now eligible for immediate 100% expensing. Ordinarily, you’d have to wait to expense the asset above five, 10, 15, even 20 years.
• Providing more opportunities to use “Section 179” expensing. Similar to bonus depreciation, Section 179 allows businesses to deduct 100% of qualified equipment and software. But there’s a deduction limit, which makes it more beneficial for small businesses vs large corporations. OBBB increased the maximum deduction amount and phase-out threshold for expensing.

All three of these provisions could help small businesses save on their taxes in 2025.

For instance, QBI only applies to businesses set up as a “pass-through entity,” like plumbers, accounting firms, and graphic designers (certain limits might apply). Maintaining the rate allows business owners to deduct more income (compared with before the TCJA), and lower income taxes paid.

Another helpful provision in the OBBB affects Section 179 expensing.

• This special type of expense is generally for small to midsize businesses due to its dollar limits.
• The OBBB increased these limits, allowing businesses to now deduct up to $2.5 million in property (up from $1.25 million).
• Likewise, the phase out is $4 million (up from $3.13 million).

Are you a small business owner? Let’s look at a very simplified example to understand how Section 179 and bonus depreciation can work together to maximize your tax savings:

• Pineapple Plane Company purchased one new plane for $2 million in 2025. Under Section 179, the company deducts the entire cost this year, resulting in a $2 million reduction in taxable income.
• Now, let’s say Pineapple instead purchased a megaplane for $3 million. Under Section 179, the company can only deduct $2.5 million per year. That leaves $500,000 undeducted.
• But bonus depreciation allows Pineapple to deduct the remaining $500,000 if the company started using the plane after January 19, 2025.

Note: The Section 179 deduction cannot exceed the business’s taxable income. The example also assumes the planes have a depreciable life of 20 years or less.

What to watch for next tax season

While we covered five major ways your tax refund might be affected this year, other provisions in the OBBB and IRS changes could affect your taxes. Here are a few more to watch:

• New temporary car loan interest deduction, allowing you to deduct up to $10,000 in interest paid on new vehicles, subject to income phase-outs.
• New Trump Accounts, which might help your child save for future educational, homeownership, and entrepreneurial costs.
• After September 30, the IRS will stop sending paper checks. If you're someone who likes to receive your tax refund via the mail, you'll need to opt for a digital payment instead next filing season.

As always, it’s important to keep an eye on the ever-changing tax landscape, both on Capitol Hill and in your state and local governments. Consult with a tax professional on your specific financial situation.

Several provisions listed above are expected to receive additional clarification from the IRS by October 2025. Stay tuned for more updates.

More OBBB Changes

• New Cap on Gambling Loss Deductions Begins Soon
• The 2025 EV Tax Credit: Yes, It's Ending
• New Medicaid Cuts: Is Your Local Hospital Closing?
• Student Loan Forgiveness: How Taxes and Repayment Could Change

Many have been glued to their television screens watching the World Series and the National Basketball Association (NBA) finals. But if you’re placing bets on your favorite teams, watch out. Your state might be coming for those winnings.

Online sports betting has grown in recent years, with the American Gaming Association reporting a record-breaking $3.87 billion in the first few months of 2025 alone.

However, with the rise of sports betting comes the unfortunate potentiality of higher taxes on gambling wins and losses. The federal tax policy remains the same. But state legislatures are looking for ways to take advantage of the industry’s popularity.

Here are the states that have either recently increased or proposed bills to hike sports betting taxes in 2025.

Sports betting tax increase

Kiplinger used the online sports bet tax rates from the Tax Foundation to determine which states currently enact a sports betting tax. Data was then collected and compiled for states that recently increased, or are currently considering increasing, their online sports bets taxes. Here they are.

*Note: Sports betting isn’t legal in all 50 states. Check your local laws before placing a bet.

Colorado online sports betting

Colorado Gov. Jared Polis recently signed into law the elimination of a bet tax incentive that could affect all Centennial State sportsbooks.

• Currently, sportsbook operators can deduct a certain percentage of “free bets” from their taxable revenue.
• However, HB 1311, backed by bipartisan sponsorship, will gradually eliminate that deduction until it is completely phased out by July 1, 2026.

Colorado already taxes online sports bets at a rate of 10%, making it the 19th most expensive state tax in the U.S., according to Tax Foundation data.

And the new law is expected to reduce the number of promotions offered to bettors, thereby increasing tax revenue in the state. Some speculate this will make U.S.-based sports betting operators less attractive than offshore operators, which could potentially harm the domestic sports betting industry in Colorado.

Regardless, the new sports betting law goes into effect on July 1, 2025, limiting free bet deductions to just 2% per month. The rate drops again to 1% on January 1, 2026, before completely disappearing in July 2026.

Illinois sports betting fee

Per the Tax Foundation, Illinois sports betting taxes are the 12th-highest in the nation. But starting July 1, 2025, the Land of Lincoln will add yet another online sports betting tax.

Currently, Illinois sportsbooks are taxed on an Adjusted Gross Sports Wagering Receipts (AGSWR) tier system:

• The first $30 million of AGSWR is taxed at a rate of 20%.
• AGSWR between $30 million and $50 million is taxed at 25%.
• AGSWR between $50 million and $100 million is taxed at 30%.
• AGSWR between $100 million and $200 million is taxed at 35%.
• AGSWR exceeding $200 million is taxed at 40%.

Under the new law, there will be an additional per-wager tax of 25 cents levied on sportsbooks for the first $20 million of online sports bets placed every fiscal year.

Any wagers placed above that amount will have the tax doubled to 50 cents per bet.

The new law has prompted larger operators like FanDuel to announce a 50-cent transaction fee on every online wager placed in the Prairie State.

CNBC news also reports that DraftKings “anticipates taking action [due to the tax increase] and expects to share more information soon.” In short, sports betting may be getting more expensive in Illinois.

Louisiana sports betting online

Louisiana may also soon have a tax hike on online sports bets.

HB 639, sponsored by Rep. Neil Riser (R-Columbia), would increase sports gambling tax in the Bayou State from 15% to 21.5%. One-fourth of the increase would support college athletes at Louisiana’s public universities.

The funds could be used for scholarships, insurance, medical coverage, facility improvements, and other student-athlete expenses at the NCAA Division I level.

But with a higher rate of 21.5%, Louisiana could bump the state from the 12th most expensive state to place a sports bet to the 5th, per Tax Foundation data.

Yet the bill has already passed both the House and the Senate, and is expected to be signed into law by Gov. Jeff Landry.

Legal online sports betting in Maryland

Maryland recently increased its online sports betting tax, effective July 1, 2025.

HB 352, part of the state’s Budget Reconciliation and Financing Act, will increase the mobile sports betting taxes from 15% to 20%. While not as dramatic as a previously proposed 30% tax, the rate could lead to less attractive odds or fewer promotional opportunities for bettors.

Sports betting operators generally oppose tax increases due to potentially lower payouts for winning bets and fewer funds for free bets and other promotions (per the National Conference of State Legislatures).

Some also speculate that sports betting operators will pass on the higher tax rates to consumers.

However, it’s important to note that in-person Maryland sports betting will remain at 15%, even after July 1. The Free State currently has the 12th highest sports bet tax in the nation, according to Tax Foundation data.

Sports betting legality in Massachusetts

Massachusetts is considering increasing its tax on online sports betting from 20% to a whopping 51%. This would make the Bay State one of the worst places to sports bet tax-wise, per the Tax Foundation.

• The “Bettor Health Act,” proposed by Sen. John Keenan (D-Quincy), would raise the tax rate on sports bets to address “economic, health, and social harms caused by sports betting.”
• The bill would also ban prop bets (event-specific wagers in a game) and set daily and/or monthly betting limits.

However, it’s important to note that a similar attempt was made last year by Keenan and failed to garner support in the state Senate.

Can you do sports betting in New Jersey?

Earlier this year, New Jersey Gov. Phil Murphy proposed increasing the online sports betting tax rate.

• The proposal, included in the state’s budget plan, would almost double the state tax from 13% to 25%.
• Online casino gambling tax rates would also increase, from 15% to 25%.

The additional revenue could address the projected budget deficit and boost funding for programs benefiting older adults and those with disabilities.

However, New Jersey currently has the 16th highest sports bet tax in the nation, according to the Tax Foundation. Some speculate that an increased tax on sports betting operators would be passed on to consumers and could negatively impact the industry.

Is sports betting legal in North Carolina?

Sports betting taxes in North Carolina are the 11th highest in the U.S. at 18%, per Tax Foundation data. But that’s not stopping state lawmakers from considering a raise on the state's sports tax.

Thanks to a proposed budget from the North Carolina Senate, the sports bet tax rate could double to 36%.

The state Senate estimates the tax rate increase could generate $53.4 million alone in the next fiscal year. The additional revenue could be used to fund university athletic departments and the Youth Outdoor Engagement Commission.

However, the North Carolina House of Representatives’ budget proposal does not increase the sports wagering tax rate in the state, suggesting a potential disagreement on policy within the state House and Senate Republican majorities.

The goal is to finalize the state’s budget by July 1, 2025, and submit it to North Carolina Gov. Josh Stein for approval.

Ohio tax bill on sports betting

Ohio lawmakers may make history with new sports betting taxes in the state.

• Introduced by Sen. Louis Blessing III (R-Colerain Township), SB 199 would add a 2% tax on the “betting handle” (total amount wagered by bettors).
• The tax would be in addition to the usual 20% tax on online sportsbook gambling revenue that the Buckeye State currently enacts.
• This would make Ohio the first state to tax both sports betting handles and revenue.

Funds raised by the tax increase would support publicly owned sports facilities, interscholastic athletics, and public school extracurricular activities.

However, this isn’t Ohio’s first rodeo with proposed gambling tax increases.

Earlier this year, Ohio Gov. Mike DeWine proposed doubling the sports betting rate to 40% as part of his budget bill. While the newest tax proposal isn’t entirely the same, DeWine’s bill received significant backlash from Republican lawmakers.

The pushback may be good news for Ohio bettors, as their state already ranks as the 6th highest online sports betting tax rate in the nation, per Tax Foundation data.

Sports betting in Wyoming

A Wyoming legislative committee is proposing to raise the state sports betting tax rate in 2025. The proposal would double the online sports wagering tax rate to 20%.

The bill would be part of a broader push to raise taxes on gambling in the state, including on skill-based amusement games and historic horse racing, according to local news outlets.

This could harm the Cowboy State’s relatively low tax rate of 10%, which the Tax Foundation puts at the 19th most expensive sports betting tax rate in the U.S.

However, the bill is still being drafted and is expected to be considered in the next legislative session.

Read More

• How 2026's Surge in First-Time Bettors and New IRS Rules Are Shifting World Cup Odds
• The NBA Finals and the 'Jock Tax'?
• Did You Bet on the Super Bowl? Don’t Forget Taxes
• Taxes on Gambling Winnings and Losses: 8 Tips to Remember
• How Long Should You Keep Tax Records?

For millions of workers, tips aren’t just a perk — they’re essential. Data show that about 4 million people in the United States, or one out of every forty workers, depend on tips to pay the rent and put food on the table.

However, the IRS usually taxes that money. If tips are part of your pay, the federal tax agency treats every dollar you receive, whether left on the table in cash or added to a credit card receipt, as regular income.

But that has now changed for many workers, following President Donald Trump's signing of the so-called "big beautiful bill" (BBB) on July 4, 2025.

The law includes a provision commonly referred to as the “No Tax on Tips Act,” which created a new federal income-tax deduction for certain tipped workers.

As a result, millions of workers may keep more of what they earn — at least after federal income taxes — beginning with income earned in 2025, typically claimed on tax returns filed during the 2026 filing season.

Here’s more of what you need to know.

Are tips being taxed in 2025?

By law, you have to report all your tips to your employer if they total $20 or more in a single month.

• Your employer includes those tips in your paycheck calculations, withholding federal income tax, Social Security tax, and Medicare taxes, just like they do for your hourly wages.
• When you file your tax return, your reported tips are included on your W-2 and added to your other income to determine how much you owe.
• Even if you get paid in literal cash, the IRS expects you to keep a record and report it.

So, tips haven't historically been treated any differently than your regular paycheck when it comes to taxes.

But under the 2025 new tax law, starting with the 2025 tax year (returns you'll file now, in early 2026), eligible workers can deduct up to $25,000 in reported tip income from their federal taxable income when they file their returns.

However, the deduction phases out for those earning over $150,000 ($300,000 for joint filers) and is scheduled to expire after 2028.

New tax deduction for qualified tip income

So, what is in the new Trump tax law regarding tip income? Here’s a quick summary.

A Deduction for Cash Tips: Workers in qualifying tipped occupations can now deduct up to $25,000 of those tips from their taxable income for tax years 2025 through 2028.

Who’s Eligible? The deduction is available to specified workers who earn up to $150,000 a year ($300,000 for joint filers). The income limit will be adjusted for inflation.

Which Jobs Qualify: The new deduction applies to jobs where tipping is customary — think servers, bartenders, hair stylists, and nail techs. Which jobs qualify: Eligibility is limited to occupations the IRS has identified as “customarily tipped,” like servers, bartenders, and certain personal-service workers. Treasury and the IRS issued guidance identifying qualifying occupations ahead of the 2026 filing season. (More on that below.)

Employer Benefit: The new tax law also expands a tax credit for certain businesses, allowing them to claim payroll tax credits for tips, as restaurants do.

What no tax on tips doesn't do

Despite the excitement over this change, there are some things the new deduction doesn’t cover.

The provision only applies to qualified cash tips. However, for IRS tax purposes, literal cash tips, credit card tips, and tips made through electronic payment methods like apps are traditionally treated the same.

Non-cash tips are still considered taxable by the IRS but are not covered under the new tax law.

• Also, there’s no payroll tax break involved. That means you will still pay Social Security and Medicare taxes on your tips, even if you claim the income tax deduction.
• And…not everyone will benefit. About a third of tipped workers reportedly make so little they don’t owe federal income tax.
• Other workers, like cooks, dishwashers, or other behind-the-scenes staff who don’t usually receive tips, might not receive a tax break under this bill either.

No tax on tips jobs list

The Treasury Secretary and IRS are responsible under the new tax law for deciding which workers can use the new tip income tax break. They have published a list of "customarily tipped" occupations, based on jobs where people usually receive tips

The list of roughly 68 job categories that reportedly qualify for the new “no tax on tips” deduction under the 2025 Trump tax law was released by the U.S. Treasury and IRS late last year.

The expansive list covers a broad range of service, entertainment, hospitality, and home service jobs where tipping is customary. Included are traditional roles.

• Some of these include bartenders, waitstaff, chefs, and food preparation workers, as well as positions in entertainment and events like dancers, musicians, digital content creators, and gaming industry workers.
• Hospitality and guest service roles like bellhops, concierges, and hotel clerks also qualify.
• The deduction extends further to various home service providers, including plumbers, electricians, HVAC technicians, and landscapers.

How to claim the tip income deduciton

To claim the tip income tax deduction, workers must still report their tips as income.

For purposes of the deduction, tips generally must be reflected on a Form W-2, Form 1099-NEC or 1099-K, or be reported by the worker on Form 4137 to be treated as reported tip income.

Note: The IRS has added a new Schedule 1-A to Form 1040 for the 2025 tax year, which is where eligible taxpayers claim the tip-income deduction when filing in 2026.

Expect your tax software or tax preparer to ask questions about whether you received tip income in 2025.

Was no tax on overtime approved?

The proposal to eliminate federal income tax on overtime pay, which was also a Trump campaign pledge, was a separate measure.

And yes, the Trump tax bill also introduces a temporary deduction for some overtime pay.

• The legislation offers eligible single filers a deduction up to $12,5000 and $25,000 for married couples filing jointly, for tax years 2025 through 2028.
• The overtime pay tax deduction phases out for earnings over $150,000 (single) and $300,000 (joint filers).
• Only overtime pay mandated by the Fair Labor Standards Act (FLSA) qualifies for the deduction.

For more information, see What's Happening With Taxes on Overtime Pay?

Tax on tips: What this means for you

For eligible workers, the new deduction could reduce federal income taxes when filing returns during the years it is available.

However, for those who already don’t earn enough to owe income tax, this new bill won’t affect them.

Still, extra cash is welcome for many in the service industry. As the IRS implements the tax provisions in the new law, supporters say many tipped workers will see more take-home pay.

But as always, consult a tax professional or financial planner to understand how these changes might impact your tax situation.

This article has been updated to include information about qualifying occupations.

Read More

• Millions Could Lose SNAP Food Benefits Under Trump Tax Plan
• Types of Income the IRS Doesn't Tax
• Could Your State End Taxes on Tips This Year?

For many people in the United States, working overtime is a financial lifeline, helping to cover rising grocery bills, unexpected expenses, or simply keep up with the cost of living.

Data suggest that almost 25% of workers regularly work more than 40 hours a week, though some studies put that number as high as 40%.

While those extra hours can mean a bigger paycheck for some, they often also mean a bigger tax bill since, at the federal level, overtime pay is taxed just like regular wages.

So, with high prices squeezing household budgets and many employers relying on overtime to fill staffing gaps, some lawmakers in Congress have proposed a new tax break for workers who put in extra hours.

Enter the Overtime Wages Tax Relief Act, which, if passed, would allow millions of employees to deduct a portion of their overtime earnings from their taxable income. Its sponsors say it would put more money back in workers’ pockets at tax time.

But what’s in the proposal, who could benefit, and how does it compare to Trump’s no tax on overtime pledge?

New bill would offer a tax deduction for overtime wages

The Overtime Wages Tax Relief Act was introduced by Sens. Roger Marshall (R-Kan.) and Tommy Tuberville (R-Ala.) last week.

As mentioned, the bill is designed to let workers deduct up to 20% of their overtime pay from their federal taxable income.

It’s important to note that currently, in 2025, all wages, including overtime, are taxed as ordinary income. So, your overtime pay is subject to normal federal income tax rates and withholdings.

However, for some workers, taking on extra shifts can push them into a higher tax bracket, and that, in turn, can reduce the incentive to work more.

Other key points:

• The deduction would be capped at $10,000 for individuals and $20,000 for married couples filing jointly.
• The benefit would phase out for higher earners, starting at $100,000 for individuals and $200,000 for joint filers, with the deduction reduced by $50 for every $1,000 over those limits.

Additionally, the deduction would be available for overtime pay earned between 2025 and 2029, and could be claimed even by those who take the standard deduction (i.e., don’t itemize deductions).

Overtime tax deduction: Who would benefit?

The proposed deduction is reportedly designed for middle-income workers who regularly rely on overtime pay.

Sen. Tuberville said the bill would “give relief” to Americans such as nurses and factory workers, adding, “It sends a message to the country that hard work matters.”

It seems that includes nurses, first responders, factory and warehouse employees, utility workers, and transportation professionals — people who often work beyond 40 hours a week to keep up with demand or cover staff shortages.

For example, a nurse who earns $15,000 in overtime pay and is under the income limit could deduct $3,000 (20%) from taxable income. In the 22% tax bracket, that’s a tax savings of $660. A married couple with $20,000 in overtime pay could save up to $4,400 in the same bracket.

However, it's important to note that the bill wouldn’t change how your paycheck is taxed throughout the year.

• Taxes would still be withheld from overtime pay as usual.
• Workers would only see the benefit when they file their tax return and claim the deduction.

Still, supporters say the bill would help families keep more of their earnings without raising base wages or complicating payroll systems.

Some critics, however, argue that the deduction may disproportionately benefit those earning near the income cutoffs and could make the tax code more complex.

There are also concerns about the cost. Estimates suggest the deduction could reduce federal tax revenue by over a trillion in the next decade.

No tax on overtime: What about Trump’s promise?

As Kiplinger has reported, during his 2024 presidential campaign, Donald Trump pledged to make all overtime pay tax-free. Some see the current deduction proposal as a step toward that goal, but it isn’t a full exemption.

Under the Overtime Wages Tax Relief Act, workers would still pay taxes on their overtime earnings throughout the year and would only get relief when they file their federal tax returns.

On the other hand, Trump’s plan would exclude all overtime pay from federal income tax.

On May 12, the House Ways and Means Committee released the text of $4 trillion proposed legislation (dubbed Trump’s "one big beautiful bill") that would end taxes on overtime pay (and tips) for three years (from 2025 through 2028).

To claim the deduction, you would need a Social Security number, and Fair Labor Standards Act rules would apply.

But, if approved, supporters say the provision would provide immediate take-home pay increases for eligible workers.

Overtime pay tax relief: Bottom line

The Overtime Wages Tax Relief Act might become part of larger tax reform in the coming months. To become law, Trump’s “one big beautiful bill” must pass both chambers of Congress and be signed by the president.

What does this mean for you? If you work overtime, this tax deduction proposal could mean a bigger federal tax refund or a lower tax bill starting next year. But an overtime pay deduction wouldn’t be as sweeping as Trump’s campaign promise to eliminate taxes on overtime pay, which is proposed in the House plan, but on a temporary basis.

And if you’re wondering about state taxes, remember: Alabama is the only state that currently exempts overtime pay from state income tax, thanks to a law that became effective last year. However, that exemption is set to expire on June 30, 2025, unless extended by new legislation.

