The IRS says it’s up to the challenge, under the management of newly appointed CEO Frank Bisignano, a well-respected, high-powered former Wall Street executive.
Bisignano was named in October to the newly created position of IRS chief executive, while Treasury Secretary Scott Bessent serves as acting IRS commissioner, following the rapid-fire hiring and replacement of half a dozen leaders in 2025.
How well the IRS handles the 10-week tax season may have significant political implications, especially in light of the president’s promise of record tax refunds this year.
Here’s what to know about issues such as the SALT deduction, Trump accounts, and other matters.
What’s new this year?
One important change is in the SALT income tax deduction. (SALT stands for “state and local taxes.”) SALT allows taxpayers to deduct from their taxable federal income the amount they pay in state and local taxes, thus lowering their federal tax liability.
How has it changed?
For the last seven years, the tax code capped the amount taxpayers may write off for state and local taxes at $10,000. But the tax-and-spending bill pushed by the Trump administration and narrowly passed by Congress in July quadruples the cap to $40,000.
Who benefits from a higher SALT cap?
Higher SALT deductions primarily benefit the well-off who own expensive homes in places like Boston’s western suburbs and pay local property tax bills in excess of $25,000. Many of those taxpayers are now entitled to shelter a greater portion of their income by deducting those local property taxes, plus the amount they pay in state income taxes (which is a flat 5 percent) or in state sales tax (6.25 percent). Under the tax code, taxpayers must choose to include state income taxes or the sales taxes, but not both.
Why did the Trump administration increase the SALT deduction?
It was done mostly to keep the support of Republican Congress members who represent wealthy suburban districts in New York and elsewhere for a bill that, overall, favors the well-off over those struggling to get by. (No member of the Massachusetts congressional delegation voted for the bill; the state’s delegation includes no Republicans.)
Are there limits on the SALT deduction?
Yes, the $40,000 cap begins to phase out for individual and joint taxpayers with very high incomes.
Other SALT restrictions?
Only those who opt to itemize deductions can take advantage of the SALT deduction. Taxpayers can either itemize their deductions or take what’s called the standard deduction. It only makes sense to itemize if your deductions exceed the standard deduction.
How much is the standard deduction?
The tax bill enacted last year bumps up the standard deduction for single filers to $15,750 from $14,600 and for joint filers to $31,500 from $29,200. Those are significant increases that benefit the vast majority of taxpayers, including those with lower and moderate incomes who do not itemize. An additional $6,000 deduction is available for taxpayers 65 and older.
What are the most common deductions?
Besides state and local taxes, common deductions are for mortgage interest on a primary residence or second home; charitable contributions; and out-of-pocket medical and dental expenses. But only about 10 percent of taxpayers have enough deductions for it to make sense to itemize.
What is a Trump account?
It’s a newly created tax-advantaged savings and investment account on behalf of a child, like an individual retirement account. After-tax contributions of up to $5,000 a year can be made by parents and others until the beneficiary reaches age 18. Like with an IRA, earnings grow tax-free and withdrawals will be taxed at the beneficiary’s income tax rate.
Is the government contributing to Trump accounts?
Yes, they are to be funded with $1,000 per account by the government, at the birth of every US citizen born between Jan. 1, 2025, and Dec. 31. 2028. The initial funding by the government may be best described as seed money. After that, parents, the parents’ employer, and others can contribute.
What about children born before 2025?
Any child under 18 who has a Social Security number is eligible to open an account. The $1,000 “seed money” is limited to those born in the specified years.
What do I have to do to establish an account?
The accounts aren’t automatic. You must apply by filing an IRS Form 4547 with your 2025 tax return. If you want the $1,000 contribution, you must elect it on the form, since opening the account alone does not trigger the deposit. The Trump account program got a big boost late last year when Michael Dell of Dell Technologies announced a donation of $6.25 billion to add $250 to the accounts of children up to age 10 who live in areas where the median household income is less than $150,000 a year.
What’s the new rule on tips and overtime pay?
A deduction of up to $25,000 for tips and up to $12,500 for overtime pay is available for qualified taxpayers, with phaseouts for higher incomes.
What is the Child Tax Credit amount?
The child tax credit increases this year by $200 to $2,200 per qualifying child under 17. A tax credit is a dollar-for-dollar reduction in taxes owed, as opposed to a tax deduction, which is a reduction in taxable income. Some low-income families may receive cash, up to $1,700 per child, if they owe little or no tax.
Can I file for free?
The free filing service called Direct File that was tested in Massachusetts and a few other states in recent years but has been canceled by the Trump administration.
Anything else to be aware of?
Yes, we can expect a surge in scammers posing as the IRS or fake “tax resolution” agencies, claiming in calls, texts, or emails that you owe back taxes or qualify for a special relief program. Beware of sharing your Social Security number, bank details, or sending money to “settle” a phony tax bill.
Got a problem? Send your consumer issue to [email protected]. Follow him @spmurphyboston.
