The big question this tax season has to be, how will the One Big Beautiful Bill affect us? Tax filing season opened on January 26, so let’s look at the main provisions of the bill that we’ve been hearing so much about and analyze how they are likely to impact our tax obligations.
The Additional Senior Deduction. $6,000 for Single taxpayers or $12,000 for Married Filing Jointly (MFJ) taxpayers over the age of 65 sounds fantastic, but it only applies for those with Modified Adjusted Gross Income (MAGI) of $75,000 for Single taxpayers (or $150,000 for MFJ). Above those levels it is phased out at a rate of six (6) cents per each additional dollar of income and is eliminated at MAGI of $175,000, ($250,000 for MFJ.)
No Tax on Social Security. Well, not exactly. Nothing has changed here. There is no tax on Social Security if your income is less than $25,000 for a Single taxpayer ($32,000 for MFJ.) Above those income levels, 85% of Social Security is taxable.
No tax on tips. There are a lot of rules about which kind of tips actually qualify for this, but the maximum annual deduction is $25,000, regardless of filing status, except that is not allowed at all for Married Filing Separately. Tips in excess of $25,000 are fully taxable.
No tax on overtime. If this provision affects you, prepare to be disappointed. Only certain workers qualify and the amount on which there is no tax is only the premium paid for overtime hours. Social Security, Medicare, and State Taxes are still owed on all tips. Maximum that can be deducted is $12,500 for Single taxpayers ($25,000 for MFJ), and that phases out at MAGI levels between $150,000 and $300,000. Confused? As they say, “consult your tax advisor if this applies to you.”
New Car Loan Interest. Maximum Deduction is $10,000 but the good news is that is also available to those who do not itemize their deductions. One caveat is that the final assembly of the vehicle must have taken place in the United States. Beware though, deduction phase out begins at MAGI of $100,000 ($200,000 for MFJ.)
Trump Accounts. We have been told that the Treasury Department will contribute $1,000 into custodial accounts (‘Pilot Program Contribution’) for all children born between 2025 and 2028 who are US citizens and have valid Social Security numbers. Parents and other individuals will be able to contribute up to $5,000 per year to these accounts after July 4, 2026. Parents will be able to register for the program using form 4547 when they file their 2025 returns, or by visiting Trumpaccounts.gov, when the site is activated.
It is important to note that many of the changes that we’ve heard so much about will not actually take effect until the 2026 Tax Year. But Affordable Care Act subsidies, Clean Vehicle Energy Credits, and Energy Efficient Home Improvement Credits all expired at the end of 2025.
Charitable Contributions. For 2025 there is no Charitable Deduction for people who take the Standard Deduction. It is, however, worth mentioning here that this deduction will be reinstated for 2026 with a deduction of up to $1,000 ($2,000 for MFJ.) So be sure to start saving those receipts now for your 2026 tax returns! And for those who are required to take RMDs, (Required Minimum Distributions), remember that QCDs (Qualified Charitable Distributions) are always a great way to donate to charity while lowering taxable income.
After all of those Federal Tax revisions, here’s just a little about South Carolina Taxes, primarily for our neighbors who are new to South Carolina.
South Carolina residents over the age of 65 may deduct up to $15,000 of income per taxpayer. It is worth also noting here that 100% of military retirement pay and Social Security are not taxable in South Carolina.
South Carolina also offers a number of important credits and deductions. Here are three of the most generous:
1) Homestead Exemption if you have lived here for more than a year and are over 65.
2) Excess Insurance Premium Credit, which is very helpful to those whose home insurance premiums are high. Qualified insurance premiums include homeowners, flood, and wind and hail insurance.
3) Payments to the Future Scholar program, (the SC 529 plan) are fully deductible, up to a lifetime limit of between $540,000 and $575,000 depending on plan documentation.
For information about these and other South Carolina credits and deductions, click here.
A couple more things. The good news is that the maximum South Carolina tax rate has been reduced, but only from 6.2% to 6.0%. However, the bad news is that, as of the time of writing, South Carolina has not conformed with the new Federal Deductions described above, which means that any of those deductions you qualify for on your Federal returns are ‘added-back’ to the amount of taxable income used to calculate your South Carolina tax!
-Submitted by VITA – Charleston Tax Volunteer.