Overall, it’s important to pay attention to any tax law changes that impact your wallet. And, as always, consult a tax professional to see how these or other potential changes could affect your finances.

Related

• What's Happening With Taxes on Overtime Pay?
• Trump's One Big, Beautiful Bill: What to Know
• Types of Income the IRS Doesn't Tax

Retirement is meant to be a time of ease after years of hard work, but for many older adults in the United States, taxes and rising costs make it harder to get by.

According to the U.S. Bureau of Labor Statistics, so far this year, food prices have increased 2.5%, rent and housing costs have climbed 4.4%, and health care services have increased by nearly 3%.

As if that weren’t enough, almost half of all Social Security recipients owe federal income tax on their Social Security benefits. That’s a sharp rise from less than 10% back in the 1980s, per IRS data.

The culprit? Income thresholds for taxing Social Security income haven’t changed in more than forty years, even while expenses have soared.

And with so many retirees feeling the pinch, Congress is facing mounting calls to provide meaningful tax relief.

Enter the Bonus Tax Relief for America’s Seniors Act, newly proposed bipartisan legislation. If approved, the bill would more than double the additional standard deduction for those over age 65.

Its sponsors and advocates, like the AARP, say the legislation could go a long way to reducing the tax burden for millions of older adults. Plus, Republicans on the U.S. House Ways and Means Committee just unveiled a legislative proposal that would, if passed, also increase the extra standard deduction.

Curious? Here’s more of what you need to know.

New bill could more than double tax deductions for people over 65

The Bonus Tax Relief for America’s Seniors Act was recently introduced by a bipartisan group of lawmakers: Reps. Nicole Malliotakis (R-N.Y.), Mike Carey (R-Ohio), and Jimmy Panetta (D-Calif.).

As mentioned, the legislation would more than double the existing additional standard deduction for taxpayers age 65 and older.

Currently, the extra standard deduction for people age 65 or older stacks on top of the regular standard deduction, helping to lower taxable income.

The amount of the extra standard deduction can vary based on factors like filing status and whether you or your spouse is 65 or older. Whether you or your spouse is blind is another factor.

• For instance, for 2025, the additional standard deduction is $2,000 if you are single or file as head of household.
• If you're married, filing jointly or separately, the extra standard deduction amount is $1,600 per qualifying individual, so $3,200 for those filing jointly.

The bill proposes bonus deduction amounts of more than double the current numbers.

• So, for single filers, the deduction would increase under the bill to $5,000.
• The deduction would rise to $10,000 for married couples filing jointly.
• The extra standard deduction would still be adjusted annually for inflation.

The bill’s sponsors say such an increase would help offset or effectively eliminate federal income taxes on Social Security benefits for many retirees, especially those with incomes above the current tax thresholds ($25,000 for individuals, $32,000 for couples).

In a statement, Nancy LeaMond, AARP’s executive vice president and chief advocacy and engagement officer, wrote that the bill “reflects a bipartisan understanding that our tax code should better support those who have worked hard, earned benefits and contributed to our economy throughout their lives.”

LeaMond went on to describe the higher bonus tax deduction as a “targeted, commonsense adjustment that recognizes the financial pressures facing older Americans.”

Given public sentiment, targeted tax relief might be welcome. A recent study conducted by Allianz Life finds that 63% of Americans now worry more about running out of money than dying, and inflation is the top concern for retirees, outpacing worries about health care costs.

House and Senate GOP propose bonus to the extra standard deduction

The latest House GOP $4 trillion tax plan to implement Trump's "one big beautiful bill" also includes a significant, temporary boost to the standard deduction for Americans 65 and older.

Under the proposal, older adults who take the standard deduction would receive an extra $4,000, nearly doubling the current additional deduction for that age group.

If approved (the bill, now in the U.S. Senate, has to clear several legislative hurdles), the increase would be in effect through 2028 and subject to certain income limits. (Adjusted gross income, AGI, of no more than $75,000 for single filers/$150,000 for married filing jointly.)

Update: The Senate just proposed a $6,000 “bonus deduction” for those over 65 in their version of President Trump’s signature tax and spending package, dubbed the One Big Beautiful Bill Act.

The move sets the U.S. Senate’s proposal apart from Republicans in the U.S. House of Representatives, who approved a $4,000 bonus deduction.

Supporters say the proposed change is meant to help older adults manage rising expenses, especially those living on fixed incomes.

What about ending taxes on Social Security under Trump?

In a press conference, Rep. Malliotakis said the idea for the bonus tax relief bill came to her in part because her father asked her why retirees have to pay taxes on Social Security benefits.

For many years, up to 85% of a person’s Social Security benefits can be subject to tax, depending on their income. To determine how much is taxable, the IRS uses a tiered system based on “combined income.” (Combined income is your adjusted gross income plus nontaxable interest and half of your Social Security benefits from the year.)

The system can seem counterintuitive, given that many recipients worked hard and paid taxes for years before taking Social Security.

"Too many seniors are being forced to stretch their retirement savings further than ever before. After a lifetime of hard work and paying taxes, they deserve to keep more of their Social Security and retirement income without Uncle Sam reaching into their pockets again,” Malliotakis stated in a release.

According to Malliotakis and the bill’s other sponsors, a married couple filing jointly with $85,000 in income could reduce their federal tax bill by about $2,100 a year.

You likely heard that President Trump pledged during his presidential campaign last year to eliminate taxes on Social Security. But, as Kiplinger has reported, some policymakers and economists warn that doing so could do more harm than good.

Also, it's worth noting that changes to Social Security cannot be made through the budget reconciliation process. (The Republican-led Congress plans to use that process to eventually pass Trump’s “one big beautiful bill” covering tax, climate, and border reform.)

Note: Under the Senate’s “Byrd rule,” adjustments to Social Security benefits, eligibility, or the program’s structure must go through the standard legislative process, which typically requires 60 votes in the U.S. Senate.

Meanwhile, in a statement, Rep. Panetta referenced bipartisanship regarding the bonus tax deduction proposal.

"By increasing the additional deduction for older Americans, we would help ensure that they can retire with the financial security and dignity they deserve. Through this bipartisan legislation, we can take a meaningful step toward easing that burden by allowing seniors to keep more of their hard-earned money."

Additionally, several proposals from lawmakers on both sides of the aisle to address concerns regarding taxes on Social Security are floating around Congress.

For more information, see Will Retirees Stop Paying Taxes on Social Security Next Year?

This article has been updated to include information about the Senate GOP's proposal to raise the extra standard deduction.

Related

• Do You Stop Paying Taxes on Social Security at a Certain Age?
• Social Security and Your Taxes: Five Things to Know
• Your Retirement Income and the IRS
• Senate Seeks Bigger $6,000 Tax Break for Retirees Over 65

It's probably safe to say that most people don’t like paying taxes. Many feel they are paying too much.

A Gallup poll revealed that 60% of U.S. taxpayers believe their federal income tax burden is too high. In addition, a 2025 survey indicates that just over 50% of respondents think income taxes are unfair.

So, as we continue with Tax Season 2026, it’s a good time to consider how the tax burden in the United States is distributed.

Recent studies provide insights into which age groups contribute the most to the nation’s tax revenue. So, which generation pays the most in taxes? Read on for the details.

The main contributors: 45-55 year-olds pay nearly 30% of all income taxes

According to an analysis by the Tax Foundation, U.S. taxpayers ages 45 to 55 bear the largest share of the income tax burden.

This age group accounts for about 29% of the total income taxes paid to the federal government.

The study, which examined IRS data, indicates that individuals age 45 to 55 pay the most in absolute terms and experience the highest effective tax rates. (IRS data from 2024 lack age-specific shares but generally confirm peak tax rates around age 55.)

Tax rates by age data from the National Bureau of Economic Research (NBER) corroborate those findings.

The NBER model shows that those in their mid-40s to mid-50s face the highest (and similar) average tax rates:

• The 45-50 age group faces an average tax rate of 17.2%
• The 50-55 group faces a slightly higher rate of 17.6%

Why does this age group pay so much? The answer could lie in their earnings.

The Tax Foundation's research revealed that people age 45 to 55 are typically in their peak earning years, accounting for 26% of the nation's total adjusted gross income (AGI). (That’s despite making up only 18% of all federal income tax returns.)

And, as if high taxes weren’t enough, individuals in their late 40s to mid-50s often face additional financial burdens as the "sandwich generation."

This group often simultaneously supports aging parents and adult children while managing their own mid-career and economic pressures.

Tax burden by age: What about Gen Z taxes and retirees?

• Households headed by individuals aged 45 to 54 face the highest average annual tax bill of $36,140.
• Of this amount, $24,149 went to the federal government and $11,991 to state and local authorities.
• The tax burden on the 45-54 age group is 4.3 times larger than that of those 75 and older, even though their average household incomes are only about 2.6 times as large.

At the other end of the spectrum, younger people contribute significantly less to the overall tax burden.

Data show that those under age 35 account for only 11% of total taxes paid. That’s despite making up 35% of all tax filers. Studies show that the lower burden is primarily due to lower incomes and a potentially higher proportion of non-payers in that age group.

For older adults, data suggest the tax burden decreases as individuals approach and enter retirement.

The Tax Foundation's study shows that for those older than 60, median total tax rates dropped below 5% by age 68 and below 2% by age 74.

That decline is reportedly mainly due to the shift from earned income to retirement income sources, some of which are exempt from certain taxes.

A study by the Pew Charitable Trusts highlights how the aging population will likely shift tax burdens in the coming years. As the proportion of retirees grows, that could increase the relative burden on younger workers.

The next highest tax-paying group is those aged 55 to 65, who pay about 23% of total income taxes. The two age brackets combined — 45 to 65 — contribute over half of all taxes collected in the U.S.

The Tax Foundation's study on total tax burden, including federal, state, and local taxes, provides more insights:

The following table combines Tax Foundation and NBER model data to show the tax burden across age groups.

Do you pay too much tax?

Many feel the U.S. tax system disproportionately benefits the wealthy and corporations and overburdens “regular workers.” Gallup’s surveys reveal that 70% of respondents believe corporations contribute too little, a view shared across political affiliations.

Similarly, nearly 60% argue that high earners don’t pay their fair share. At the same time, 58% say lower-income households shoulder too much, highlighting concerns about unequal burdens on working families.

The situation is complex: While data show that the top 1% account for nearly half of federal income tax revenue, billionaires often can minimize income taxes through strategies like untaxed asset growth.

(Wealthy individuals and corporations frequently leverage tax code advantages to reduce income tax liabilities, while their wealth, often tied to stocks and assets, grows largely untaxed.)

• For instance, a pandemic-era ProPublica analysis found that some ultra-wealthy individuals paid no federal income tax in certain years despite massive wealth gains, relying on loopholes for investments and corporate holdings.
• Meanwhile, other groups emphasize that workers with middle and lower incomes face higher effective rates on wages due to payroll and state taxes, which consume a larger portion of their earnings.

So, even if the top 1% technically contribute more in income taxes overall, everyday workers pay higher rates on their salaries.

Paying taxes: What you can do

If you feel you are paying too much tax, take advantage of all tax deductions and credits you're eligible for and consider the following strategies to potentially lower your tax bill next year.

Additionally, consult a qualified and trusted tax professional or certified financial planner who can customize an approach based on your situation.

Maximize Retirement Contributions: For 2025 (returns you’ll file now in 2026), you can contribute up to $23,500 to your 401(k) if you're under 50. For those age 50–59 or 64+, the catch-up is $7,500 (total $31,000).

A new "super catch-up" rule allows those 60–63 to contribute an additional $11,250, totaling $34,750 (if your plan permits). Those contributions can reduce your taxable income.

Roth Conversions: If you're in a lower tax bracket now but expect to be in a higher one in retirement, converting some of your traditional IRA to a Roth IRA could save you money.

Health Savings Accounts: HSAs allow tax-deductible contributions that reduce taxable income, offer tax-free growth on investments, and enable tax-free withdrawals for qualified medical expenses. 2025 Limits: $4,300 (self-only) / $8,550 (family), with a $1,000 catch-up for those 55+.

FSAs: Flexible Spending Accounts allow you to use pre-tax dollars for healthcare or childcare costs and lower your taxable income at the same time.

Charitable Donations: This might include giving stocks/funds directly to nonprofits and using dedicated giving accounts for upfront deductions. However, to claim charitable donations, you have to itemize deductions.

Read More

• Is It Time to Eliminate 401(k)s?
• Types of Income the IRS Doesn't Tax
• Outsourcing Taxes? Here’s the Age ‘Most Americans’ Hire a Professional

This year, many are receiving Social Security checks with a modest 2.5% cost-of-living adjustment. However, some individuals are experiencing significantly increased benefits due to the Social Security Fairness Act. At the same time, Elon Musk and Trump's Department of Government Efficiency (DOGE) are leading efforts to make substantial cuts to the Social Security Administration.

Despite these challenges, an interesting trend persists: many people seem willing to pay more to ensure Social Security’s long-term stability.

A survey by the National Academy of Social Insurance (NASI), AARP, the National Institute on Retirement Security, and the U.S. Chamber of Commerce finds that 85% of respondents favor maintaining or increasing Social Security benefits — even if it means raising taxes.

Notably, that sentiment crossed political lines. About 3 in 4 Republicans, 9 in 10 Democrats, and 8 in 10 independents support the approach.

This willingness to contribute more through taxes may be related to concerns about the future of Social Security.

• A 2024 Gallup poll revealed that 87% of U.S. adults are worried about the program, with 43% expressing "a great deal" of concern.
• Additionally, a Bankrate survey found that 73% of Americans fear that promised Social Security benefits won't be available to them upon reaching retirement age.

The worry is understandable. The latest projections from the Social Security Board of Trustees show that the combined Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds are expected to be depleted by 2035.

At that point, the program could only pay 83% of scheduled benefits, relying solely on incoming payroll taxes.

Additionally, under the Trump administration, the Social Security Administration faces significant workforce and resource cuts, which many say will harm the agency’s ability to serve more than 60 million people who receive benefits.

So, will you have to pay more taxes to save Social Security? Or are there other options on the table? Here’s what you need to know.

Social Security reform 2025?

The debate over Social Security continues. For example, since President Trump returned to the White House for his second term, there has been considerable discussion about possibly eliminating taxes on Social Security benefits.

However, that idea isn’t new; Republican and Democratic proposals to end or reduce these taxes for retirees have existed for some time. And while no federal taxes on Social Security income may seem appealing to many, as reported by Kiplinger, some experts caution that eliminating the taxes could ultimately harm the program's solvency.

So, what should Congress do to ensure that Social Security is around for future generations?

One idea involves raising the payroll tax rate.

Payroll tax rate increase

Currently, employees and employers each pay 6.2% toward Social Security. A suggested increase would bring that rate to 7.2%, according to a NASI report. That change and other adjustments could close Social Security's funding gap and result in a small surplus.

A related approach proposed by the Brookings Institution would ensure long-term solvency through revenue enhancements and benefit adjustments. Key elements include:

• Gradually raising the payroll tax rate from 12.4% to 12.6%
• Increasing the taxable wage base to cover 90% of total wages by 2039
• Modifying rules for pass-through businesses to prevent tax avoidance

Proponents argue this approach is fairer than cutting benefits, while some critics say it could burden workers and small businesses.

The Social Security tax limit debate

Another idea for addressing a Social Security shortfall involves the tax limit (also called the "wage base" or "wage cap."

Social Security tax is withheld from each paycheck, but stops once income reaches a certain amount. That’s due to the Social Security tax limit, which is the maximum amount of earnings subject to Social Security tax.

For 2025, the Social Security wage base is $176,100. So, earnings above that amount aren’t taxed for the program.

• Some propose eliminating or raising the tax limit to address funding shortfalls.
• Removing the limit could generate trillions over a decade by taxing high earners on all income.
• Partial adjustments (e.g., taxing wages over $250,000) could offer a compromise.

Advocates argue this would make the system fairer because top earners currently pay a smaller percentage of their income.

An often-cited example is how quickly wealthy individuals, including billionaires, finish paying their Social Security taxes.

For instance, if you consider just gross annual wage, CNBC explains that Elon Musk would meet the $176,100 tax limit within minutes of the start of 2025. (Reporting indicates that many millionaires earning wages would meet the cap by early March.)

Still, critics of wage cap changes counter that unlimited taxes without corresponding benefit increases weaken the program’s contributory principle and could reduce work incentives.

Do rich people get Social Security?

Meanwhile, some think it doesn't make sense for wealthy individuals to receive Social Security benefits. The argument is that limiting benefits for the rich could help ensure that those who need it get more support.

Others believe that if only some people receive Social Security benefits, everyone might lose interest in supporting the program.

Recently, economist and NYU Stern professor Scott Galloway suggested that wealthy individuals like himself should not receive Social Security benefits.

Data show that the average person receiving Social Security in 2025 receives about $1,976 monthly from the program. The Motley Fool finds that a billionaire who earns wages could conceivably receive the maximum monthly benefit: $51,08 this year, if that billionaire were to retire at 70.

The Street reports that Galloway sees the current system as unfair because high earners don't pay taxes on all their income, yet still get benefits. Galloway argues that the system would be fairer and more effective if those benefits were redirected to those who truly need them. That belief reflects growing concern about ensuring that Social Security works for everyone, including future generations.

Other Social Security reform proposals coming out of the Republican-led Congress:

• Some lawmakers have proposed gradually raising the retirement age for claiming full benefits to 69. Such a change would reduce lifetime payouts by thousands of dollars annually. But it’s unpopular with retirees and faces strong opposition from those who argue it would force many people to work longer for less money.
• Meanwhile, other lawmakers oppose payroll tax rate increases or expanded wage base limits, preferring to focus on cutting program costs. Critics argue that those moves won’t effectively address insolvency concerns.

On that note, DOGE, led by Elon Musk of Tesla and SpaceX, has already implemented workforce reductions (the plan is to cut 50% of staff) and closed Social Security offices, raising concerns about the quality of service and accessibility for beneficiaries.

Social Security changes: Impact on retirees

According to projections from the Urban Institute, if the Social Security trust fund were depleted, the number of beneficiaries who would subsequently fall into poverty could rise by over 50%.

That estimate highlights the critical role that Social Security plays in providing financial security for millions of retirees who rely on these benefits for their basic needs.

The NASI report indicates that more than 8 in 10 respondents who had not received benefits still described Social Security as "important" or "very important."

Meanwhile, billionaire Musk has referred to Social Security as "the biggest Ponzi scheme of all time" during a February interview on The Joe Rogan Experience podcast. He made that remark during a discussion about government obligations and financial sustainability.

Speaking of Musk and DOGE, a recent report from Sen. Bernie Sanders (I-Vt.) warns that Musk's proposed staffing cuts at the Social Security Administration could double disability benefit wait times to over 400 days and lead to tens of thousands more applicant deaths each year. The report also disputes Musk and DOGE's claims of widespread Social Security fraud.

“President Trump and Elon Musk have suggested that ‘millions and millions’ of dead people receive Social Security checks. That is an outrageous lie designed to undermine Americans’ faith in Social Security,” Sanders stated in a release regarding the report findings.

While poll respondents' willingness to pay more taxes is notable, it’s important to remember that any significant legislative changes to the Social Security program will likely require bipartisan support. As a result, Congress will need to balance ensuring long-term solvency with financial concerns and the needs of current and future retirees.

So, as Social Security debates continue on Capitol Hill and in the White House this year and beyond, stay informed and carefully consider how potential policy and tax changes could affect your retirement.

Related

• Will Retirees Stop Paying Taxes on Social Security Next Year?
• What's Wrong With Trump’s Plan to Eliminate Taxes on Social Security Benefits
• Social Security and Your Taxes: Five Things to Know for 2025

You might have heard about the elimination of the tax on overtime at the federal level. Overtime workers are entitled to 1.5 times their regular rate for working more than 40 hours per week.

However, what’s happening with taxes on overtime pay has sparked national debate. There’s talk about whether “no tax on overtime” will help workers or contribute to the federal deficit and incentivize employers to use longer hours instead of hiring additional employees, especially after the so-called "One Big Beautiful Bill" was signed.

But do you know how your state is weighing in on the no tax on overtime debate?

States can follow the federal “no taxes on overtime” movement or decide to continue taxing overtime income.

Here are the states that have proposed bills relating to no taxes on overtime, and where those proposals are now.

States with no income taxes were excluded from this list as they do not tax overtime. These include Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

Is overtime taxed more in Illinois?

Illinois has four active bills proposing no tax on overtime, “effective immediately” if signed into law:

• SB 174, sponsored by Senate Republicans, would deduct any overtime wages paid during the taxable year.
• HB 2734, sponsored by Rep. Christopher “C.D.” Davidsmeyer (R-Murrayville), would deduct overtime wages included in the taxpayer’s federal adjusted gross income (AGI).
• HB 1899, sponsored by House Republicans, would create a tax deduction for overtime compensation included in a taxpayer’s AGI.
• HB 1750, sponsored by Rep. Joe C. Sosnowski (R-Rockford), would not only exclude overtime from wages but also exempt gratuities (tips) from state income taxation.

