Mid-Year Tax Update 2025: Credits, Deadlines & Key Changes You Need to Know

Key Tax Changes and Legislative Proposals

Republicans in Congress are pushing a major tax bill that would extend parts of the 2017 tax law, add new breaks, and reduce clean-energy credits and Medicaid funding. The House has passed it narrowly, but Senate Republicans are demanding changes, particularly in health care and business tax provisions. If approved, the bill may increase the federal deficit by $2.8 trillion over the next decade and introduce many temporary provisions, requiring detailed IRS guidance.

A new deduction is being introduced for taxpayers aged 65 or older. Individuals can claim a $4,000 deduction, and couples where both spouses are 65+ can claim $8,000. This applies to both standard and itemized deduction filers. However, it phases out for incomes above $150,000 (joint filers) or $75,000 (single/HOH). Social Security taxation remains unchanged.

Temporary rules under the Premium Tax Credit (PTC) are set to expire at the end of 2025. From 2026, only those earning between 100% and 400% of the federal poverty level will qualify. This means some taxpayers may lose eligibility or see smaller credits. Estimating income accurately is crucial, as errors can result in missed credits or repayments.

The proposed bill includes raising the standard deduction permanently and offering new deductions for car loan interest, qualified tips, and overtime pay. Section 179 expensing limits could rise to $2.5 million, while the QBI deduction for pass-through businesses could increase to 23%. It also raises the SALT cap from $10,000 to $40,000 for married filers under $500,000. However, states that conform to federal rules may see reduced tax revenues, an estimated $3.7 billion loss in 2026 alone.
 

EV Tax Credits and Tariff Impact

If you're thinking about buying an electric vehicle, now might be the best time. You can still claim up to $7,500 for new EVs and $4,000 for qualifying used ones. Currently, 29 models qualify, but many of these credits are expected to end after 2025 or 2026 under the new tax proposals.

At the same time, recent tariffs introduced by President Trump could offset gains from these tax breaks. For example, low-income households could see their after-tax income increase by 2.1% from tax cuts but lose 1.2% due to tariffs. Middle-income groups and even top earners will also feel this offset. The tariffs are projected to raise $2.1 trillion over 10 years, but could result in the loss of over half a million full-time jobs.

IRS Policy and Enforcement Updates

The IRS has the legal authority to determine how it processes Employee Retention Credit (ERC) claims. A court confirmed that businesses cannot force the IRS to approve or speed up claims through lawsuits. The final deadline to file ERC claims using Form 941-X was April 15, 2025. Although the IRS has made progress, many claims remain pending. Proposed changes could block refunds for claims filed after January 31, 2024, and penalize promoters of abusive ERC claims up to $200,000 or 75% of their earnings.

Businesses with 50 or more full-time employees are still required to provide affordable health coverage or face penalties. They must also file Forms 1095-C and 1094-C. One Virginia school district was fined $2 million for late filing in 2019, but the fine was waived due to reasonable cause. The lesson: respond quickly to IRS notices.

The IRS and Justice Department continue targeting taxpayers hiding assets in foreign banks. Credit Suisse Services AG recently pleaded guilty to helping U.S. taxpayers conceal money in Singapore. The bank will pay $511 million and has agreed to share future account information.

The IRS has announced new contribution and deduction limits for 2026. For Health Savings Accounts (HSAs), the limit is $4,400 for self-only coverage and $8,750 for family plans. Those aged 55+ can make a $1,000 catch-up contribution. Minimum deductibles for high-deductible health plans are now $1,700 (self-only) and $3,400 (family).
 

For Health Reimbursement Arrangements (HRAs), the IRS has released updated contribution caps under Revenue Procedure 2025-19. These figures help individuals and employers prepare for health costs in the coming year.

The IRS has released third-quarter 2025 interest rates through Revenue Ruling 2025-11. These include 7% for individual overpayments and underpayments, 9% for large corporate underpayments, and 4.5% for corporate overpayments exceeding $10,000.

Revenue Ruling 2025-12 also provides updated federal interest rates for income tax purposes, covering everything from loan calculations to present value formulas. These updates will be published in the Internal Revenue Bulletin on June 2.

A court recently ruled that $3 million paid to stepchildren by an estate was not deductible, affirming that the payments were gifts, not contractual claims. In another case, a couple who gifted S Corp shares to their children had their valuation challenged by the IRS but ultimately won in Tax Court.

Executors must now request estate tax closing letters online via Pay.gov, with a $56 fee. Alternatively, they can use the IRS Transcript Delivery Service to confirm the status of Form 706.

Businesses that receive over $10,000 in cash must file Form 8300 within 15 days. Failure to do so can result in penalties ranging from $60 to $340 per form. The IRS requires companies to maintain these records for at least five years. A recent Tax Court case upheld penalties against a car auction firm, ruling that software issues were not a valid excuse for failing to file.

With wildfire and hurricane season approaching, the IRS is encouraging individuals and businesses to prepare. Store important documents in waterproof containers and back them up digitally. Take inventory of valuable items with photos or videos. If you lose documents in a disaster, the IRS provides tools to help you reconstruct them. If you use a payroll service, make sure they have a fiduciary bond in place. When FEMA declares a major disaster, tax deadlines may be extended automatically for those affected.

The IRS is accepting applications for the 2026 Low Income Taxpayer Clinic (LITC) grant program. Applications are open from May 15 through July 14, 2025. Grants of up to $200,000 are available, with priority given to underserved areas in states like Hawaii, Kansas, Montana, and several counties in Florida, Nevada, and South Dakota. Clinics must match the grant with non-federal funds.

U.S. businesses working with international partners should monitor ongoing global tax reforms. Retaliatory tax measures and foreign policy changes could affect cross-border investments, transfer pricing, and overall tax planning in 2025.

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