Q&A: Welcome News for Taxpayers as Tax Season Gets Underway

With U.S. Sen. Chuck Grassley

Q: What changes can Iowans look forward to this tax season?

A: Mark your calendars. Iowans can start filing their 2025 tax returns starting Monday, Jan. 26 through April 15. This year, more taxpayers will have something to look forward to - getting cash back from Uncle Sam. The U.S. Treasury Secretary says the lion's share of middle-income taxpayers can expect to see some of the largest tax refunds in history. Last summer, Congress passed legislation signed into law by President Trump on July 4^th that stopped in its tracks the largest tax increase in the nation's history, paving the way for economic growth and putting more money back in people's pockets. The Working Families Tax Cuts law will deliver substantial savings to hard-working families during this tax filing season and beyond.

Congress made permanent several provisions in the federal tax code, keeping the lower individual marginal tax rates of 10%, 12%, 22%, 24%, 32%, 35%, 37%; upholding the 20% deduction for qualified business income (QBI); restoring full expensing for domestic research and development, as well as capital investments, including machinery upgrades and farm equipment; nearly doubling the standard deduction ($15,750 for single filers/$31,500 for married couples), and adjusted annually for inflation; and, increasing the Child Tax Credit to $2,200 per child under age 17, adjusted annually for inflation.

Q: What additional new tax relief measures apply to this tax-filing season?

A: As a member of the tax-writing Senate Finance Committee, I worked to secure meaningful savings for Iowa families so they could keep more of their hard-earned money in their own pockets to save, spend or invest as they see fit. During my annual 99 county meetings, I hear from parents who struggle to afford child care, seniors on fixed incomes who struggle to pay their bills and small business owners who struggle to keep workers on payroll. The Working Families Tax Cuts law will brighten the often dreaded task facing Iowans as tax filing season gets underway. Here's how:

• SENIORS. Eligible seniors who take the standard deduction or itemize their deductions may deduct up to $6,000 for single filers and $12,000 for married couples for tax years 2025 through 2028. This new deduction is stackable on top of the existing extra standard deduction for seniors, which is $2,000 for individual filers/$3,200 for joint filers. To qualify for the new $6,000 deduction, individual filers must be at least age 65 or older and have a modified adjusted gross income (MAGI) under $75,000/ $150,000 for joint filers. The new deduction starts phasing out for every dollar above these thresholds.

• NEW CAR LOANS. A federal deduction effective for tax years 2025 through 2028 is available for qualifying car loans. Individuals may deduct the interest paid on a new car loan that originated after Dec. 31, 2024 for a personal use vehicle made in America, up to $10,000 (not lease payments). The deduction phases out for taxpayers with MAGI above $100,000/$200,000 for joint filers.

• NO TAX ON OVERTIME. Effective for tax years 2025 through 2028, workers may deduct qualified overtime pay that exceeds their regular rate of pay. The maximum annual deduction is $12,500/$25,000 for joint filers. The deduction phases out for taxpayers with MAGI over $150,000/$300,000 for joint filers. This is welcome news for nurses, retail workers, police officers, firefighters and other occupations who receive overtime compensation.

• NO TAX ON TIPS. Effective for tax years 2025 through 2028, employees and self-employed individuals may deduct qualified tips reported on a Form W-2, Form 1099 or other pay stub provided to the worker or reported directly on Form 4137. The maximum annual deduction is $25,000 and phases out for taxpayers with a MAGI above $150,000/$300,000 for joint filers. This is welcome news for workers who count on tips to make ends meet, particularly those in hospitality and service industries, such as servers, baristas, bartenders, valets, hair stylists and other tipped occupations.

• FEDERAL ESTATE TAX EXEMPTION. Effective Jan. 1, 2026, family-owned farms and businesses can breathe a sigh of relief when the baseline exemption is set permanently at $15 million per individual/$30 million for married couples, and is indexed for inflation. Without this change, small businesses and farmers across Iowa would have seen their death tax exemption cut in half. This change in federal law will help family farms be handed down from one generation to the next without having to sell off assets to pay Uncle Sam.

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