All four “no tax on overtime” bills are being read in their respective chambers and have yet to crossover.

Does overtime get taxed more in Massachusetts?

Massachusetts might exempt overtime from the Commonwealth’s income taxes with HB 3173.

Sponsored by Rep. Marc Lombardo (R-Billerica), the bill could exclude overtime compensations from income tax in a place among those with the highest income tax rates for retirees.

However, only hourly employees would be included — not salaried. There is no enactment date for Massachusetts’ “no tax on overtime” bill.

Michigan rules for overtime tax on pay

Michigan legislators have proposed a no-tax-on-overtime bill. SB 125, sponsored by state Senate Republicans, seeks to deduct overtime compensation from the state’s taxable income.

The Great Lakes State recently raised base pay for hourly workers. Tipped employees went from $4.01 to $4.74 per hour, while nontipped worker rates went up to $12.48 from $10.56. No tax on overtime could provide further relief for hourly employees in 2025.

Overtime taxed in New Jersey

New Jersey is looking to exempt overtime pay from state income taxes. The Republican-sponsored bill would exclude overtime compensation from gross income as early as January 1 following the date of enactment.

The Garden State has some of the highest taxes in the nation. Not only is New Jersey expensive for homeowners, but the state also has one of the highest income tax rates for retirees. No taxes on overtime could help provide tax relief for some residents.

Overtime pay is taxed in North Carolina

North Carolina has a bill that includes more than no tax on overtime. Republican-led HB 11 would provide:

• No tax on overtime pay.
• An exemption of state income taxes on tips.
• An exemption on the first $2,500 in bonuses from state income taxes.

Bonus pay might include hourly and salaried workers. The bill has been passed to the House Finance Committee for review.

Does no tax on overtime start in Ohio?

Ohio might consider ending state tax on overtime. HB 39, proposed by House Republicans, would amend Ohio’s tax policy to allow a deduction for overtime wages.

This would effectively make overtime pay state tax-exempt. If signed into law, the bill could go into effect as early as January 1, 2026. However, it was only recently referred to the House Ways and Means Committee.

Does overtime get taxed in Pennsylvania?

Pennsylvania lawmakers are seeking to exempt overtime pay from state taxes. Not only that, but the Coal State might implement no tax on tips, too, if signed into law:

• HB 1586, a House Republican bill, would provide a tax credit for state taxes on overtime pay.
• HB 1514, also Republican-led, would allow for a tax credit to offset taxes collected on tips.

Currently, both bills are in the House Finance Committee for consideration. If signed into law, either bill would be effective after December 31, 2025.

Does Alabama still tax overtime?

Although Alabama used to exempt overtime pay from state income taxes, that key piece of legislation expired earlier this year.

Alabama House Democrats had introduced a bill to preserve the income tax exemption on overtime pay. But House Republicans sought to let the provision expire in favor of other state tax breaks, such as reducing the state’s grocery tax, which is set to be cut from 3% to 2% in September.

State tax on overtime

More states may weigh in on the “no tax on overtime” debate. State legislatures will meet throughout the year, and overtime income could be on the slate of bills proposed. More than just your federal tax bill could be on the line, so stay tuned.

Read More

• What’s Happening With Taxes on Overtime Pay?
• New 'No Tax on Tips' Bill Approved for 2025: What to Know Now
• States That Could End Tax on Tips
• Most Taxpayers Don't Like What's in Trump's 'Big Beautiful Bill'

April 1 isn’t just April Fool’s Day. It’s also the latest date to take your first RMD from tax-deferred retirement accounts like IRAs and 401(k)s if you turned 73 last year.

Missing this deadline can result in steep penalties — up to 25% of the distribution shortfall — making it essential to understand the rules and plan strategically. (Though the penalty can be reduced to 10% if corrected through a proper filing within two years.)

Here’s more of what you need to know, beginning with a quick review of required minimum distributions.

What are RMDs?

Required minimum distributions (RMDs) are mandatory withdrawals from specific retirement accounts once you reach a certain age.

• The SECURE Act of 2019 raised the RMD age from 70½ to 72
• SECURE 2.0 increased it further to 73 for those born after December 31, 1950
• For individuals born in 1960 or later, the RMD age will rise to 75 starting in 2033

While most RMDs must be taken by December 31 each year, the first RMD can be delayed until April 1 of the year following your RMD-triggering age.

However, delaying means you’ll need to take two distributions in the same year: one by April 1 and another by December 31.

Both will be taxable on your 2025 return (typically filed in early 2026), potentially increasing your overall tax liability.

Accounts subject to RMD rules

RMDs apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, and employer-sponsored plans like 401(k)s, 403(b)s, and 457(b)s.

Roth IRAs are exempt during the owner’s lifetime, and as of 2024, Roth accounts in employer-sponsored plans are also free from RMD requirements.

Tax strategies to manage RMD income

RMDs increase taxable income, which can push retirees into higher tax brackets, affect Social Security taxation, and even raise Medicare premiums.

Part B and D premiums are subject to an Income-Related Monthly Adjustment Amount (IRMAA), which is determined based on your modified adjusted gross income (MAGI) from the previous two years. (For 2025, the IRMAA brackets are based on 2023 MAGI.)

To minimize these and other income impacts, consider the following tax strategies.

Note: These are just a few possible strategies for managing RMD income and tax burden. Consult a trusted professional who can help you determine your best approach.

1. Withdraw strategically at age 59½

If you don’t need immediate income from your retirement accounts, you might want to consider withdrawing funds strategically starting at 59½.

Taking smaller distributions early can reduce the balance that will later be subject to RMD calculations.

For example, imagine a retiree with $600,000 in a traditional IRA at age 59½. By withdrawing $25,000 annually over the next decade (assuming modest growth), they could reduce their account balance by $325,000 before age 73.

This approach can help lower future RMD amounts and spread taxable income across more years to avoid higher income tax brackets later.

2. Use Qualified Charitable Distributions (QCDs) to reduce taxes

Individuals aged 70½ or older can use QCDs to satisfy their RMD requirements while reducing taxable income. (A QCD is basically a distribution from your individual retirement account (IRA) to a qualified charity of your choice.)

A QCD allows you to donate up to $108,000 annually directly from your IRA to a qualified charity without including the amount in your taxable income.

For instance, if your annual RMD is $15,000, but you don’t need it for personal expenses, donating it through a QCD fulfills your RMD obligation without increasing your tax liability.

3. Consider benefits of Roth conversion RMD rules

A Roth conversion involves transferring funds from a tax-deferred account, like a traditional IRA, into a Roth IRA. Roth accounts are not subject to RMDs during the owner’s lifetime and grow tax-free.

Converting funds triggers taxes on the converted amount upfront, but it can reduce future RMDs and provide long-term benefits like tax-free withdrawals for heirs.

4. Delay RMDs if still working

If you’re still working past age 73 and participating in an employer-sponsored plan, like a 401(k), you may be able to delay RMDs until retirement, provided you own less than 5% of the company.

The “still working exception” doesn’t apply to IRAs but can help defer taxable income if your plan allows it.

5. Aggregate your accounts

While each account’s RMD must be calculated separately, certain types of accounts allow aggregation for distribution purposes.

Example: If you have multiple traditional IRAs with combined annual RMD requirements totaling $20,000, you could withdraw that amount from just one account rather than taking separate withdrawals from each account.

Avoiding common RMD mistakes

In addition to not missing RMD deadlines, it’s important to avoid other common RMD mistakes.

For example, one mistake involves miscalculating the RMD amount, which can lead to penalties if too little is withdrawn.

To calculate your RMD, you need to use the balance of your retirement account as of December 31 of the previous year and divide it by a life expectancy factor from IRS tables. These tables, like the Uniform Lifetime Table or Joint Life Expectancy Table, provide factors based on your age and circumstances.

For instance, if you are 73 years old, the IRS assigns a specific factor for your age, which you use to divide your account balance and determine the RMD amount.

If you have multiple accounts, the RMD is calculated separately for each account, but you can withdraw the total amount from one or more accounts.

Note: Special rules apply if your spouse is significantly younger and is the sole beneficiary, which may result in a lower RMD calculation using different IRS tables.

Another common oversight is forgetting to adjust RMDs when inheriting an IRA. Beneficiaries often have different RMD rules and deadlines than the original account owner.

Being mindful of these and other distribution potential pitfalls can help ensure you manage your RMDs correctly and avoid unnecessary penalties or complications.

For more information, see: Seven Common RMD Mistakes to Avoid.

RMD April deadline: Bottom line

The April 1 deadline for first-year RMDs is a key milestone for retirees who turned 73 last year, but it’s also an opportunity to evaluate strategies that minimize taxes and optimize retirement savings.

Proper planning can help ease the financial burden of mandatory distributions.

Consulting a financial advisor or tax professional is essential for tailoring these or other strategies to your unique circumstances while ensuring compliance with IRS rules.

Related

• Required Minimum Distributions: What Every Retiree Should Know
• Protect Your Retiremnets; Seven RMD Mistakes to Avoid
• Your Retirement Income and the IRS

Retirement planning is about more than saving money. It also requires a thoughtful approach to organizing your assets in a way that minimizes tax liabilities. And an important aspect of that process is understanding how different kinds of retirement income are taxed — or, in some cases, not taxed at all.

So, to get you started, here's a summary of seven potential sources of tax-free income that could help boost your retirement finances.

Related: Check out Kiplinger's tax blog for the 2025 filing season. We're providing live updates, news, information, and commentary to help you navigate your taxes.

Non-taxable income types to know

By diversifying your retirement income sources to include some of these tax-free options, you can potentially lower your overall tax burden and stretch your retirement savings further.

However, remember that tax laws are complex and subject to change, especially since the Trump administration wants to extend or make permanent key Tax Cuts and Jobs Act (TCJA) provisions. Consult a financial advisor or tax professional to understand your specific situation and stay informed about any legislative changes that may impact your retirement planning.

Note: This is not an all-inclusive list of potential non-taxable income sources.

1. Certain Social Security benefits

We’re always emphasizing that up to 85% of your Social Security benefits can be subject to tax.

The IRS uses your “combined income” to determine the taxable portion of your Social Security benefits. That amount is your adjusted gross income (AGI), tax-exempt interest, and 50% of your Social Security benefit income.

However, on the flip side, depending on your overall income, some or even all your Social Security benefits could be tax-free. For 2025, individuals with a combined income below $25,000 (or $32,000 for married couples filing jointly) could receive tax-free Social Security benefits.

For more information, see: How to Calculate Taxes on Social Security.

2. HSA distributions

Health Savings Accounts (HSAs) offer several tax advantages. First, contributions are tax-deductible. Also, growth is tax-free, and withdrawals for qualified medical expenses are tax-free at any age. (There are also some potential drawbacks of HSAs.)

And, after age 65, you can withdraw funds for any purpose without penalty, though non-medical withdrawals will be subject to income tax.

HSA contributions are subject to inflation-adjusted annual limits. Employers may also contribute to your HSA. And individuals 55 and older can make an additional $1,000 HSA catch-up contribution each year.

3. Municipal bond interest (For now)

If you reside in the issuing state, interest earned from municipal bonds is often exempt from federal taxes and sometimes state taxes. That can provide a steady stream of tax-free income, especially attractive for retirees in higher federal income tax brackets.

Municipal bonds can be particularly beneficial when you retire, as your portfolio returns might be lower due to reduced risk-taking, and your healthcare expenses may be higher.

While portfolio returns might be lower in retirement due to reduced risk-taking, that isn't always the case. And it's worth noting that while municipal bonds offer tax advantages, investors should also consider factors like yield, credit quality, and overall portfolio diversification when making investment decisions.

Also: Some Republican lawmakers in Congress are exploring the possibility of taxing municipal bond interest as part of broader tax reform efforts, although no specific legislation has been introduced yet.

4. Life insurance proceeds

Life insurance policy payouts to beneficiaries after the policyholder's death are generally tax-free. However, interest earned on the proceeds may be taxable, and tax rules can get complex if the policyholder surrenders the policy for cash.

Also, if you take a life insurance policy loan, the loan generally isn't taxable as long as the policy remains in force and the loan amount doesn't exceed the amount of policy premiums paid.

The IRS has an online tool that can help determine whether life insurance policy proceeds you've received are taxable.

5. Roth distributions

Unlike traditional retirement accounts, Roth IRAs and 401(k)s are funded with after-tax dollars. That means that qualified withdrawals in retirement, including earnings, are tax-free. To enjoy this benefit, you must be at least 59½ years old and have held the account for at least five years.

Roth 401(k)s offer an additional advantage for high-income earners who may be ineligible for Roth IRA contributions due to income limits. For 2025, individuals 50 and older can contribute an additional $7,500 to their Roth 401(k), allowing for accelerated tax-free savings.

An important update for 2025: individuals 60 to 63 are eligible for an increased “super” catch-up contribution of $11,250 if their plan allows it.

For more information, see New SECURE Super 401(k) Catch-Up Contributions for 2025.

6. Home sale capital gains (Some)

If you've lived in your primary residence for at least two of the five years before selling, you can exclude up to $250,000 of capital gains from the sale ($500,000 for married couples filing jointly).

Note: While the exclusion can be a significant source of tax-free funds, it's not tied to retirement. It applies to eligible home sales regardless of the seller's age or retirement status.

It's important to note that this home sale exclusion can only be claimed once every two years. Any profit exceeding the exclusion limit will be subject to capital gains tax.

Keeping detailed records of home improvements can help increase your cost basis and potentially reduce taxable gains.

7. Gifts and Inheritances

While not a guaranteed source of income, gifts and inheritances are generally not taxable as income to the recipient.

The IRS doesn't consider inheritances to be taxable income. That includes inheritances of cash, property, etc. However, if the money you receive from an inheritance subsequently generates income, those earnings may be taxable.

Additionally, although there is no federal inheritance tax, some states tax inheritances.

Not to be confused with inheritance tax (which is levied on the heirs of the deceased), the limit for the federal estate tax (imposed on the estate) is quite high so that most taxpayers can avoid the tax.

For 2025, the federal estate tax exemption has increased to $13.99 million per individual and $27.98 million for married couples.

Regarding financial gifts, the annual gift tax exclusion for 2025 is $19,000 per recipient and $38,000 per recipient for married couples. This allows you to give up to this amount tax-free to as many individuals as you want without using your lifetime gift tax exemption.

Note: Staying under those limits per recipient exempts you from filing a gift tax return for the year. Gifts to a single recipient exceeding the annual exclusion usually require filing a gift tax return, even if no tax is owed due to the lifetime exemption. And exceeding the limit doesn't necessarily result in owing tax, thanks to the high lifetime exemption.

Under current law, these higher exemption amounts will expire at the end of 2025. If Congress doesn't act, the exemption will revert to approximately $7 million (adjusted for inflation) in 2026. This makes 2025 a crucial year for estate planning and gifting strategies.

However, it’s worth noting that the Republican-led Congress will likely work to preserve higher exemption amounts. Stay tuned.

Related

• Your Retirement Income and the IRS
• Federal Tax Brackets and Income Tax Rates
• States That Won't Tax Your Retirement Income in 2025
• Taxes on Social Security Benefits: Five Things to Know

You may have heard about eliminating federal taxes on tips. Often earned by service workers, tips are generally reported as wages on an individual’s tax return.

Despite some speculating that a potential tax exemption could help low-income workers, others say it may lead to systemic abuse.

Either way, the so-called "One Big Beautiful Bill" (OBBB) that was recently signed into law approved no tax on tips. This makes tips under a certain threshold temporarily tax-deductible, although there are phase-out income limits for filers.

But even if your tips are tax-exempt at the federal level, how is your state weighing in on the tax on tips debate?

States can follow the federal “no taxes on tips” movement or decide to continue taxing tip income. They could also choose to instate wage caps on tips, which would mean that only a certain amount of tip income would be excluded from taxes (similar to how it will work federally).

Here are the states that are currently considering bills relating to no taxes on tips, and where those proposals are now.

Note: States with no income taxes were excluded from this list as they do not tax tips.

Tip tax law in Illinois

Illinois has a bill proposing no tax on tips. HB 1750, sponsored by Rep. Joe C. Sosnowski (R-Rockford), would not only:

• Exclude tips from wages, but also
• Exempt overtime from state income taxation.

The bill would also be “effective immediately” if signed into law.

Another Illinois bill seeks to end the state's tip credit — an amount paid by customers to subsidize employee pay. If the tip credit is eliminated, some speculate that independent and family-owned restaurants across the state would feel the strain from rising payroll costs.

Do you pay taxes on tips in Massachusetts?

Recently, there has been talk of a “no tax on tips” bill in Massachusetts. Proposed by Rep. Marc Lombardo (R-Middlesex), HB 3172 would make tipped wages, including tips from service industry workers, tax-exempt for state tax purposes.

Different types of workers could be impacted by this bill, including:

• Bartenders
• Restaurant workers
• Nail and hair stylists

The no tax on tips proposal in Massachusetts was introduced in February and is currently in the Joint Revenue Committee for review.

New Jersey no tax on tips

New Jersey service workers would pay no tax on tips if S-3741 is signed into law. Proposed by Sen. Vince Polistina (R-Egg Harbor Township), the bill would:

• Remove tips from the list of taxable income on New Jersey’s gross income tax.
• Begin on or after January 1 next following the date of enactment.

The minimum wage in New Jersey is $15.49 for most employees. However, that number can include tips and base pay, so if an employee earns higher tips, the base pay may be lowered to meet the minimum wage rate. S-3741 could help higher-tip-earning employees potentially make up for lower base pay.

Are tips taxable in New York?

New York is also considering a no tax on tip income proposal, SB 587. Introduced by Senate Republicans, the bill would eliminate state income taxes on cash tips.

Notably, no tax on tips in New York could provide tax relief in a state that is one of the most expensive to live in and has some of the highest sales taxes across all U.S. states. Currently, the proposal is pending a review by the Senate Investigations and Government Operations Committee.

Does North Carolina tax tips?

North Carolina has a bill that includes more than no taxes on tips. Republican-led HB 11 would provide:

• An exemption of state income taxes on tips.
• No tax on overtime pay.
• An exemption on the first $2,500 in bonuses from state income taxes.

Bonus pay might include hourly and salaried workers. The bill has been passed to the state’s House Finance Committee for review.

Oregon ending tax on tips?

Sen. Dick Anderson (R-Lincoln City) has submitted a plan for a “No Tax on Tips” bill in Oregon. The bill would provide tax relief for service industry workers, including waitstaff, bartenders, and other tipped employees, by exempting tips from the Beaver State’s income tax.

Tips are currently taxed as ordinary income, which for Oregon taxpayers is between 4.75% and 9.9%, depending on an individual’s income bracket. If no tax on tips is formally proposed and signed into law, that would mean taxpayers could save at least $4.75 per $100 in tip income.

Is there tax on tips in Pennsylvania?

Pennsylvania lawmakers are seeking to exempt tipped pay from state taxes and no tax on overtime, in two separate bills:

• HB 1514, a House Republican bill, would allow for a tax credit to offset taxes collected on tips.
• HB 1586, also Republican-led, would provide a tax credit for state taxes on overtime pay.

Currently, both bills are in the House Finance Committee for consideration. If signed into law, either bill would be effective after December 31, 2025.

State tax on tips

More states may weigh in on the “no tax on tips” debate. State legislatures will continue to meet throughout 2025 and into 2026, and tip income could be on the slate of bills proposed. Stay tuned.

Read More

• Another State Rebels Against Trump’s New 2025 Tax Law: What Now?
• New 'No Tax on Tips' Bill Approved for 2025
• Could Your State End Tax on Overtime?
• What's Happening With Taxes on Overtime Pay

Iowan’s tax bills took another dip this year, as the state’s individual income tax rate dropped by nearly 2 percentage points in 2025.

The comprehensive tax reform, signed by Gov. Kim Reynolds into law last spring, lowers the individual income tax from its top rate of 5.7% to a single flat rate of 3.8% in 2025. That’s significantly lower than the peak rate of nearly 9% about six years ago when state lawmakers began reducing the personal income tax.

The measure gives Iowa the sixth-lowest income tax rate among the 41 states that have the tax, according to the Tax Foundation. It also adds Iowa to the 14 states that have a flat income tax rate.

Reducing the income tax is estimated to yield nearly $1 billion in tax savings for Iowans within the first two years, according to the governor’s office. Collectively, all the tax cuts enacted since 2018 will save more than $23.5 billion over a decade.

While big tax cuts and flat income structure may sound great on the surface, some lawmakers and policy analysts argue they will likely make Iowa’s “already unfair tax system even more unfair.” Mainly, because the tax cuts would benefit the wealthy and risk reducing critical funding for state programs used by the general public.

Here’s what Iowa’s key tax change for 2025 means for you and your state services.

Iowa adopts flat income tax rate

Iowa’s recent shift toward a single flat individual income tax rate has sparked concerns from tax experts that label these types of taxes as regressive.

A regressive tax policy is one that disproportionately benefits the wealthy, rather than meeting the needs of moderate to low-income earners.

Most states have a graduated or “progressive” personal income tax, which means that rates are split into several brackets and determined by your income level. Higher tax rates are applied to taxpayers with higher incomes.

For instance, in New York, a single taxpayer will pay a 4% tax rate if they are earning under $8,500. Meanwhile, those earning between $80,651 to $215,400 are facing an income tax rate of 6%.

With Iowa’s 3.8% flat personal income tax rate, that means someone earning $8,500 will be taxed at the same rate as someone with a taxable income over $300,000.

Not only is this unbalanced, but lower-income communities generally end up paying more in the long run. According to the Institute on Taxation and Economic Policy (ITEP), a flat tax often has a “surface appeal” that comes with significant disadvantages.

States with regressive taxes often rely on higher sales, property, and excise taxes to drive revenue to fund schools, healthcare, and key public services. Flat income taxes essentially guarantee this burden will fall on middle- to low-income taxpayers.

By the numbers: For instance, when Arizona switched to a new flat tax rate of 2.5%, taxpayers who earned over half a million dollars annually reportedly received nearly $16,000 in tax cuts. Meanwhile, the average middle-income earner received a tax cut of just $58.

Iowa’s flat tax rate risks budget shortfalls

One of the main reasons why Iowa’s income tax cut passed is due to Iowa’s budgetary surplus in recent years, which led to the growth of its Taxpayer Relief Fund.

The fund, created to provide income tax relief for Iowans, holds a balance of about $3.7 billion. Part of Iowa’s latest tax reform allows the government to tap into these funds if the state suffers budget shortfalls due to recent tax breaks.

However, some policy experts are worried that Iowa’s move to lower the personal income tax to 3.8% will “blow a hole” into the state budget.

According to the state’s nonpartisan fiscal estimating panel, the tax revenue collected by the state in the upcoming 2026 fiscal year will fall short of its current spending budget. Local reports point that:

• Iowa’s 3.8% flat income tax rate will cause a $687 million drop in personal income tax collections in 2026, down 12.3% from the current annual budget.
• The state is projected to bring in $8.7 billion for the 2026 budget, which starts July 1.
• So far this year Iowa has spent $8.9 billion.

Overall, economists forecast Iowa will face a $200 million budget shortfall.

That means lawmakers may have to choose between reducing state spending on public services like education, child care, safety programs, and environmental programs or using some of its state reserves to address the revenue gap. Higher taxes may also be on the line.

Iowa taxes: What’s next

As of January 1, 2025, Iowa’s individual income tax rate is set at a flat 3.8%. That’s far from the 8.98% rate back in 2018. There are no income tax brackets, either.

The state also eliminated taxes on retirement income and inheritance. Overall, recent tax breaks are estimated to save Iowans more than $24 billion over the next decade.

Some opponents cite concerns that flat income taxes are regressive because they offer a disproportionate burden on modest earners, and benefit the wealthy. Economists point out that Iowa’s new tax structure may cause a budget shortfall this upcoming year.

To bridge the gap, lawmakers in other states with similar tax policies have increased excise taxes, sales, or property taxes. Reducing spending on public services like healthcare, public schools, and safety programs has also been a potential solution.

For now, we’ll keep on tracking Iowa’s pivot into a flat tax structure and how it may come to impact you.

Related Content:

• Key State Tax Changes for 2025
• Are No Income Tax States Better to Live In?
• Iowa Tax Guide

A flurry of activity followed the president into his second term, and with all the noise came something perhaps unexpected: The House Committee on Ways and Means agenda slashing certain tax benefits. The 50-page GOP document, first released by Politico and other news outlets, is seen as a roadmap for funding an extension of the Tax Cuts and Jobs Act (TCJA).

Basically, to pay for the “Trump tax cuts” sacrifices have to be made. According to the document, that could mean getting rid of certain employee benefits amounting to $157 billion over 10 years.

But are the estimated savings worth the price to workers?

Why is there a threat to eliminate popular tax breaks?

The tax benefits at risk to workers include employer-provided parking, meals, and lodging “fringe benefits.” These items, along with key tax breaks for families and students, could be in jeopardy as the GOP discusses ways to pay for the TCJA moving forward.

So what are “fringe benefits?”

Fringe benefits are perks offered to employees in addition to salary. While salaries are always taxed, not all fringe benefits are taxable on your federal return.

For instance, the below fringe benefits may be partly or fully excluded from your IRS taxable income:

• Athletic facilities.
• Lodging on business premises.
• Meals.
• Commutes (transportation benefits).

Some fringe benefits can also be subject to specific rules to qualify for tax exclusion. For instance, on-site gym access cannot be sold to the general public if the facility is tax-free to employees.

Eliminating “work gym” tax-free status

Currently, athletic facilities can be exempt from federal tax as a fringe benefit exclusion. This may be important, considering data show that about a third of organizations provide onsite fitness centers or subsidized gym memberships to employees for reasons like employee morale and physical fitness.

But the proposal to end this exclusion would make on-site gyms taxable to workers.

Who’s affected?

Generally speaking, employees who use the on-site gyms, but all workers at a company may foot the tax bill.

While studies have shown that only 25% of employees regularly access employer-provided facilities, data suggests morale is tied to programs like athletic programs. Taxing employees on these benefits may not only lower morale but also discourage employees from working for companies that offer on-site gyms due to the increased tax liability.

The provision is expected to provide the government $20 billion over 10 years.

Parking costs for work may be eliminated

Some employer-provided transportation benefits can be excluded from employee income up to a certain amount:

• Bus, subway, and similar transit passes.
• Parking near or on your company’s premises.

However, the proposal in the list of tax cuts eliminates this exclusion, which means you could see an increase in your future tax liability.

How much?

For tax year 2025, taxpayers can exclude up to $325 per month of qualified employer-provided transportation benefits. Per taxpayer, that’s $3,900 in potential tax liability previously excluded.

The proposal is estimated to save $50 billion in spending over 10 years.

Note: Ending the tax exclusion on employer-provided transportation may not include de minimis travel. “De minimis” means something is considered low in value and frequency, like occasional local office visits. This type of travel may remain tax-free under the proposal.

Are employees taxed on employer lodging?

Currently, employees are not taxed on employer-provided rooms if the lodging is:

• On business premises.
• For the employer’s convenience.
• A condition of employment.

Employees like hotel managers, construction workers, and housekeepers may rely on employer-provided housing to do their jobs. However, that could change if the tax exclusion for lodging goes away, as outlined in the House agenda.

If employer-provided lodging becomes taxable, affected taxpayers may see their future tax bill climb hundreds of dollars (depending on how long and how often they live on a job site). But the proposal does not affect military personnel.

Is employer-paid travel taxable?

Amid all the proposed tax benefit cuts, there may be a silver lining: Business travel. Traveling for business usually qualifies for “working condition fringe benefits” which is not listed on the chopping block for tax proposals. A few potential examples are below:

• Airplane travel.
• Company vehicles.
• Hotel stays (non-local).

Gas mileage reimbursement may also be safe from elimination. The 2025 gas mileage tax rate is $0.70 and there is no proposal in the Republican agenda to eliminate the tax-exempt status of this provision either.

Meals may become taxable to employees

Some employees receive meals tax-free if they are for the employer’s convenience and “on-premise.”

Under current IRS guidelines, on-premise meals may include:

• Food provided to service workers, like waitstaff and similar employees.
• Meals for emergency call workers, like hospital staff.
• Bankers and others who can only eat in “short meal periods.”

However, these workers and others could see their meals become taxable. The House proposal to eliminate the exclusion of lodging and meals is estimated to bring in $87 billion over 10 years. Military personnel would be excluded from this elimination.

Note: Ending the tax exclusion on employer-provided food may not include de minimis meals. “De minimis” means something is considered low in value and frequency, like occasional coffee and doughnuts. So, these types of meals may remain tax-free under the proposal.

Tax cut proposals in 2025

While popular tax breaks are in danger, other proposals could lower your tax bill next year.

For example, President Trump is seeking to end taxes on overtime, a provision that could affect millions of taxpayers. There is also a provision affecting the taxability of tips in this day and age where tips range from 5% to 30%.

Both proposals are reflected in the Committee on Ways and Means agenda. However, neither these nor any of the other proposals on this list are certainties, as the Republican-controlled House considers different options for soon-to-be-decided tax policy.

Related Content

• Key Family Tax Breaks Are on the GOP Chopping Block This Year
• Are Tips Taxable in 2025?
• Popular Tax Breaks Are in Danger
• What’s Happening With Taxes on Overtime Pay?

A key part of retirement planning is knowing how to tap retirement accounts without running up a huge tax bill. Retirement brings so many questions. Should we ditch the house and buy a condo? Will we need a part-time job? And even more importantly, how can I wring as much tax savings as possible from my retirement funds? Here are four tax-saving tips for retirement savings.

Let’s start with the basics.

You have lots of investment options when you save for retirement: Stocks, bonds, cash, precious metals — even cryptocurrency. What matters to Uncle Sam is what type of account you use for your retirement savings. You can save for retirement with taxable accounts, such as garden-variety bank or brokerage accounts. You can also save with tax-deferred accounts via individual retirement accounts (IRAs) or 401(k) savings accounts. In addition, you can save in Roth IRAs and Roth 401(k)s. Many people have a mix of taxable accounts, tax-deferred accounts and Roth accounts.

Each type of account — taxable, tax-deferred, and Roth — has its own tax rules. Let’s start with taxable accounts.

Tap retirement accounts: start with taxable accounts

Interest from taxable accounts is taxed at ordinary income tax rates. For the 2025 tax year, the top tax is 37% of taxable income above $626,350 for individuals and $751,600 for married couples filing jointly. Here’s how the income tax brackets break down.

Source: Tax Foundation

Related from Kiplinger: 2024 and 2025 Federal Tax Brackets and Income Tax Rates.

You're not taxed at the maximum rate for every cent of your income. You reduce your gross income by the standard deduction of $15,000 for individuals and $30,000 for joint returns. Those over 65 and single receive an additional standard deduction of $2,000; for married couples, the extra standard deduction will be $1,600 per qualifying spouse over 65. A married couple under 65 that earned $100,000 and had only the standard deduction would have a taxable income of $70,000.

U.S. tax rates are graduated. Consider the married couple with $70,000 in taxable income. They would pay 10% tax on their income up to $23,850 and 12% on income up to $70,000.

Cash is a good place to start. “Your first source of [retirement] funds should be the money in your checking account,” says Christine Benz, director of personal finance and retirement planning for Morningstar and author of How to Retire: 20 Lessons for a Happy, Successful, and Wealthy Retirement. After all, you’d only owe tax on the interest for the year it’s paid to you. For example, if you earned $2,000 in interest on a $50,000 savings account, you’d only owe taxes on $2,000.

And remember, capital gains are your friend. Stocks and most mutual fund shares in taxable accounts are taxed at a maximum of 20% if you have held them for at least one year. If you’ve held your stocks for less than a year, you’ll owe ordinary income taxes on your gains. Qualified dividends from stocks you’ve held for at least a year are taxed at a maximum of 20% as well. If you haven’t held those stocks for a year, your dividends are taxed at your regular income tax rate.

For most people, long-term capital gains (and dividends) are taxed at a much lower rate than ordinary income. As with income taxes, long-term capital gains taxes are graduated. If you’re a married couple who earned $50,000 in long-term capital gains and had no other income, you’d pay no taxes.

Source: Tax Foundation.

Related from Kiplinger: Capital Gains Tax Rates for 2024 and 2025

Some taxpayers with high modified adjusted gross incomes ($250,000 for married couples) pay an additional 3.8% tax on their net investment income.

Another big advantage for stocks is tax-loss harvesting: You can use capital losses to offset capital gains. If you have more losses than gains, you can deduct from gains up to $3,000 of losses in the current tax year. If you have losses greater than $3,000, you can carry forward those losses into the next tax year.

Tax-deferred accounts

Don’t be horrified by the tax bite on traditional IRA withdrawals. You’ll have more money in your account than you would otherwise. IRAs, 401(k)s and other tax-deferred accounts help you save for retirement. If you want to invest $5,000 in a taxable account and you’re in the 22% tax bracket, you’ll have $3,900 after taxes to invest. A tax-deferred account lets you invest the entire $5,000 and defer taxes until retirement.

Furthermore, you defer taxes on your investments until you withdraw them in retirement, which helps boost your rate of return. If you were in the 22% tax bracket in a fully taxable account earning 4% a year, your rate of return would fall to 3.1% after taxes. In a traditional tax-deferred account, you’d earn the full 4% a year.

Still, you have to pay taxes on your withdrawals. This is not welcome news to most retirees, particularly if your withdrawals push you into a higher tax bracket. Moreover, you must take required minimum distributions (RMD) when you turn 73, which may push you into an even higher tax bracket. Nevertheless, assuming equal investment returns, you likely will have more money in your tax-deferred account than your taxable account. A Morningstar study found that a one-time investment of $5,000 in a tax-deferred account earning 8% would become $108,623 after 40 years, while a taxable account earning the same rate of return would become $84,726.

If you’re charitably inclined and have to take RMDs from your account, you can donate up to $105,000 to charity tax-free. “It’s an extraordinary opportunity, and it will lower your RMDs in the future,” says Gary Schatsky, a New York financial planner.

You can take some comfort that U.S tax rates are near historic lows. “Always pay taxes at the lowest rate,” says IRA expert Ed Slott. However, those low tax rates may not last long, given the government’s huge deficits.

Tax-preferred accounts

Converting a traditional IRA to a Roth is a good idea — sometimes. Because withdrawals from tax-deferred accounts can cost so much in taxes, Roth IRAs are extremely popular. Although you can’t deduct your contributions, if you’re 59½ or older and you have had your Roth for at least five years, your distributions are free from state and federal income taxes. You can take out your principal at any time — after all, you’ve already paid taxes on that money. Furthermore, there are no RMDs on Roth IRAs.

The good news: You can convert a traditional IRA to a Roth. But it doesn’t always make sense. Do the math first.

When you convert from a traditional IRA to a Roth, you’ll owe taxes on the amount you convert. Let’s say you have a $100,000 traditional IRA, you’re in the 33% tax bracket, and you convert the whole thing to a Roth. Ideally, you have enough money in other accounts to pay the $33,000 tax bill. Otherwise, in order to get your account back to $100,000, you have to earn 49% to get back even — no easy task.

Secondly, the five-year waiting period may apply to the conversion. If you are younger than 59½ and withdraw before the five-year waiting period is over, you’ll owe a 10% penalty. One big exception; If you’re 59½ or older when you make the withdrawal from a converted IRA, the five-year holding period doesn’t apply and you won’t owe the 10% penalty. If you are over age 59½, the five-year holding period still applies to tax earnings in the Roth IRA. But if you do not meet the five-year holding period, at least no 10% penalty applies.

Finally, that $100,000 conversion will be considered taxable income, which will almost certainly put you into a higher income tax bracket and could also raise your Medicare premiums, at least temporarily.

Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.

Want more guidance on retirement savings? Sign up for Kiplinger's six-week series, Invest for Retirement.

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As 2024 comes to a close, it’s important to consider a key tax planning aspect: managing modified adjusted gross income (MAGI).

This often-overlooked and confusing figure can have significant tax implications for many taxpayers, including retirees. That's partly because your MAGI can impact everything from Medicare premiums and capital gains rates to required minimum distributions and taxes on Social Security benefits.

Here’s more of what you need to know.

What is modified adjusted gross income (MAGI)?

MAGI (modified adjusted gross income) is a financial measure often used by the IRS to determine eligibility for various tax benefits and potential additional charges.

The MAGI calculation begins with your adjusted gross income (AGI) and is modified (with certain deductions and excluded income added back) for different tax provisions or programs. (Meanwhile, your AGI is your total annual income from all taxable sources less specific allowable deductions.)

Strategically managing your MAGI can potentially help you save on taxes and optimize your finances.

So, as you review your year-end tax situation, here are a few important aspects to consider.

Medicare premiums

MAGI determines whether you pay a surcharge on Medicare Part B and D premiums, known as an income-related monthly adjustment amount or IRMAA.

• IRMAA is calculated based on your MAGI two years prior.
• So, for example, your 2024 Medicare premiums are determined by your 2022 federal income tax return.

“Even a modest increase in income (e.g., due to a large retirement plan withdrawal, sale of an asset, or other taxable event) could push [retirees] into a higher IRMAA bracket, resulting in higher premiums for the next year,” explains Joshua Hanover, a managing director and office lead at accounting firm CBIZ Marks Paneth.

As a result, “retirees should review their expected MAGI with their accountants before year-end to determine if any planned income will push them over the threshold,” Hanover says, adding that some retirees might delay certain transactions to avoid a Medicare premium increase.

Strategies to prevent spikes pushing you into a higher premium bracket include offsetting gains with capital losses or maximizing contributions to tax-deferred retirement accounts.

“If a retiree is required to take a required minimum distribution from their retirement plan, they should consider making part of it a qualified charitable distribution,” Hanover notes.

Note: Using a qualified charitable distribution (QCD) can satisfy your required minimum distribution without increasing your modified adjusted gross income. (A QCD is a direct transfer of funds from an individual retirement account (IRA) to a qualifying charitable organization.)

• QCDs are available to those 70½ or older.
• Eligible IRA owners can donate to charity up to $105,000 per year as of 2024.
• The amount is excluded from your taxable income and can count toward your RMD if you are 73 or older.

Preparing for RMDs

On a related note, don’t let the year end without calculating how required minimum distributions (RMDs) might affect your MAGI.

(RMDs are the minimum amounts that must come out of given retirement plan accounts each year once the account holder reaches a certain age.)

• For instance, you may want to avoid doubling required distributions in a single tax year.
• (Retirees generally must take distributions starting at age 73.)

Kelly Regan, vice president and Certified Financial Planner™ with wealth management and advisory firm Girard, says, “It is important to remember that for most required minimum distributions, the deadline to withdraw from your IRA is December 31st.”

Also, Regan points out, “You can aggregate RMD distributions, meaning if you have two IRAs, you can withdraw the total RMD from one of the accounts — as long as the total RMD is taken, it is satisfied.”

If you’re uncertain about your distribution options (IRS rules have changed in recent years and inherited IRAs have their own complicated rules), consult a trusted and qualified financial or tax planner to help calculate your distribution and avoid IRS penalties.

Balancing capital gains

Year-end is also a time to consider how your realized capital gains might affect Medicare premiums. Investment gains are factored into your MAGI, which can increase your Part B and Part D premiums through IRMAA.

And don’t forget about calculating taxes on Social Security. Up to 85% of Social Security benefits can be subject to tax depending on your overall income, including capital gains, which are included in your “combined income.”

Regan points to tax loss harvesting to help mitigate impacts: “Capturing losses in your portfolio can offset gains to reduce your tax bill.”

“If you don’t have any capital gains, you can still capture $3,000 of losses to offset your income for the year, Regan explains, but “be mindful of wash sale rules — if you sell a security to capture a loss, you cannot buy back that security in any of your accounts until 30 days have passed.”

Additionally, a 0% long-term capital gains tax rate applies to those in lower tax brackets. Some strategies may keep your total income within the threshold for that favorable rate.

For more information, see IRS Updates Long-Term Capital Gains Tax Thresholds for 2025.

Year-end tax planning in retirement: Bottom Line

With any tax strategy, think about your overall tax situation.

Will you take the standard deduction or itemize? What about tax benefits or credits and your long-term financial goals beyond immediate tax savings?

Also, keep in mind potential tax changes, given that several key aspects of the Tax Cuts and Jobs Act (TCJA) will expire after 2025 if Congress doesn’t act. These could involve marginal federal income tax rates, the standard deduction, the state and local tax deduction (SALT), and the estate tax exemption, to name a few.

As always, your approach should align with your broader financial plan. Consult a trusted tax advisor before you ring in the New Year to determine the best tax moves for you.

Note: This item first appeared in Kiplinger’s Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.

This article has been edited to include additional details about QCDS and adjusted gross income.

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As the winter season approaches your employer may want to hold the annual office party. But what does that mean to your taxes? Winning the yearly costume contest may come with a hidden cost. Or, you could be subject to withholding on the annual door prize.

We’ll look at holiday work parties from the employee perspective to see how much tax you could be paying out of your paycheck — unknowingly.

When are work gifts not taxable?

First, let’s explore tax-free employer presents. These gifts are generally not taxed if they are deemed “de minimis,” which means:

• Low in cost (like Christmas turkeys, books, candles, or chocolates) AND
• Infrequent in use (like tickets or a gift certificate for a particular item)

The IRS hasn’t set a strict dollar amount for “low in cost,” though anything over $100 isn’t considered meeting the definition. Entertainment tickets could be de minimis if they are less than $100 and used infrequently.

For example, if your company has a raffle ticket to see “The Nutcracker,” that may be de minimis. The ticket can only be used infrequently and for something specific (i.e. the night of the ballet).

However, if the office raffle is for a season pass to the theater, that would be taxable because there is frequent use. Or, if the ticket is worth more than $100, that would also be taxable.

As you can see from the above examples, “de minimis” may be quite limited. What’s worse, we haven’t yet covered the most popular present given: gift cards.

Gift cards and other employee presents that are taxed

Did you know when you unwrap a gift at work the IRS has essentially already unwrapped it for you?

Employers withhold Social Security tax and other payroll taxes on many gifts you receive — and yes, that includes the occasional gift card.

That’s because all gift cards are generally excluded from “de minimis” since they have a direct cash value. Other examples of taxable gifts include:

• Those worth more than $100, which may be exchanged in Secret Santa or White Elephant
• Recurring presents, like a weekly self-care package
• Cash, prepaid cards, and Christmas bonuses

Taxes you receive on the above contribute to a higher withholding on your Form W-2 at year-end. What’s worse, presents like gift cards are historically underspent. This means you could be paying taxes on something you’ll never use.

So, if you have a choice in accepting a present, consider the tax implications first, especially if the gift is large. You don’t want a surprise on your year-end tax return.

But note: the above list isn’t exhaustive. Withholding on prize-based games can easily be missed, especially if you receive holiday winnings from a craft fair or similar event. Read on.

Are holiday office prizes tax-free?

The IRS considers winnings from bingo, trivia, charades, raffles, and lotteries taxable. That’s true even if the prize is small.

Your employer is responsible for withholding the appropriate taxes on your year-end tax form. But any prizes won outside the workplace, like those you win from church or a holiday fair, are reportable by you. In other words, the responsibility to pay taxes on these winnings falls on the individual.

This means you may need to follow up with the appropriate organization for tax forms or you could risk a penalty for underfiling.

For more information on how to report these winnings, see Kiplinger’s report, Taxes on Gambling Winnings and Losses.

Ideas on how to throw a party with no tax withholding

As we’ve seen, your annual work party may come with a hidden price tag due to unforeseen tax implications. So, how can you potentially avoid a holiday tax?

As an employee, try to get an early jump on planning. If your company sends out an email asking for suggestions, offer a prize-free party with one of the below options instead:

• A silly holiday photo booth with props like candy canes and snowmen
• Bring-your-own gingerbread house decorating party
• Holiday potluck or office lunch

The above could have fewer W-2 withholdings while still providing festive enjoyment. Free can be fun: the proof is in the pudding.

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• How to Lower Your Tax Bill Next Year
• Types of Income the IRS Doesn't Tax
• Social Security Tax Limit Jumps 4.4% for 2025

As the year draws to a close, many people are looking for ways to reduce their tax burden so as not to be surprised when tax season rolls around. Luckily, there are some strategies you can implement now, before December 31, that can lower your federal income tax bill.

Here are three sometimes overlooked tax moves you may want to consider.

However, remember that tax planning is individual, so consult a qualified tax professional to determine whether these or other tax strategies fit your financial situation and goals.

1. Fine-tune your tax withholding

One relatively simple but sometimes overlooked way to help manage your tax liability is by adjusting your withholding. (Withholding is the amount of money your employer deducts from your paycheck for federal and state taxes.)

Adjusting your withholding helps ensure you're paying the right tax amount throughout the year. That can help you avoid a large tax bill or refund when tax season arrives.

For example, if you've been over-withholding, you essentially give the government an interest-free loan. You can increase your take-home pay for the remainder of the year by reducing your withholding now.

On the other hand, you've been under-withholding. Increasing your withholding can help you avoid a surprise tax bill and potential penalties when you file your tax return.

To adjust your withholding:

• Use the IRS Tax Withholding Estimator to determine if you're on track.
• Submit a new W-4 form to your employer if adjustments are needed.
• For self-employed individuals, consider adjusting your estimated tax payments.

Remember, the goal is to get as close as possible to your tax liability, not necessarily to receive a large tax refund.

2. Leverage clean energy tax credits (while you still can)

The federal government currently offers tax credits for energy-efficient home improvements under the Inflation Reduction Act (IRA).

By taking advantage of these energy-related tax credits, if you’re eligible, you can potentially lower your tax bill while benefiting from energy cost savings.

For example, as Kiplinger reported, the IRS has paid billions in solar tax credits to eligible taxpayers. (Data show that last year was a record-breaking one for solar installations, with 51% more gigawatts of solar energy capacity installed than the prior year.)

Note: Given the outcome of the 2024 presidential election, it’s hard to say whether these clean energy credits will continue to be available beyond the 2024 tax year. (Reuters reports that Donald Trump's transition team plans to eliminate the popular EV tax credit.) For more information, see Kiplinger's report Is the EV Tax Credit Going Away? What You Need to Know.

For now, here are some tax credits to consider:

Energy Efficient Home Improvement Credit

• Claim up to 30% of qualified expenses, with a $1,200 annual limit for many energy-efficient home improvements
• Eligible upgrades include energy-efficient windows, doors, insulation, and specific HVAC systems
• An additional credit of up to $2,000 is available for heat pumps, water heaters, and biomass stoves

Residential Clean Energy Credit

• Claim up to 30% of costs for solar panels, wind turbines, geothermal heat pumps, and battery storage technology
• No maximum dollar amount applies to this credit

EV Tax Credit

If you purchase a qualifying new electric vehicle before year-end, you could be eligible for an EV tax credit of up to $7,500. For used EVs, the credit can be up to $4,000.

• Income limits and vehicle price limits apply.
• As of January 1, 2024, you can use the EV tax credit at the point of sale to immediately reduce the vehicle's purchase price.

For more information, see How the 2024 EV Tax Credit Works.

To maximize these energy tax credits:

• Obtain quotes for eligible improvements or vehicles.
• Ensure installations are completed and paid for before December 31st.
• Keep detailed records of all purchases and installations.

3. Bunch itemized deductions

With the higher standard deduction introduced in recent years due to the Tax Cuts and Jobs Act (TCJA), some taxpayers find it challenging to itemize.

However, by "bunching" deductible expenses into a single tax year, you may be able to exceed the standard deduction and realize more significant tax savings.

Here are some examples:

Charitable Contributions: Consider making your next year's planned charitable donations by December 31. Also, donor-advised funds allow some to make a significant tax-deductible contribution now (multiple years of gifts in one year) while using the fund assets to spread gifts over time.

Medical Expenses: If your annual qualified unreimbursed medical expenses are close to the 7.5% adjusted gross income (AGI) threshold for medical expense deductions, consider scheduling and paying for elective procedures before year-end.

Property Taxes: Sometimes, you can prepay next year's property tax. Keep in mind, however, the $10,000 cap on state and local tax deductions (SALT).

Mortgage Interest: Making your January mortgage payment in December might give you an extra month of deductible mortgage interest this year.

To implement these strategies:

• Review your financial situation and anticipated expenses for the coming year.
• Keep good records of all expenses you plan to deduct.
• Consider alternating between itemizing and taking the standard deduction in different years to maximize your overall deductions.

Year-end tax moves: Bottom line

Making certain tax moves at year-end can, in some cases, help reduce your tax bill so you’re not shocked when you file your tax return.

These aren’t the only strategies to consider; the goal is to reduce taxable income, and there are several ways to do that.

However, the best moves for you are those that fit your financial situation. So, it’s a good idea to consult a trusted tax professional to determine the best strategies.

Related

• Three Creative Ways to Lower Retirement Taxes
• How to Reduce Your Property Tax
• What Is the State and Local Tax (SALT) Deduction?
• Types of Income the IRS Doesn't Tax

As it does each year, the IRS implemented inflation adjustments to several important credit and deduction amounts for 2025.

This includes (but isn’t limited to) new 2025 income tax brackets and increases to the standard deduction and the additional standard deduction for those age 65 and older. (You'll use these amounts when you file your 2025 tax return in a few months.)

As Kiplinger has reported, the extra standard deduction, which is claimed on top of the regular standard deduction, can help reduce taxable income and the overall tax burden in retirement for millions of older adults.

With the recent passage of the GOP's so-called "big beautiful bill "(BBB), there's a new bonus deduction involved.

Here’s more to know to plan for tax returns you'll file in the upcoming tax filing season.

Related: The Extra Standard Deduction for Those 65 and Older

65 and older additional standard deduction for 2025

For single filers and heads of households age 65 and older, the additional standard deduction increased slightly — from $1,950 in 2024 to $2,000 in 2025 (returns you’ll file in early 2026).

For 2025, married couples age 65 and older filing jointly will also see a modest benefit.

• The extra deduction per qualifying spouse increased from $1,550 in 2024 to $1,600 for 2025, a $50 increase per qualifying spouse.
• For couples in which both partners are 65 or older, this translates to a total increase of $100 in their additional standard deduction.

Those 65 and older and blind continue to receive double the additional amount. For 2025, this means an extra $4,000 for single filers or heads of household. (Twice the $2,000 for those 65 and older or blind.)

Meanwhile, the 2025 amount is $3,200 per qualifying spouse for those married filing jointly (i.e., $1,600 times two).

These changes are typically an issue for those deciding between taking the standard deduction and itemizing.

While the inflation-adjusted amounts might seem small, depending on the financial situation and federal income tax bracket, some taxpayers age 65 and older might benefit from a modest tax reduction.

It’s also worth noting that the IRS announced inflation-adjusted federal income tax brackets for 2025 and 2026.

• The income thresholds for 2025 are up by about 2.8% from 2024 levels.
• This increase is smaller than in previous years.

Regular standard deduction increased for 2025

The IRS adjustments to the extra standard deduction for older adults come alongside increases in the standard deduction for all taxpayers.

The Tax Policy Center and other groups estimate that around 90% of people take the standard deduction rather than itemizing.)

That’s especially true given the major increase to the base deduction under President Donald Trump's initial set of tax cuts from the 2017 Tax Cuts and Jobs Act (TCJA).

• Initially for 2025, the standard deduction was set to rise by $400 to $15,000 for single filers, $800 to $30,000 for married couples filing jointly, and $600 to $22,500 for heads of household.
• Those increases can help offset the more modest bump in the additional standard deduction for some taxpayers age 65 and older.

For example, when combined with the regular standard deduction, the total standard deductions for many older adults in 2025 would have been:

• $17,000 for single filers or heads of household age 65 and older
• $33,200 for married couples filing jointly in which both spouses are 65 and older

Update: Now that Trump signed his 2025 tax overhaul into law, both the base standard deduction for 2025 and the extra standard deduction for those age 65 and older have changed.

The 2025 Trump tax law changes the standard deduction for 2025 to $15,750 for single taxpayers, $31,500 for joint filers, and $23,625 for heads of household.

Additionally, as Kiplinger has reported, the GOP tax bill introduces a new temporary and separate $6,000 bonus deduction for those age 65 and older.

The new $6,000 "senior" bonus deduction will be available to individuals age 65 and older, with eligibility set at $75,000 in income for single filers and $150,000 for couples, and phasing above those levels.

But the provision is temporary. It will only be available from 2025 through 2028, and will supplement, but not replace, the existing extra standard deduction already available to older adults.

Note: The new bonus deduction applies regardless of whether you itemize or take the standard deduction. It could help those with sufficient deductible expenses to itemize, but who also want to further reduce their taxable income.

For more information, see our report: How the 'Senior Bonus Deduction' Works.

Under Trump's tax megabill, when combined with the newly changed regular standard deduction, the total standard deductions (standard base plus standard extra) for many older adults in 2025 are:

• $17,750 for single filers or heads of household age 65 and older
• $34,700 for married couples filing jointly where both spouses are 65 and older

The bill's new “senior bonus” deduction would pile on top of those amounts.

For example, under the legislation, a single eligible taxpayer could deduct a total of $23,750 ($15,750 standard plus $2,000 age-based plus $6,000 bonus), while a qualifying couple could potentially deduct more than $46,700 if both are eligible (65-plus).

Note: The full deduction will be available to those with modified adjusted gross income (MAGI) up to $75,000 (single filers) and $150,000 (joint filers), then phases out above those limits, completely phasing out at $175,000 (single filers) and $250,000 (joint).

Here's a chart to help illustrate.

Impact of 2025 deduction changes

Because Trump's new tax bill was signed into law on July 4, the IRS hasn't had time to issue all of the relevant guidance and regulations to implement the many tax changes in the bill.

(The tax agency is under new leadership with the confirmation, then the firing of Commissioner Billy Long. Treasury Secretary Scott Bessent is heading the agency along with the current commissioner of the Social Security Administration.)

While the new bonus deduction for older adults could help many taxpayers, how it impacts you depends on your specific tax situation.

Consider consulting with a tax professional to understand how new deduction (and bonus deduction) amounts might (or might not) affect your overall tax liability for the 2025 tax year and beyond.

Related

• The Extra Standard Deduction for People 65 or Older
• IRS Unveils Capital Gains Tax Thresholds for 2025 and 2026
• Calculating Taxes on Social Security Benefits
• How the $6,000 'Senior Bonus Deduction' Works

The Social Security Administration (SSA) just announced two key 2025 adjustments: the Social Security COLA (cost of living adjustment) and the new Social Security tax limit.

While you’ve likely heard a lot about the COLA, did you know there's a cap on the amount of income subject to Social Security payroll tax? This ceiling, known as the Social Security tax limit or "wage cap," sets the maximum earnings that can be taxed to fund the Social Security program.

Social Security provides vital retirement, disability, and survivor benefits to over 68 million qualified individuals across the United States.

Social Security wage base 2025 increase

For 2025, the SSA has set the COLA at 2.5%.

The Social Security tax limit will increase by about 4.4% for 2025.

Both of these amounts are adjusted annually for inflation. However, it’s important to note that they are calculated using distinct methods and data sets.

The tax limit changes are particularly significant for high-income earners, who may pay more Social Security tax this year. So, understanding the adjustment is crucial for effective financial planning.

Here’s more of what you need to know.

Social Security tax rate

The Social Security tax limit rises to $176,100 for 2025. (The 2024 tax limit is $168,600.) This 4.4% increase is less than the 5.2% jump from 2023 to 2024.

Still, if you earn more than $168,600 this year, you haven’t had to pay the Social Security payroll tax on the amount of your income that exceeds that limit.) That can result in considerable tax savings.

• Take, for example, an employee with a 2024 annual salary that exceeded the tax limit by $10,000. Since the Social Security tax rate is 6.2% (your employer also pays 6.2%), they would save $620 on Social Security taxes.
• On the other hand, someone who earns wages exceeding the base by $30,000 would receive a $1,860 tax break.
• The more you make over the tax limit, the more your Social Security tax savings.

However, the Social Security tax limit increases yearly as the national average wage index increases. When that happens, more income is subject to the Social Security tax.

Note: Some people don’t have to pay Social Security taxes. (Exemptions from Social Security taxes may be available if certain requirements are met.)

Also, self-employed individuals pay the full 12.4% rate. However, if you're self-employed, you can deduct the employer-equivalent portion of that amount.

Medicare tax considerations

It’s also worth noting that, unlike Social Security, Medicare tax has no income cap. The standard Medicare tax rate of 1.45% (paid by the employee, 2.9% total when added to the employer portion) applies to all earnings, regardless of income level.

High-income earners can be subject to an additional Medicare surtax of 0.9%. This applies to those with income above $200,000 for single filers or $250,000 for married couples filing jointly.

Self-employed individuals pay the employee and employer portions of Medicare tax but can claim a self-employment tax deduction. The 0.9% on high incomes may apply.

Social Security COLA increase 2025

Along with the wage tax base rate, the SSA announced the 2025 COLA increase, which is 2.5%.

On average, according to the SSA, Social Security retirement monthly benefits for about 68 million people are expected to grow by more than $50 as of January 2025.

Will the Social Security wage limit be eliminated?

You may have heard about proposals to eliminate the Social Security tax limit or wage base.

This debate primarily centers around increasing revenue for the Social Security program trust fund. But there are also concerns about fairness in the current tax approach.

• For example, by removing the wage base, high-income earners would contribute Social Security taxes on their entire earnings, potentially injecting significant additional revenue into the system.
• Proponents say this could help shore up Social Security for future generations.

Some say removing the tax limit would ensure all workers, regardless of income level, contribute the same percentage of their earnings to Social Security.

However, opponents of removing the wage base contend that increasing taxes on high earners could discourage productivity and economic growth, potentially reducing overall tax revenue.

Additionally, some point out that while high-income individuals might pay more in taxes, the current Social Security benefit calculation formula would result in them receiving higher benefits in retirement, potentially straining the system further.

2025 Social Security wage cap: Bottom line

For now, pay attention to this new 2025 limit.

Also, watch tax policy taking center stage this year. Proposals to shore up Social Security could be key issues throughout 2025 as lawmakers address tax policy to deal with looming expirations of several key Tax Cuts and Jobs Act (TCJA) provisions.

Related

• Social Security Tax Limit: What to Know
• Medicare Tax: Who Pays and How Much?
• The Taxes That Come Out of Your Paycheck
• Is Social Security Income Taxable?

Tax cuts are back in the news, and one of the most closely watched provisions is the overtime pay deduction in the 2025 tax bill, known by some as the "big beautiful bill."

President Donald Trump has argued that eliminating the tax on overtime pay would incentivize work, benefit hardworking Americans, and make it easier for companies to attract employees.

The idea, which gained traction alongside the “no tax on tips” pledge during the most recent presidential campaign, is (with several limits) now part of major GOP tax legislation enacted July 4, 2025.

Now, many workers' questions center on what the changes are and what they mean for their paychecks going forward.

Here’s more to know.

How overtime pay is taxed in 2025

As of July 4, 2025, the Trump/GOP tax bill allows workers to deduct up to $12,500 of the premium portion of certain overtime pay ($25,000 for joint filers) from their federal taxable income for tax years 2025 through 2028.

It's important to note that the new tax bill doesn't fully exempt all overtime pay from federal income tax. Payroll and state/local taxes still apply.

Previously, overtime pay was taxed like regular wages, subject to federal and state income taxes and Social Security and Medicare withholding.

Now, under the new tax law, while payroll and state/local taxes still apply, eligible workers won't owe federal tax on the deductible portion of their eligible overtime pay each year during the three years.

Key Points:

• The Fair Labor Standards Act (FLSA) mandates that eligible workers receive at least 1.5 times their standard pay rate for hours worked beyond the typical 40-hour workweek. (The "premium portion" is the half, 0.5).
• Overtime pay is normally subject to federal income tax, and Social Security and Medicare taxes.
• Now, under the so-called "big beautiful bill," eligible individuals can deduct up to $12,500 of premium overtime earnings from their taxable income each year from the 2025 through 2028 tax years.
• You won't have to itemize deductions to claim this tax break, and the deduction phases out for higher earners, starting at $150,000 in income for singles ($300,000 for joint filers).

*Remember: Under the 2025 tax law, only the deductible portion of federal income tax on overtime pay is eliminated for 2025 through 2028. Payroll taxes and state/local income taxes will still apply.

Also, since this tax break is different than a tax credit or total exemption, your overall tax savings, if any, will likely depend on your marginal tax rate.

Is overtime tax-free now?

The "no tax on overtime" proposal is part of a series of tax cut promises Trump made during his presidential campaign. As Kiplinger has reported, he previously suggested eliminating taxes on tips and ending the tax on Social Security benefits.

In recent years, Gallup polling has revealed that a majority of workers regularly clock more than 40 hours a week.

Data show that nearly 80% of voters support some form of overtime pay protection for all workers. (That support was reportedly strong across political party lines.)

So, some lawmakers saw the proposals, criticized by many economists and policymakers, as ways to appeal to so-called "working-class" voters.

But keep in mind that Trump's new tax bill doesn't make all overtime pay fully exempt from federal income tax, and while the idea of tax-free overtime may sound appealing, critics worry.

• There's the potentially significant loss of federal tax revenue (on the low end, depending on what income is exempted, an estimated $145 billion over ten years, according to the Tax Foundation)
• Plus, the possibility of employers relying more on overtime instead of hiring additional workers

Similar concerns have been raised about "no-tax-on-tips." (The Tax Foundation estimates a cost, on the low side, of $107 billion over ten years).

When does no tax on overtime start?

With the Trump tax bill now signed into law, the federal income tax deduction for overtime pay applies beginning with the 2025 tax year and continues through 2028.

Supporters of the tax break say eligible workers will see the change reflected in their 2025 tax return, filed now, in 2026.

However, keep in mind that, as mentioned above, the deduction is limited in terms of time, amount, and income.

How to claim the overtime pay deduction

Eligible workers can claim the overtime pay deduction on the new Schedule 1‑A (Additional Deductions) of Form 1040.

You report your qualified overtime earnings there — up to $12,500 per individual ($25,000 for joint filers) — and the total deduction is then carried over to your Form 1040.

As mentioned, you don't have to itemize deductions to claim this tax break but the deduction phases out for higher-income filers (starting at $150,000 for single, $300,000 for joint).

Other new overtime rules?

Questions about how Trump is dealing with overtime pay come as many in the U.S. grapple with the varied impacts of inflation, including concern that wages and income are not keeping pace.

The Biden administration had enacted a rule that would have raised the minimum salary requirement for overtime pay eligibility. The move was designed to boost wages for workers with lower incomes.

• The new Department of Labor rule was scheduled to take effect in two stages over the next year.
• The FLSA salary threshold first increased in July to $43,888 annually ($844 per week), up from the previous $35,568 ($684 per week).
• Future threshold increases would occur in later years, beginning as soon as 2025. For instance, on January 1, 2025, the threshold would increase to $58,656 a year ($1,128 per week).
• That change was expected to extend overtime pay protection to millions of additional workers who weren’t previously eligible.

With some exceptions, most employers would be required to follow the overtime rules, at least regarding the July 1, 2024 changes.

Note: The Trump administration hasn't announced a new rule for overtime eligibility, so employers will likely follow the 2019 rules.

Texas overtime ruling: What it means for you

What happened in Texas? Texas sued the Department of Labor over the Biden overtime pay eligibility rule, which, as mentioned, would have raised the minimum salary threshold for overtime exemption to $58,656 as of January 1, 2025.

Texas argued that the federal government (DOL) overstepped its authority by focusing on salary rather than job duties. A Texas federal court struck down the new DOL overtime rule.

As a result, the new overtime rule's implementation is blocked nationwide and the salary thresholds have reverted to the 2019 levels. ($684 per week ($35,568 a year) for most employees and $107,432 for highly compensated employees.)

It's expected that most employers will follow 2019 salary thresholds for overtime eligibility, pending further federal guidance.

Overtime tax in 2025: Bottom line

The Trump/GOP tax bill, signed into law on July 4, 2025, now provides an above-the-line deduction for overtime pay.

This isn't a full tax exemption, but advocates see it as a way to provide some tax relief to eligible workers who put in more than 40 hours per week.

The deduction of up to $12,500 per individual phases out at higher incomes and will only be available for three years.

At the same time, as reported by Kiplinger, several states are also considering proposals to end state taxes on tips.

Related

• Could Tax on Overtime End in Your State This Year?
• What's in the 2025 Trump Tax Bill?
• 'No Tax on Tips'? What You Need to Know

The debate over tips in the United States is heating up. Data show people often feel pressured to tip, even at places they never used to. And with prices being as high as they are, some find it challenging to tip on top of everything else.

Then, there’s the question of whether businesses should pay higher minimum wages instead of having their employees rely on tips. Those issues make tipping a pain point for many.

But that's not all. During the presidential election campaign, the idea of eliminating federal taxes on tips gained traction on both sides of the political aisle.

That rare alignment between the two major political parties revived debate over how to support service industry workers, many of whom struggle financially despite working long hours. Both sides at least seem to recognize the potential political benefits of a policy that could impact millions of people.

But the proposal remains controversial and has advantages and drawbacks that policymakers would have to deal with. So, will eliminating taxes on tips help workers or even come to fruition?

Here’s more of what you need to know.

Will Trump end taxes on tips?

President Donald Trump initially mentioned ending taxes on tips at a campaign rally late last year, some say to appeal to “working-class” voters.

“To those hotel workers and people who get tips, you are going to be very happy because when I get to office, we are going to not charge taxes on tips, people making tips,” Trump told supporters during the presidential campaign.

A few days before Trump resumed the presidency for his second term, Senators Ted Cruz (R-TX) and Rick Scott (R-FL) reintroduced the "No Tax on Tips Act," to address part of Trump's campaign promise.

The bill proposes exempting tips from federal income tax, allowing workers to claim a full 100% deduction for tipped wages when filing their taxes.

In a release, Senator Ted Cruz stated, "I've long believed the GOP should be the party of bartenders, of waiters and waitresses, and this bill is an important step to ensure we are addressing the economic needs of working Americans."

Notably, the bill has some bipartisan support, with Nevada Democratic Senators Jacky Rosen and Catherine Cortez Masto signed on as sponsors.

Cortez Masto said of the bill, “Working families in Nevada deserve a break, and this bipartisan bill will put more money in their pockets. This is one part of my comprehensive work to lower costs for working families and deliver for Nevadans across the state.”

The National Restaurant Association has also backed the revised No Tax on Tips Act, reportedly viewing it as a way to support workers in the industry.

Update: On May 20, the U.S. Senate passed the No Tax on Tips Act by unanimous consent. For more information, see New 'No Tax on Tips' Bill Approved: What to Know Now.

How tip income is taxed by the IRS

It's important to know that under current IRS guidelines, tips received by employees are considered federal taxable income. That includes cash tips, tips received via credit or debit cards, and the value of non-cash tips like tickets or other items.

• Employees are required to report all cash tips to their employer if the total tips for the month exceed $20.
• Employers then withhold income taxes, as well as Social Security and Medicare taxes, based on both wages and reported tips.
• Additionally, service charges mandatory fees added to a bill, are treated by the IRS as regular wages and are subject to the same tax withholdings.

Because of this, those arguing to eliminate taxes on tips point to a key potential benefit of increased take-home pay for some workers. Not taxing tips could provide financial relief to some workers in industries such as restaurants and hospitality, where base wages are often low.

Another related view is that by reducing the income subject to tax, workers who rely heavily on tip income might have more disposable income to cover living expenses and essentials, improving their financial stability.

Some data also indicate that many in the U.S. support the idea of tax-free tips. For example, a recent poll conducted by the polling and strategic consulting firm Redfield & Wilton Strategies found that 67% of Americans (across party lines) oppose taxing tips received by service workers.

Eliminating tip taxes: Downsides

Despite what would seem to be obvious benefits, some economists have raised the potential loss of federal revenue as a primary concern with no tax on tips proposals.

• The Committee for a Responsible Federal Budget estimates that exempting tips from income and payroll taxes could result in a revenue shortfall of $150 billion to $250 billion over the next decade.
• Some say that could exacerbate the national debt and strain government resources.

Other critics argue that the no taxes on tips policy may not effectively target those who need it most. A Yale University analysis found that only a tiny fraction of the workforce would benefit from the tax exemption, as many low-income workers already pay minimal or no federal income tax due to their earnings level.

There’s also an argument that employers should raise base pay to support workers relying on tips. And that focusing on tips could hurt efforts to raise the minimum wage.

Note: A study published earlier this year by researchers at the University of Michigan and Carnegie Mellon University found that increasing the minimum wage can benefit workers and businesses. The findings suggest that higher wages have been linked to better employee retention and increased profits for more efficient establishments in the restaurant industry.

Another concern is the potential for abuse. Eliminating taxes on tips could lead to employers reclassifying wages as tips to exploit tax benefits. Or, higher earners could take unfair advantage of the policy without proper safeguards like income limits.

Opponents argue these scenarios could create disparities among low-income workers and incentivize businesses to prioritize tips over wage increases.

Of course, there are the legislative hurdles. Implementing this policy would require legislative action. The proposal would have to pass a now-Republican-controlled Congress, which would have to agree on several tax proposals that Trump has said he'd like to see in one "big, beautiful [reconciliation] bill."

Tax on tips: Bottom line

Proposals to eliminate federal taxes on tips present potential pros and cons. While the idea promises increased earnings for service workers, it also presents challenges involving revenue loss and ensuring those who need tax relief the most get it.

However, whether the idea will become law remains to be seen. So, stay tuned.

Related

• New 'No Tax on Tips' Bill Approved: What to Know Now
• Types of Income the IRS Doesn't Tax
• States That Would Be Hardest Hit By Trump Tariffs

The Social Security tax, withheld from each paycheck, stops once your income reaches a certain amount. That is due to the Social Security tax limit or "wage base," which is the maximum amount of earnings subject to Social Security tax.

These taxes fund the Social Security program, which provides retirement, disability and survivor benefits to eligible recipients.

Last fall, along with a 2.8% cost-of-living (COLA) increase, the Social Security Administration (SSA) announced a 4.8% increase in the tax limit for 2026, leading to higher taxes for some wealthy taxpayers this year.

2026 Social Security tax limit increase

For 2026, the Social Security tax limit is $184,500. (Last year, in 2025, the tax limit was $176,100.) If you earn more than $184,500 this year (in 2026), you don't have to pay the Social Security payroll tax on the amount that exceeds that limit.

That can result in considerable tax savings for those who earn more than the wage base.

Let’s calculate the savings for someone whose salary exceeds the limit by $10,000 for 2026.

Salary: $184,500 plus $10,000 equals $194,500

Without the wage base limit, the tax would be about $12,059 ($194,500 times 6.2%).

With the wage base limit, the tax would be about $11,439. (Tax on wage base: $184,500 times 6.2% equals $11,439.00).

Savings calculation:

Savings equals $12,059 (tax without limit) minus $11,439 (tax with limit) equals $620

An employee whose salary exceeds the Social Security tax limit by $10,000 would save $620 in Social Security taxes this year.

On the other hand, someone who earns wages exceeding the base by $30,000 would receive a $1,860 tax break. (The more you make over the tax limit, the more your Social Security tax savings.)

Note: This savings applies only to the Social Security portion of FICA taxes. The employee would still pay the 1.45% Medicare tax on their entire salary, as there is no wage base limit for Medicare taxes.

Also, for high-income earners, there's an additional Medicare tax of 0.9% on earnings above $200,000 for single filers or $250,000 for married couples filing jointly.

However, the Social Security tax limit increases yearly as the national average wage index increases. When that happens, almost every year, more income is subject to the Social Security tax.

How Social Security taxes are calculated and what the rates are

The tax rate for an employee's portion of the Social Security tax is 6.2%.

• Your employer also pays 6.2% on any taxable wages.
• Self-employed individuals pay the full 12.4%. However, it’s worth noting if you're self-employed, you can deduct the employer-equivalent portion of that amount.

In the past five years or so, the Social Security tax limit has increased by an average of about $8,340 a year.

However, for 2026, the tax limit went from $176,100 to $184,500, an increase of $8,400 from the previous year. That's a larger jump than the $7,500 increase from 2024 to 2025, and matches the $8,400 increase from the year before that.

• These recent hikes are only surpassed by the record-breaking $13,200 increase seen from 2022 to 2023.
• As a result, the maximum Social Security tax jumped from $10,918.20 to $11,439.00.

People making more than $184,500 in 2026 will pay $520.80 more in Social Security taxes this year than they would have paid if the tax limit had remained at the 2025 level of $176,100.

COLA increase for Social Security

Along with the wage tax base rate, the SSA announced the 2026 Social Security COLA increase. As Kiplinger reported, more than 71 million retirees receiving Social Security checks will see their monthly government payments rise 2.8% this year.

On average, according to the SSA, Social Security retirement monthly benefits for nearly 75 million people (including SSI recipients) are expected to grow by about $56 beginning in January 2026.

When benefits grow, wealthier taxpayers might pay more tax. That's why a COLA rate increase is just one way you could get a surprise tax bill on your Social Security benefits.

And...various projections for the 2027 Social Security COLA are floating around 3.8%.

Who is exempt from Social Security tax?

Some people don’t have to pay Social Security taxes. (Exemptions from Social Security taxes might be available if certain requirements are met.) Some examples are listed below, although other exemptions may be available.

• Certain members of religious groups or organizations
• Students and certain young (minor) workers
• Employees of foreign governments
• People the IRS considers to be nonresident aliens

Looking ahead: The Social Security wage base for 2027

Each year, the Board of Trustees for the Social Security Trust Fund publishes a report on the financial status of the Social Security program. The latest report, released in mid-2025, provides tax limit projections through 2034.

Interestingly, the board initially projected in its intermediate assumptions that the 2026 tax limit would rise to $183,600. However, the official announcement from the SSA in October 2025 put the actual tax limit for 2026 at $184,500.

This follows a similar pattern from last year, when the 2025 limit was initially projected to be $174,900 but was eventually set at $176,100.

These discrepancies occur because the official limit is tied to the National Average Wage Index, which has recently grown faster than the Trustees' conservative estimates.

The latest Social Security Trustees report, released in June 2026, projects that the 2027 tax limit will rise to $190,200 (up from $184,500 this year). Stay tuned to see if that estimate comes to fruition.

Read More

• What to Know About Taxes on Social Security
• Federal Income Tax Brackets for 2026
• Types of Income the IRS Doesn't Tax

State "stimulus" checks, tax rebates, and inflation relief payments are popular. Millions of people in 21 different states received special state payments last year. And several states are sending more rebates and surplus tax refunds this year. 

So, if you’ve received a special state payment or are looking forward to one, a question on your mind might be whether you’ll have to pay tax on that money — the IRS has offered an answer.

The agency announced guidance on the federal tax status of these state “stimulus” and other special payments made to individuals. The guidance, which applies to payments received in 2023, is part of the agency’s effort to make the tax consequences surrounding these payments more straightforward for taxpayers. 

State 'stimulus' check 2023 update 

Clarity from the IRS on so-called state “stimulus checks” is essential because millions of taxpayers across the U.S. have received special rebates and payments as states return surplus revenue to eligible residents. As Kiplinger has reported, these payments vary by state, type, amount, and eligibility criteria.  

• Last year, the IRS issued guidance applicable to 2022 state payments. 
• At that time, the agency said most of the state stimulus payments weren’t taxable, but that in some cases, taxpayers might need to report the payments on their federal returns.
• The IRS also suggested that some taxpayers consider amending their 2022 tax returns if they reported the special state payments as income.

This latest guidance addresses several questions involving 2023 special state payments. Here’s what you need to know. 

IRS weighs in on state rebate payments

In most cases, according to the IRS, taxpayers who receive special state payments (one-time refunds, rebates, or other payments) in 2023 won't have to include the payments in their income for federal tax purposes. That is especially relevant for those who opt for the standard deduction on their federal returns. (Most taxpayers claim the standard deduction.)

What if you itemize deductions? If you itemize deductions on your federal income tax return and receive a state tax refund or special payment, the IRS says you might need to include it in your federal income. But that is only if you deduct the state tax paid. (Due to the $10,000 limit on itemized deductions for state income and property taxes, some taxpayers won't need to include the state refund in their income.) 

That can be confusing, so if you’re unsure, consult a trusted tax professional before filing your 2023 federal return. 

Spillover 'stimulus' payments from last year

It's worth noting that the IRS also provided guidance on a specific situation that occurred last year with certain state programs. (These programs provided payments that eligible residents didn’t receive until early 2023.)  

• According to the IRS, even if you don’t receive your special state payment for 2022 until 2023, you can still exclude it from your federal income.
• (You would follow the same rules that applied to the 2022 state payments.)

'General welfare' program payments

In addition, the latest IRS guidance provides information on what the agency refers to as "state general welfare programs." Certain states offer payments to individuals intended to support the general well-being of individuals or families in need. The IRS considers this money non-taxable income, but only if it comes from a governmental fund and is not compensation for services rendered.

Note: Determining whether payments qualify for this exclusion can be complex and depends on various factors. The IRS provides an example to help clarify how this general welfare exclusion works. 

Is the Colorado TABOR refund taxable?

There has been debate recently about whether Colorado TABOR (Taxpayer Bill of Rights) "Cash Back" payments are exempt from federal income tax. The new IRS guidelines don't explicitly mention the Colorado payments, which are essentially refunds to Coloradans of state sales taxes paid. 

Several Colorado state legislators and Gov. Jared Polis have requested that the IRS clarify this issue and avoid a situation where the TABOR refunds are considered taxable. 

Meanwhile, the IRS is requesting comments on the federal tax treatment of special state payments, particularly those similar to TABOR refunds. The deadline for submitting comments on the guidance is Oct. 16, 2023.

Will the IRS tax Minnesota ‘Walz checks’?

According to Minnesota Governor Tim Walz, the IRS will tax rebates sent to eligible Minnesota residents in 2023. These rebates, commonly known as "Walz checks," were worth up to $1,300 in some cases and were a result of a $3 billion tax relief bill passed earlier this year. (That bill also included a child tax credit for the state worth up to $1,750 per child dependent.)

Walz strongly disapproved of the IRS' decision to consider the rebate checks received by Minnesotans as taxable income. The Governor's frustration was evident during a December news conference discussing the state's projected budget surplus for 2024. “It’s bull—,” Walz told reporters.

Meanwhile, the Minnesota Department of Revenue plans to send 1099-MISC forms to rebate recipients for federal tax return purposes.

More: IRS Will Tax Minnesota 'Rebte Walz checks'

Related Content

• States Sending Rebate Checks in 2023
• 2023 Tax Brackets and Federal Income Tax Rates
• What's the 2023 Standard Deduction?

The IRS has allocated more of its resources provided by the Inflation Reduction Act (IRA) to tax enforcement, and tax-evading millionaires and billionaires continue to be targets. The agency recently collected taxes from 1,600 millionaires, resulting in a total of $520 million recovered for the U.S. government since implementing the new initiatives. And the IRS is nowhere near done making the wealthy pay their share.

"We are adding staff and technology to ensure that the taxpayers with the highest income, including partnerships, large corporations and millionaires and billionaires, pay what is legally owed under federal law," said IRS Commissioner, Danny Werfel.

Tax enforcement for millionaires and partnerships

Any taxpayer can face an IRS audit, but the IRS has its sights set on complex partnerships and wealthy taxpayers who refuse to pay up (or falsify their tax returns), such as millionaires and billionaires buying Bentleys (as happened in a case cited by the agency) instead of paying their tax bills. And now that the agency has the resources to better identify wealthy tax evaders, millionaires that “bend the tax rules” should beware.

Millionaire tax 'loopholes’

With its funding, the IRS has been digging into some common scenarios some wealthy taxpayers use to evade big tax bills, which include (but are not limited to) the following: 

• A taxpayer claiming residence in Puerto Rico (without actually having real residency there).
• A taxpayer claiming exemptions based on treaty rules between the U.S. and Malta.
• A taxpayer failing to file tax returns but making luxury purchases (such as Bentleys and other luxury cars).
• Taxpayers who illegally move assets into offshore accounts, including Malta personal retirement scheme transactions, to hide taxable income.

The IRS is also taking additional "swift and aggressive action" by expanding and improving several of its programs as part of ongoing efforts to close the tax gap. For example, the agency utilized machine learning technology to open examinations on 76 of the largest partnerships in the U.S. and is increasing enforcement efforts for taxpayers who incorrectly claim to qualify "limited partners" in limited partnerships not subject to self-employment tax.

Chances of an IRS audit 

IRS audits of wealthy taxpayers dropped in recent years, according to a report from the U.S. Government Accountability Office (GAO). But the IRS attributed this drop to a lack of resources. That’s partly because conducting audits of wealthy taxpayers’ tax returns requires more time and agents than auditing “every day” tax returns.  (The IRS has recently come under fire for auditing some taxpayers more than others.)

Now that the IRS has more staff and is implementing AI to identify possible tax evasion, wealthy taxpayers’ chances of an audit could increase this year. 

And while the IRS is focusing enforcement on the wealthy, complex partnerships and corporations, non-millionaire taxpayers are still subject to audits. Taxpayers can reduce audit risk by avoiding common IRS red flags, such as failing to report income and claiming excessive tax write-offs on Schedule C. 

Related Content

• Millionaire Tax Evaders Beware: The IRS Is Coming
• Lawmakers Want the IRS to Crack Down on 'Wealthy Tax Cheats'
• From Chatbots to Audits: How the IRS Will Use AI This Tax Season

People understandably gripe about the complexities of the federal income tax laws. Filling out your tax return is not as easy as writing a couple of numbers on a postcard and sending it to the IRS.

Just when you think that you might have a handle on your taxes, Congress changes the laws, sometimes retroactively.

Confusing tax terminology adds to the challenge. One example is the many meanings of the term “modified adjusted gross income,” sometimes referred to as modified AGI or MAGI.

Let's break down modified adjusted gross income. Here's what you need to know.

What is modified adjusted gross income? 

Modified adjusted gross income (MAGI) is often used by the IRS and other federal agencies to determine your eligibility for certain tax benefits or tax breaks or to determine if you're subject to surtaxes or surcharges.

For example, in the tax code, MAGI is used to calculate income thresholds for the health premium credit, the child tax credit, the American Opportunity Tax Credit, the adoption credit, the clean vehicle tax credit, and to make Roth IRA contributions.

Your MAGI is used to see if you qualify for any of these five new temporary tax breaks in the recently enacted so-called "One Big Beautiful Bill" law: The $6,000 deduction for people age 65 and older, the $40,000 cap on deducting state and local taxes (SALT) on Schedule A, the deduction for up to $25,000 of tips, the deduction for up to $12,500 of overtime pay, and the deduction for up to $10,000 of car loan interest that you pay on loans to buy a new automobile.

Your MAGI also determines whether you'll be hit with the 3.8% surtax on net investment income and whether your Social Security benefits are taxed. For people on Medicare, MAGI dictates whether you owe monthly premium surcharges for Parts B and D coverage.

The confusing part is that the definition of modified adjusted gross income often differs depending on what it is used for. However, the one constant of MAGI is that it always starts with your adjusted gross income. (That is the amount shown on Line 11 of your Form 1040 or Form 1040-NR.)

But from there, figuring out your modified adjusted gross income gets complicated.

MAGI for popular tax credits 

There are some common situations involving popular tax credits where you will need to calculate your MAGI. For example, several popular tax credits (i.e., the child tax credit, the adoption credit, the clean vehicle credit (known as the EV tax credit) and the American Opportunity tax credit) use the same definition of modified adjusted gross income.

To calculate your modified adjusted gross income for those credits, start with the AGI shown on line 11 of your Form 1040 or 1040-SR and add the foreign earned income exclusion, foreign housing exclusion and any amounts excluded from gross income because they were received from sources in Puerto Rico or American Samoa.

Child Tax Credit. The federal child tax credit of up to $2,200 per child (starting with 2025 tax returns filed in 2026) begins to phase out once your modified AGI exceeds $400,000 on a joint return or $200,000 on a single or head-of-household return.

For more information, see How Much is the 2025 Child Tax Credit?

The Adoption Credit. The maximum $17,280 tax credit for adopting a child for 2025 begins to phase out at modified AGI above $259,190.

For more information, see our report on the Adoption Tax Credit for 2025.

Clean Vehicle Credit. You still can get up to a $7,500 tax credit for buying a new electric vehicle this year, provided you meet all the rules and you buy the electric vehicle before September 30, 2025.

One of the requirements is that your modified AGI not exceed $300,000 on joint returns, $225,000 on head-of-household returns or $150,000 on single returns. There’s also a tax credit of up to $4,000 for buyers of used electric cars purchased before October 1, 2025, but that tax break ends at modified AGI over $150,000 on joint returns, $112,500 on head-of-household returns, and $75,000 on single returns.

For more information, see How the EV Tax Credit Works for 2025.

American Opportunity Tax Credit. The American Opportunity tax credit for the first four years of college is worth up to $2,500 per child per year in costs for tuition, fees and books. The credit starts to phase out for joint filers with modified AGI above $160,000 and for single and head-of-household filers with modified AGI above $80,000.

Learn More: The AOTC: How Much Is It Worth?

MAGI for five new tax breaks in the OBBB

The ability of filers to take advantage of five new tax breaks in the so-called "One Big Beautiful Bill" signed into law by Trump on July 4, 2025, depends, in part, on MAGI.

The definition of modified AGI is the same for purposes of the SALT deduction, senior deduction, tips deduction, overtime pay deduction and auto loan interest write-off.

To calculate your modified adjusted gross income for these five new deductions described below, start with the AGI shown on line 11 of your Form 1040 or 1040-SR and add the foreign earned income exclusion, foreign housing exclusion and any amounts excluded from gross income because they were received from sources in Puerto Rico or American Samoa.

State and Local Tax (SALT) deduction. The cap on deducting state and local taxes on Schedule A of your Form 1040 rises to $40,000 (up from $10,000) for 2025 through 2029. It goes back down to $10,000 beginning in 2030.

There is also an income limit. For 2025, the SALT deduction begins to phase out, but not below $10,000, for filers with modified AGI above $500,000 ($250,000 for couples filing separately). The cap and income limit increase 1% each year through 2029.

Learn More: SALT Deduction 2025: Three Things to Know

"Senior" deduction. There is a new senior deduction of up to $6,000 per filer age 65 and older. Married couples with both spouses 65 and older can deduct $12,000 on a joint return.

However, not every senior will qualify. The deduction begins to phase out for taxpayers with modified AGI above $150,000 on joint returns and $75,000 on single and head-of-household returns. This deduction is available for taxpayers who claim the standard deduction and for those who itemize on Schedule A of the 1040. It takes effect on 2025 tax returns filed next year and ends after 2028.

For more information, see: 2025 Tax Deduction Change for Those 65 and Older.

Tips deduction. Up to $25,000 of qualified tips is now deductible. The write-off begins to phase out at modified AGI over $300,000 on joint returns and $150,000 on other returns.

This deduction is available for taxpayers who claim the standard deduction and for those who itemize on Schedule A of the 1040. It takes effect on 2025 tax returns filed next year and ends after 2028.

See No Tax on Tips Bill Approved for more information.

Overtime pay deduction. Up to $12,500 ($25,000 for joint filers) of qualified overtime compensation is now deductible. The write-off begins to phase out at modified AGI above $300,000 on joint returns and $150,000 on other returns.

This deduction is available for taxpayers who claim the standard deduction and for those who itemize on Schedule A of the 1040. It takes effect on 2025 tax returns filed next year and ends after 2028.

Learn more: What's Happening With Taxes on Overtime Pay?

Auto loan interest. Individuals with auto loans can deduct up to $10,000 of interest that they pay on loans to buy a new car, minivan, SUV, pickup truck or motorcycle after 2024. Final assembly of the vehicle must take place in the U.S.

The write-off begins to phase out at modified AGI above $200,000 for joint filers and $100,000 for others. This deduction is available for taxpayers who claim the standard deduction and for those who itemize on Schedule A of the 1040. It takes effect on 2025 tax returns filed next year and ends after 2028.

For more information, see New GOP Car Loan Interest Tax Deduction.

MAGI for other common tax deductions 

The definition of modified AGI for purposes of tax breaks for student loan interest, savings bond interest used for education and rental losses (each of which is described below) is even more complex because more tax items are taken into account in determining MAGI for those tax breaks.

Student loan interest deduction. If you’ve taken out student loans to pay for college, you might be able to deduct up to $2,500 in interest on your tax return once you start repaying the loans. The write-off is considered an above-the-line deduction because it's claimed as an adjustment to income, and you can take it even if you don’t itemize.

However, the student loan interest deduction starts to phase out if your modified AGI for 2025 exceeds $170,000 for joint filers and $85,000 for other filers.

Learn More: Don't Miss the Up to $2,500 Deduction for Student Loan Interest.

Savings bond interest used for education. Buyers of EE or I Savings Bonds have a choice when they acquire the bonds. They can pay federal income tax each year on the interest earned or defer the tax bill to the end.

Most people choose the latter. They report the interest income on their Form 1040 for the year the bonds mature or when they’re cashed in, whichever comes first.

One way to avoid paying federal income tax on accrued EE or I bond interest is to cash in the bonds before the maturity date and use the proceeds to help pay for college or other higher education expenses for you, your spouse or your dependent.

There are lots of rules and hurdles to jump to take advantage of this tax perk.

For example, the exclusion is subject to strict income limits. For 2025, the interest exclusion begins to phase out at modified AGI of more than $149,250 for joint filers and $99,500 for others.

Related: Are I Bonds Taxable? Nine Common Situations

Deduction for rental losses. The passive loss rules usually prevent the deduction of rental real estate losses, but there are important exceptions.

For example, if you actively participate in the renting of your property, you can deduct up to $25,000 of loss against your other income. This $25,000 allowance begins to phase out as your modified AGI exceeds $100,000.

MAGI and the 3.8% net investment income tax 

The additional 3.8% tax on net investment income generally affects upper-income investors — either joint filers with modified AGI over $250,000 or single or head-of-household taxpayers with modified AGI over $200,000. (Net investment income includes, among other things, taxable interest, dividends, gains, passive rents, annuities, and royalties.)

The 3.8% tax is due on whichever is smaller: net investment income or the excess of modified AGI above the set income thresholds.

For purposes of this 3.8% surtax, modified AGI is the AGI shown on line 11 of your Form 1040 or 1040-SR, plus tax-free foreign earned income.

MAGI for Medicare monthly premiums 

Most people on Medicare pay the basic monthly fee for Medicare Part B coverage, which for 2025 is $185.00 per month. Many also sign up for the cost of Part D prescription drug coverage. However, some seniors pay higher Part B and D premiums if their modified AGI exceeds a specific income threshold.

For 2025 coverage, Medicare Parts B and D monthly premium surcharges kick in for joint filers with modified AGI above $212,000 and single individuals with modified AGI of more than $106,000. The surcharges increase as income rises.

Medicare premium surcharges are calculated using the income reported on the most recent filed tax return. The amounts for 2025 are based on modified AGI from 2023 returns filed in 2024.

Modified AGI for this purpose is AGI shown on line 11 of Form 1040 or Form 1040-SR (PDF), plus tax-exempt interest.

Yours free, New Tax Rules for 2025. Download your free issue of The Kiplinger Tax Letter today. No information is required from you.

Related

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Russia's invasion of Ukraine has triggered a worldwide outpouring of support for victims of the war. And aide to those suffering is not just coming from other nations. Ordinary citizens from around the world are helping, too. They're showing up in neighboring countries to help refugees, sending care packages, donating to relief organizations, giving blood, and more.

In the U.S., some companies are facilitating this effort by setting up leave-based donation programs. Under these programs, workers can give up their vacation, sick, or personal leave in exchange for having their employer make a cash donation to a charitable organization tied to Ukrainian relief efforts. However, one of the questions workers may have about participating in a leave-based donation program is whether their donation will be treated as taxable income on their W-2 form.

Fortunately, the IRS has cleared up this concern for leave-based programs set up to help victims of the war in Ukraine. According to the tax agency, payments made by an employer under such a leave-based donation program before January 1, 2023, won't be treated as gross income, wages, or compensation of their workers. As a result, employees who elect to forgo leave under a leave-based donation program to help Ukrainian war victims won't be treated as having constructively received gross income, wages, or compensation. That also means an employer shouldn't include the payments it makes to a charity under the program in Box 1, 3, or 5 of its electing employees' W-2 forms.

However, to prevent "double dipping," workers who participate in a leave-based donation program can't claim a charitable contribution deduction on their 2022 tax return for the value of their forgone leave. On the other hand, the employer may be able to deduct its payments to charity if it otherwise meets the requirements for a charitable deduction.

It might come as a surprise, but Social Security benefits are not entirely tax-free.

Depending on your income, up to 85% of your Social Security benefits can be subject to tax. That includes retirement and benefits from Social Security trust funds, such as survivor and disability benefits, but not Supplemental Security Income (SSI).

The chance of paying taxes on your Social Security benefits is higher when you have significant taxable income from a job, pension or traditional IRA, for example.

Because SS income thresholds haven't been indexed for inflation, a growing share of retirees now owe taxes on Social Security benefits even if their purchasing power hasn't increased.

However, many people who only have income from Social Security don’t pay income taxes on their benefits at the federal level.

Like other forms of retirement income taxed by the IRS, taxes on Social Security benefits are a possibility for retirees, it’s important to know how Social Security taxes are calculated.

How to calculate tax on Social Security benefits

Each January, after you begin receiving Social Security benefits, you will receive a statement (Form SSA-1099) showing the total benefits you received in the previous year.

When determining how much you might be taxed, the first step is to calculate your "combined income."

The IRS says your combined income is your adjusted gross income (AGI) plus nontaxable interest and half your Social Security benefits from the year. You then take away certain deductions and exclusions.

The following tiered system determines the percentage of your benefits that are taxable.

• If your combined income is under $25,000 (single) or $32,000 (joint filing), there is no tax on your Social Security benefits.
• For combined income between $25,000 and $34,000 (single) or $32,000 and $44,000 (joint filing), up to 50% of benefits can be taxed.
• With combined income above $34,000 (single) or above $44,000 (joint filing), up to 85% of benefits can be taxed.

If you need clarification on whether your Social Security benefits are taxable, the IRS has a tool on its website that can help.

Once you know how much of your benefits are taxable, you must include that amount on Line 6b of Form 1040.

That income will be taxable, along with any other income, based on your tax bracket and the income tax rate tied to it.

Note: The percentage of Social Security benefits that might be taxable due to SS income thresholds is a separate determination from your ordinary income tax bracket.

Also, keep in mind that one-time events such as selling a home, cashing out investments, or receiving a lump-sum payment can increase your combined income for a given year.

Tax on lump-sum payment from Social Security

When calculating taxes on your Social Security benefits, you should include the taxable portion of any lump-sum payment you received during the year. (That's true even if that payment includes benefits from a previous year.)

However, the inclusion might lower the taxable portion of your benefits. In that case, the IRS says you can elect to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the previous year.

Note: Lump-sum retirement benefits differ from lump-sum death benefits. It's important to note that no part of a lump-sum death benefit paid by the Social Security Administration (SSA) is taxable.

How to withhold taxes from Social Security payments

It's important to plan if you know some of your Social Security benefits will be taxed. To avoid surprises, you can request that federal income taxes be withheld from your monthly payments.

• To do this, you must fill out Form W-4V and submit it to your local Social Security office.
• You can choose a withholding rate of 7%, 10%, 12%, or 22%.
• Withholding taxes from your Social Security payments is one way to cover your potential tax liability before tax day arrives.

If you prefer not to have taxes deducted from your monthly Social Security payments, you can make quarterly estimated tax payments.

Regardless of the method, the goal is to ensure you've paid enough tax to avoid an underpayment penalty from the IRS when you file your income tax return.

State tax on Social Security benefits

In addition to federal taxes, some states tax Social Security benefits. However, the methods and extent of taxation vary.

For example, New Mexico technically taxes Social Security benefits, but many retirees will not pay a dime to the state on that income at tax time. That’s because state legislation provides higher income thresholds in New Mexico for exempting Social Security benefits.

West Virginia has been working to phase out its tax on Social Security benefits. The move, initiated by legislation passed a couple of years ago, represents a significant policy shift.

Update: As of January 1, 2026, West Virginia has officially completed the phase-out. All Social Security benefits received this year will be fully deductible when WV residents file their 2026 state taxes in early 2027.

Some proponents say it will make West Virginia more attractive to retirees and ease the financial burden on its aging population.

(For more information, see Taxes on Social Security: Two States Make Big Changes.)

Although you can't have state taxes withheld from Social Security benefits, you might be able to make estimated state tax payments.

Contact your state's Department of Revenue for information about estimated tax payment rules where you reside.

Read More

• Five Things To Know About Social Security and Taxes
• How Retirement Income is Taxed by the IRS
• How the New $6K Senior Bonus Deduction Impacts Medicare IRMAA

Imagine spending years training to be the best at a sport. You sacrifice time with family and friends to be the greatest in the world. Then the Olympics come around and you win a gold medal. Finally, after devoting years of time and effort to be the best, you have a medal that represents all your hard work. That medal is likely invaluable to you. But what about the IRS? Are they going to force you to pay tax on the medal?

The answer used to be "yes." Before 2016, the IRS had no problem slapping a value on Olympic medals for tax purposes. Athletes who won medals then had to pay tax on the value as well as on any money given to them by the U.S. Olympic Committee (USOC). For instance, if the IRS valued a gold medal and related prize money at $50,000, they expected U.S. gold medal winners to add $50,000 to their gross income at the end of the year.

But things are different now. Most Olympians don't have to pay tax on their medals or prize money anymore thanks to a law passed in 2016. The law doesn't help every athlete, and the rules are still a bit fuzzy when it comes to certain funds received for training expenses, but your average Olympic medalist is in a much better tax position now than they were years ago.

2016 Changes to Olympic Athletes' Income

In 2016, the United States Appreciation for Olympians and Paralympians Act was passed. It allows athletes (including Paralympic athletes) to exclude the value of Olympic medals and any prize money given to them by the USOC from gross income for tax purposes. Currently, the USOC awards gold medal winners $37,500, silver medal winners $22,500, and bronze medal winners $15,000.

Does this mean that Olympic athletes will never be taxed on medals or prizes won at the Olympics? No. The exclusion doesn't apply to athletes with an adjusted gross income over $1 million. The IRS is therefore allowed to continue taxing many of the most famous superstars at the Olympics. It's also important to note that the Appreciation for Olympians and Paralympians Act is the only piece of legislation dealing with athletic achievements and the exclusion of income. So, medals and prize money won at other competitions are still taxable.

The Value of Olympic Medals

You may be wondering just how much a gold medal from the Olympics is worth these days. If you were to melt down a medal won at a recent Olympics, a gold medal would be worth around $800, a silver would be worth about $450, and a bronze would be worth around $5. But older medals, especially those with historical significance, could sell for a much larger amount of money. For example:

• Jesse Owens' 1936 Summer Olympics gold medal sold for $1.47 million in 2013;
• A 1980 "Miracle on Ice" Winter Olympics ice hockey team gold medal sold for $262,900 in 2014; and
• A 1984 U.S. Olympic men's basketball team gold medal sold for $83,188 earlier this year.

Additional Income for Olympic Athletes

As a result of the 2016 law, the rules are clear that an Olympic athlete won't be taxed on the value of an Olympic medal or any prize money given to them by the USOC. However, the rules are not so clear when it comes to the taxation of money given to Olympic athletes to cover expenses.

For instance, are gifts given to an athlete by friends or family taxable? Over the years, we have seen many Olympic athletes relying on family and friends to help pay for basic needs while training and competing in the Olympic events. For example, the mother of a two-time gold medal-winning U.S. gymnast went bankrupt in part due to the costs of her daughter's training. However, as long as the money is given to the athlete voluntarily and without any strings attached, they can claim the funds as a gift. This means the athlete can exclude the money from gross income.

What if an athlete needs money and uses crowdfunding for help with his or her Olympic pursuit (such as needing money for equipment or training)? Crowdfunding allows strangers to give money to athletes who are asking for the funds directly. In 2016, over $400,000 was raised on GoFundMe.com for athletes heading to the Olympics. This year, several athletes asked for crowdfunding help to get to the 2020 Tokyo games.

The IRS has yet to clearly answer the question of whether Olympic athletes can be taxed on money given to them through crowdfunding sources like GoFundMe. The small amount of information that we do have from the IRS comes from a ruling issued in 2016. Put bluntly, the IRS states in the ruling that the tax treatment of crowdfunding income can only be decided by the specific facts and circumstances of the case, and that money from crowdfunding is generally included in taxable income unless it's a loan that must be repaid, capital contributed to an entity in exchange for an equity interest in the entity, or a gift made out of detached generosity and without any "quid pro quo."

The ruling doesn't directly say that Olympic athletes can exclude crowdfunded money from their gross income. It does, however, lay down a path for athletes to use when fighting the IRS on this question.

When you're planning for retirement, it's fun to contemplate all the travel, rounds of golf and restaurant meals you have ahead of you. You've earned it! You may also want to financially help your children and grandchildren. However, many retirees don't take into consideration the cumulative impact of federal and state income taxes on withdrawals from their nest eggs.

Most forms of retirement income — including Social Security benefits, as well as withdrawals from your 401(k)s and traditional IRAs — are taxed by Uncle Sam. And unless you live in one of nine states without a traditional income tax, you can expect your home state to ding you in retirement as well. (Taxes on retirees vary from state to state, so make sure you check our retiree tax map for each state's overall tax impact on your retirement income.) Do yourself a favor before you retire and take a look at the federal income taxes you're likely to face on 13 common sources of retirement income.

Savers love tax-deferred retirement accounts like 401(k)s and traditional IRAs. Contributions to the plans generally reduce their taxable income, saving them money on their tax bills in the current year. Their savings, dividends and investment gains within the accounts continue to grow on a tax-deferred basis.

What they tend to forget is that they will pay taxes down the line when they retire and start taking withdrawals, and that those taxes apply to their gains and their pretax or deductible contributions. And at some point, you must withdraw money from the accounts. Required minimum distributions (RMDs) currently kick in at age 72 for holders of traditional IRAs and 401(k). People who work past age 72 can delay taking RMDs from their current employer's 401(k) until they retire, provided they don't own more than 5% of the company that employs them.

The tax rate you pay on your traditional IRA and 401(k) withdrawals would be your ordinary income tax rate. Payouts before age 59½ are generally slapped with a 10% penalty on top of the regular tax hit.

Roth IRAs come with a big long-term tax advantage: Contributions to Roths aren't deductible, but withdrawals are tax-free.

Two important caveats: You must have held a Roth IRA account for at least five years before you can take tax-free withdrawals. The five-year clock starts ticking the first time money is deposited into any Roth IRA, through either a contribution or a conversion from a traditional IRA. Second, although you can withdraw the amount you contributed at any time tax-free, you generally must be at least age 59½ to be able to withdraw the gains without facing a 10% early-withdrawal penalty.

FREE SPECIAL REPORT: Kiplinger's Guide to Roth Conversions

Once upon a time, Social Security benefits were tax-free for everyone – but that fairy tale ended in 1983. For many Social Security recipients, the benefits still aren't taxed. But others, depending on their "provisional income," aren't so lucky and may have to pay federal income tax on up to 85% of the benefits. To determine your provisional income, start with your adjusted gross income and add half of your Social Security benefits and all your tax-exempt interest.

If your provisional income is less than $25,000 ($32,000 for married couples filing a joint return), your Social Security benefits are tax-free.

If your provisional income is between $25,000 and $34,000 ($32,000 and $44,000 for joint filers), then up to 50% of your benefits are taxable.

If your provisional income is more than $34,000 ($44,000 for joint filers), then up to 85% of your benefits are taxable.

The IRS has a handy online tool that can help you determine whether your benefits are taxable.

Most pensions are funded with pretax income, and that means the full amount of your pension income would be taxable when you receive the funds. Payments from private and government pensions are usually taxable at your ordinary income rate, assuming you made no after-tax contributions to the plan.

If you sell stocks, bonds or mutual funds that you've held for more than a year, the proceeds are taxed at long-term capital gains rates of 0%, 15% or 20%. Compare these figures to the top 37% tax rate on ordinary income.

The 0%, 15% and 20% rates on long-term capital gains are based on set income thresholds that are adjusted annually for inflation. For 2022, the 0% rate applies to individuals with taxable income up to $41,675 on single returns, $55,800 for head-of-household filers, and $83,350 for joint returns. The 20% rate starts at $459,751 for single filers, $488,501 for heads of household, and $517,201 for joint filers. The 15% rate is for individuals with taxable incomes between the 0% and 20% break points. The favorable rates also apply to qualified dividends (see below).

There's also a 3.8% surtax on net investment income (NII) on top of the 15% or 20% capital gains rate for single taxpayers with modified adjusted gross incomes over $200,000 and joint filers over $250,000. This 3.8% extra tax is due on the smaller of NII or the excess of modified AGI over the $200,000 or $250,000 amounts. NII includes dividends, taxable interest, capital gains, passive rents, annuities, royalties, etc.

If you sell investments that you've held for a year or less, the gains are short-term and are taxed at your ordinary income tax rate.

If you sell at a loss, that amount can offset capital gains for the year, plus up to $3,000 of other income. Excess losses can be carried forward indefinitely each year, subject to the same tax treatment, until those losses are exhausted.

Many retirees own stock, either directly or through mutual funds. Dividends paid by companies to their stockholders are treated for tax purposes as qualified (most common) or non-qualified. Qualified dividends are taxed at long-term capital gains rates (see above). Non-qualified dividends are taxed at ordinary income tax rates.

Shareholders generally must hold stock for a certain period of time to take advantage of the capital gains rates for dividend payments (i.e., for the dividend to be treated as a "qualified dividend"). For example, dividends paid on common stock must be held for more than 60 days within the window beginning 60 days before and ending 60 days after the date the company declares a dividend payment.

There's a good chance that some (or all) of the income you receive from any annuity you own is taxable.

If you purchased an annuity that provides income in retirement, the portion of the payment that represents your principal is tax-free; the rest is taxable. For example, if you purchased an annuity for $150,000 and it is worth $225,000 in 10 years, you would only pay tax on the $75,000 of earned interest. The insurance company that sold you the annuity is required to tell you what is taxable.

Different rules apply if you bought the annuity with pretax funds (such as from a traditional IRA). In that case, 100% of your payment will be taxed as ordinary income. In addition, be aware that you'll have to pay any taxes that you owe on the annuity at your ordinary income tax rate, not the preferable capital gains rate.

Municipal bond interest is exempt from federal tax. Likewise, interest from bonds issued in an investor's home state is typically exempt from state income taxes (but check your own state's laws). Keep in mind, however, that capital gains can be subject to federal tax if you sell municipal bonds.

Ordinary income tax rates apply to interest payments on certificates of deposit, savings accounts, money market accounts, and corporate bonds. Capital gains rates apply when you sell corporate or municipal bonds.

For federal income tax purposes, interest on EE and I U.S. savings bonds is generally taxable at ordinary income rates in the year the instruments mature or when they are redeemed, whichever is earlier. Holders of HH bonds report and pay U.S. tax on interest annually as it is paid to them. Interest on U.S. savings bonds is exempt from state and local income taxes.

If you're heading back to school in your golden years, know that interest on EE and I bonds that are used to pay for higher education may be tax-free, provided certain rules are followed. The bonds must have been purchased after 1989 by buyers who were age 24 or older. They must also be redeemed to pay for college, graduate school or vocational school tuition or fees for the bondholder or the bondholder's spouse or dependent. Room and board costs aren't eligible. Also, the bonds are required to be in the taxpayer's name. Grandparents can't use this tax break to help pay for their grandchild's college tuition unless the grandparent can, on his or her federal tax return, claim the grandkid as a dependent.

The income exclusion is subject to income limits. For 2022, it begins to phase out for joint return filers with modified adjusted gross income over $128,650…$85,800 for everyone else. The tax break disappears when modified AGI hits $158,650 and $100,800, respectively.

Any proceeds you receive as a beneficiary of a life insurance policy when the insured person dies are generally nontaxable. The tax rules are more complicated if you're the holder of the policy and surrendered it for cash. The IRS has an online tool that can help you determine whether the proceeds you receive are taxable.

A home is often the biggest and most valuable asset that retirees own. Luckily, the tax laws give a generous federal income tax break when you sell your primary home at a gain. If you have owned and used the property as your personal residence for at least two out of the five years before the sale, you can exclude up to $250,000 of the gain from income ($500,000 for married couples filing a joint return). Any gains in excess of the $250,000 or $500,000 exclusion are taxed at long-term capital gains rates. Losses aren't deductible.

Payments that you get from a reverse mortgage on your home are treated as nontaxable loan proceeds and not income. Also, you can't deduct the interest you eventually pay when you satisfy the mortgage, unless you used the original proceeds to buy, build, or substantially improve the home securing the loan.

The IRS will send interest payments to about 13.9 million taxpayers this week. The average payment will be about $18. You can expect a payment if you filed a 2019 return before this year's July 15 deadline and either received a refund in the past three months or will receive a refund. Most interest payments will be sent separately from tax refund payments.

Normally, the IRS only adds interest to refunds issued more than 45 days after the return due date. The typical tax return due date is April 15. However, because of the coronavirus pandemic, this year's filing deadline was pushed back to July 15. The change is considered a disaster-related postponement, which means the IRS is required by law to pay interest calculated from the original April 15 filing deadline for anyone who files their return by the postponed deadline. This refund interest requirement only applies to individual income tax filers – businesses are not eligible.

How Will the Payment Be Made?

For about 12 million people, the interest payment will be directly deposited into the same bank account that their tax refund was deposited. Everyone else will receive a paper check. A notation on the check saying "INT Amount" will identify it as a refund interest payment and indicate the interest amount.

How the Interest Amount is Calculated

Interest is paid at rates set by law. The rate for the second quarter ending June 30 was 5%. The rate for the third quarter starting July 1 dropped to 3%. Interest is compounded daily.

Where the calculation period spans more than one quarter, a blended rate consisting of the number of days falling in each calendar quarter applies. No interest will be added to any refund issued before the original April 15 deadline.

Taxability of Interest Payments

If you receive one of the IRS interest payments, you must report the interest as taxable income on your 2020 federal income tax return that you'll file next year. In January 2021, the IRS will send a Form 1099-INT to anyone who receives interest totaling at least $10.

The IRS just did something that stunned me. It pulled the rug out from under desperate small-business owners just as they were starting to get their feet under them.

It was about a month ago that I praised what I saw as one of the most comprehensive, beneficial acts of Congress in American history. With the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, I saw the federal government committing to what I committed to doing for my clients decades ago: help small businesses.

While not sold as a clear and free windfall, the drafters of CARES made it clear: Spend this money on the right things — like keeping your employees on the payroll — and keep your books in order, and any loans you receive under the program would be forgiven. It was a lifeline to small businesses when they needed it most. A way to defend them, and by virtue the U.S. economy, from mass extinction.

IRS Takes Action After-Hours

But now that lifeline is being yanked away. On April 30, late in the evening — when few people were likely paying attention — the IRS released guidance that essentially nullified much of the benefit of the Paycheck Protection Program (PPP) created under the CARES Act. It stated that those who receive PPP may not receive tax deductions for using those funds to pay expenses. That includes expenses like payroll and rent, the very point of the PPP.

Congress specifically drafted the legislation so that small businesses could receive PPP loans without having to count it as taxable income. That makes the IRS’ move all the more stupefying. And it could cost some small businesses on the brink more than they can afford.

How Much Could It Cost Businesses?

That cost isn’t theoretical. It’s actually fairly easy to quantify.

Let’s say a small-business owner requests and receives $600,000 to cover payroll for the 10 weeks where he or she is covered by the PPP. If they can’t deduct that amount as expenses, that means their federal tax burden clocks in at a rate of 37%.

That equates to a $222,000 increase in their taxable income. Meaning the effective tax-free benefit of the loan is $378,000, not the $600,000 intended by the law.

Why Some May Say Move Makes Sense

The IRS has one goal: to collect revenue, so maybe this move shouldn’t have surprised me. Your tax adviser might tell you that they actually saw this coming all along, and it’s just how the IRS works. After all, to prevent "double dipping," the law doesn't allow deductions for expenses that are otherwise exempt from tax.

Even though Congress didn't create an exception to this rule, lawmakers intended the expenses to be deductible to provide the greatest possible benefit for small businesses. And while this type of tax exemption is usually reserved for organizations like churches and the military, it makes sense to expand it in the midst of a pandemic where most of the businesses receiving the PPP aren’t able to operate or bring in income due to state or local orders.

What You Can Do about It

The only advice I can give to my clients is to push back. The truth is that your voice matters. We do not have to collectively lay down and just take whatever the IRS hands down. Call your senator, the Small Business Administration and local representatives. Call your local news station and tell them how this change is going to hurt your business.

I’ve made my career caring for my clients and sticking up for them. And right now, that includes contacting my own senator, which I did the moment I heard about this guidance from the IRS. If there’s enough collective pressure, the IRS will either back down, or Congress will pass legislation that explicitly puts PPP tax deductions into law. A bill has already been introduced in the Senate that would make it clear that small businesses can deduct expenses paid with a forgiven PPP loan. There's strong bipartisan support for the bill, so its eventual passage looks promising — but the Treasury Department opposed the legislation.

If our only option is to put pressure on the Treasury, then that’s what we’ll do. Thankfully, likely after receiving messages from frustrated and beaten down business owners, a bipartisan group of congressional leaders on May 5 sent a letter to Treasury Secretary Steve Mnuchin asking him to reverse course on this shortsighted rule change. The letter states it nearly perfectly:

“Providing assistance to small businesses, only to disallow their business deductions … reverses the benefit that Congress specifically granted by exempting PPP loan forgiveness from income.”

But it’s only a first step, and the urgency and scale of this moment demands more. For already battered small-business owners, it certainly feels easier to throw your hands up and surrender, but don’t. If you have anything left, use it to stand up and let your voice be heard. It’s not the advice you’d normally hear from your tax adviser, yet these times are anything but normal.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The decluttering mantras of Marie Kondo and others are convincing thousands of people to empty their attics of the stuff they've collected over the years and sell the more valuable items on eBay or Facebook Marketplace.

In general, the IRS doesn't require you to report money you earn from these sales. But in certain situations, you should, such as:

• If you're essentially running an online auction house or garage sale
• If you're selling valuables, such as fine art or collectibles

Let's look at each situation separately.

Buying and selling as an online business

If you occasionally sell something online, there's little to worry about, especially if you're selling it for less than you paid for it. Even if you occasionally sell one of your old Beatles albums for a decent sum, it's not critical for you to report this income to the IRS.

But if you decide, like thousands of other people, to go into business bargain-shopping at yard sales and flea markets and flipping what you find for a profit, then you're technically running a business.

You'll need to report this income on IRS Form 1040 Schedule C. This form is used by sole proprietors to report business-related income.

You'll want to keep records of what you paid for the items (the cost basis) so you can report the net profits (rather than the full sales price) from these transactions.

Deducting business expenses

You may also be able to offset income by deducting business-related expenses, such as fuel and tolls for the vehicle you use to amass your inventory.

If you operate this business out of your home, you may even be able to deduct the costs of computers, smartphones, office supplies and internet and cellular services, although we recommend you consult with an accountant to make sure you're reporting these expenses correctly.

In any case, make sure you keep detailed records of these costs in case the IRS ever decides to audit your business.

Are online sales reported to the IRS?

Not if the total amount is relatively small.

However, online marketplaces (like eBay) and digital payment platforms (like PayPal) are required to issue 1099-K forms to sellers who have more than 200 transactions with a total value of $20,000 or more.

These vendors are also required to report these sales to the IRS.

Selling valuable stuff

The IRS is not lenient when it comes to reporting the sale of fine art, collectibles and even precious metals. When you sell any of these valuables at a profit, you'll generally have to pay capital gains taxes.

What counts as valuables? Just about any item whose market value has significantly risen since it was first purchased.

Obvious items include paintings and sculptures, jewelry and gemstones, antiques and gold.

But, depending on market trends, just about anything could be a collectible, including, but certainly not limited to:

• Coin and stamp collections
• Vintage comic books
• Rare books
• Fine wines
• Glassware
• Historical military items like Civil War uniforms and weapons
• Political campaign buttons and posters

Yes, even your rare Beanie Babies could be classified as collectibles if you sell them for many multiples of what you originally paid for them.

Calculating the capital gains tax for selling valuables

Whether you purchase valuables or inherit them, the IRS treats these items as investments, and their tax treatment depends on how long you've kept them.

That's why it's important to document the value of the item when it came into your possession, whether it's the price (cost basis) for an item you purchased or the fair market value (FMV) of an item you inherited.

For particularly valuable items, you should have their FMV estimated by a professional appraiser.

If you don't know the FMV or the cost basis, you'll generally have to pay capital gains taxes on the entire amount of the sale, rather than the net profit (i.e., how much you sold it for minus the FMV or cost basis).

The short and long of it

If you sell a valuable item after holding it for less than a year, the profit will be treated as a short-term capital gain, which will be taxed as ordinary income. This could become a problem if this added income lifts your total adjusted gross income into a higher tax bracket.

If you hold the item for more than a year, the profit is considered to be a long-term capital gain.

Normally, the IRS long-term capital gains tax rates on investable assets are either 0%, 15% or 20%, depending on your taxable income and filing status. But not for the profits from the sale of valuables and collectibles. For these items, the capital gains tax soars to 28%.

A long-term example

Your Uncle Jake bequeaths you his 1968 Shelby Mustang GT500 that has been sitting in his barn for 40 years. Because it has 190,000 miles on it and the body is rusted out, a professional appraiser assigns it a fair market value of "only" $70,000.

You spend two years and $10,000 to restore it and then sell it for $105,000. Your total cost basis would be $80,000, so you'd pay $7,000 in capital gains taxes on the net profit ($25,000 x 28%).

The gold rules

When it comes to investing in precious metals such as gold, silver and platinum, what you invest in can make a huge difference in what you'll pay in long-term capital gains taxes.

Physical metals. Since physical metals are classified as collectibles, if you buy gold, silver or platinum in the form of bullion, coins, bars or other "hard" assets, you'll pay the full 28% long-term capital gains tax rate on any profits you make from selling it.

Precious metal ETFs and mutual funds. Surprisingly, when you sell shares of investment funds that directly purchase precious metals, you'll be taxed at the 28% long-term capital gains rate if you sell shares at a profit.

However, these rules don't apply if you invest in these funds through a qualified IRA.

If you believe that the price of precious metals may rise but don't want to pay the 28% long-term capital gains tax rate when you sell them, consider investing instead in the stocks of companies that either produce these metals (mining companies) or those that fashion them into products (jewelers, semiconductor manufacturers).

Any profits you make when you sell these stocks after a year will be taxed no higher than the 20% long-term capital gains tax rate.

Protect your assets

Whether you run an online auction house or want to cash in on the collection of rare Hummel figurines you inherited from your grandparents, your best protection against an IRS audit is to document both the initial value and the selling price of everything you put on the market.

If you have any questions about the tax implications of these transactions, seek advice from a qualified accountant or tax attorney.

Related Content

• 10 Things to Know About Decluttering
• 10 Decluttering Books That Can Help You Downsize Without Regret
• 9 Tips to Declutter Your Home Before Your Retirement Move
• Earn a Fortune With These In-Demand Old Home Items
• How to Assess and Sell Your Collectibles

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Note: The editors of Kiplinger's Personal Finance magazine and the Kiplinger Tax Letter are answering questions about the new tax law from subscribers to our free Kiplinger Today daily email. See other reader Q&As about the new tax law, or submit your own question.

Question: I understand the new tax law reverses the rules for alimony, so that the payer no longer gets to deduct payments and the recipient no longer has to pay tax on alimony received. I was divorced in 2016. Does this mean the alimony payments I get are tax-free from now on?

Answer: No. The new rule does not go into effect until 2019, and only for divorces executed or modified after 2018. For divorces after December 31, 2018, alimony payments are no longer deductible nor must the recipient declare the amount as taxable income. The law specifically permits ex-spouses to modify an earlier divorce agreement to adopt the new rule after it goes into effect in 2019. Of course, both you and your ex would have to agree to such a change. If a pre-2019 divorce is not modified, the old rules apply: the payer can deduct payments and the recipient must pay tax on them.

Question: I invested $150,000 in a variable annuity about 15 years ago and haven’t taken any withdrawals yet. Now that I’m in my late sixties, I’d like to start tapping the account, which is now worth about $210,000. How will the withdrawals be taxed?

Answer:

Variable annuities aren’t taxed until you withdraw the money. The amount that will be taxed depends on the way you made your initial investment and the way you take withdrawals.

If all of the money you invested was pretax or tax-deductible (for example, if you bought the annuity within a 401(k) or traditional IRA), all of your withdrawals will be subject to income taxes. But if you invested using after-tax dollars, the earnings will be taxed as income, and the rest will be a tax-free return of principal.

However, the way your earnings and principal are calculated depends on how you take the withdrawals. Say you cash in the entire annuity for a lump sum. You’ll have to pay income taxes on all of the earnings in one year – in your case, $60,000 of the $210,000. But if you withdraw some of the money and keep the rest growing in the account, your first withdrawals will be considered taxable earnings. Once you’ve pulled out all of the earnings, any further withdrawals will be considered a tax-free return of principal. Your insurer will calculate the portion of principal and earnings for each withdrawal.

Reducing your taxable income is one of the most effective ways to lower your taxes, with some moves doing double duty as both deductions themselves and as a means to slide under income thresholds at which other taxes would kick in. What's more, the prospect of tax reform via Donald Trump and the Republican-controlled Congress, which would produce lower rates, makes this strategy even more important now for many taxpayers.

While it’s late in the year now, there's still time to take steps that will lower the amount of income you must report on your 2016 tax return. Take a look.

• Money contributed to an employer-sponsored retirement plan, such as a traditional 401(k), isn’t included in your taxable income. In 2016, you can contribute up to $18,000 or $24,000 if you’re 50 or older, by the end of the year. If you haven’t maxed out, ask your employer if you can make an additional contribution before December 31.

If you have self-employment income from a side job, you can sock away even more. You can contribute up to 20% of your net self-employment income to a Simplified Employee Pension, up to a total contribution limit of $53,000 for 2016. (Unlike 401(k) contributions, there’s no December 31 deadline for SEP deposits. You can make 2016 deposits anytime before the due date of your tax return.)

Another option: Depending on your income, you can also deduct contributions to an IRA, up to a maximum of $5,500 in 2016 (and $6,500 for workers 50 or older). You can make 2016 IRA contributions anytime before April 17, 2017. Roth IRAs, however, do not offer this upfront tax break because withdrawals are tax-free in retirement.

If you itemize, making charitable contributions before December 31 will reduce your taxable income.

For cash contributions, hang on to your canceled check or credit-card statement as proof of your donation. If you contribute $250 or more, you’ll also need an acknowledgment from the charity. Donations made by credit card before December 31 are deductible on your 2016 tax return, even if you pay the credit-card bill in January.

Donating appreciated securities can also reduce your taxable income. When you donate appreciated securities you have owned more than one year to charity, you can deduct the full value of the securities on the date of the gift. You won’t have to pay taxes on capital gains, and the charity won’t have to pay them, either.

Not all charities can accept donations of appreciated securities. If your favorite cause falls into that category, consider opening a donor-advised fund. The fund administrator will sell the securities for you and add the proceeds to your account. You can deduct the value of the securities on your 2016 tax return and decide later where you want to donate the money.

If you have a property tax bill due in January and you itemize, paying it before December 31 will allow you to deduct the payment from your taxable income on your 2016 tax return.

• Caution: Prepaying your property taxes could trigger the alternative minimum tax, designed to prevent wealthy people from using so many legal deductions to avoid taxes. Several popular write-offs, including property taxes, must be added back when calculating AMT liability. Talk to your tax preparer or use tax software to determine whether you’re vulnerable to the AMT.

Further complication: Tax reform plans under consideration aim to lower rates and simultaneously reduce deductions and credits. Under the House GOP tax plan, deductions for a variety of local taxes, including real estate taxes, would be scrapped. Prepaying your tax bill and writing it off this year would sure beat not being able to write it off at all.

If you have losses in your taxable accounts, cut them loose before year-end and use the losses to offset capital-gains income.

If your losses exceed your gains, you can deduct up to $3,000 from your other taxable income. Losses that exceed that amount can be carried forward to future years.

If you’re about to rebalance your portfolio by selling some winners so you can redeploy the cash elsewhere, remember that waiting until after January 1 means you won’t have to report the gains as part of your 2016 income. Never make an investment move based solely on the tax impact, but don’t ignore it, either.

If you think a year-end bonus is in the works, ask that it be paid next year. That way, it won’t increase your 2016 taxable income. (If the firm has already announced that it will pay bonuses in December, though, it’s 2016 income even if you don’t cash the check until January.)

If you’re self-employed, send bills to clients in late December so you won’t receive payments until after the first of the year. And if you get income from a closely held firm, consider delaying that dividend.

In 2016, most taxpayers can only deduct unreimbursed medical expenses that exceed 10% of their adjusted gross income. (If you or your spouse are 65 or older, you can deduct medical expenses that exceed 7.5% of AGI.) That high hurdle prevents most taxpayers from writing off medical costs. If you’re close, though, consider scheduling medical or dental work before the end of the year to clear the 10% bar and take advantage of this tax break on your 2016 tax return. Deductible expenses include everything from laser eye surgery to a portion of your long-term-care insurance premiums.

Another deduction that could go away if the House tax reform plan was adopted is medical expenses, so next year, that move might not work at all. Something to consider—but don't rush your surgeon unnecessarily.