Chapters

00:00 Introduction to Tax Changes for 2025 and 2026

00:29 Key Tax Deductions and Changes

02:30 New Above-the-Line Deductions

05:34 Looking Ahead: 2026 Tax Changes

06:52 Action Items for Taxpayers

Transcript

Hi everyone, I'm Ryan Earley, host of the PERS Pro YouTube channel. We all know that what you earn and what you actually take home are two very different numbers and the biggest wedge between them is usually the IRS. Whether you're a veteran teacher, state agency employee, or a PERS retiree, the tax landscape is changing. If you are paid overtime, buy a new car, or age 65 or older, then there are big changes to be aware of. Let's dive in.

Let's look at the changes from the One Big Beautiful Bill Act signed into law July 4, 2025. For your 2025 federal income tax return, that's the one you'll file early 2026, here are some highlights of existing deductions you should be aware of.

Higher standard deduction. To keep pace with inflation, the standard deduction is now $15,750 for single filers and $31,500 for married couples filing jointly.

SALT cap relief. SALT stands for State and Local Taxes. This cap on deducting state and local taxes, like your Mississippi state income and property taxes, has been raised from $10,000 to $40,000 or $20,000 if married filing separately. If you have high mortgage interest payments, a high property tax bill, and or a large state income tax liability, it may finally make sense to itemize your federal tax return again.

Educator expenses. The educator expense deduction remains at $300 or $600 if both spouses are teachers. Eligibility requirements. To be considered an eligible educator by the IRS, you must meet the following criteria. You work as a teacher, instructor, counselor, principal, or aide, and you work at a primary or secondary school, and you work at least 900 hours during a school year. Qualified expenses. Qualified expenses are unreimbursed costs you paid yourself during the tax year for your work in the classroom. Books, computer equipment, software, professional development course fees related to the curriculum or students, and protective items such as masks, disinfectant, and hand sanitizer are all qualified expenses.

One of the biggest changes for 2025 and 2026 is the introduction of three new above the line deductions. This means you can take these even if you don't itemize and just take the standard deduction.

One, the no tax on overtime deduction. For our state employees who work long hours like law enforcement or MDOT crews, you can now deduct the premium portion of your overtime pay. This is the half in time and a half. So for example, if your normal rate of pay is $20 per hour and you are paid $30 per hour for overtime, then the $10 difference is your premium portion that you can now deduct. Deduction limit. You can deduct up to $12,500 or $25,000 for joint filers. of this premium pay. Income limits. This phase is out for taxpayers with modified adjusted gross income over $150,000 or $300,000 for joint filers. Qualifying rules. Overtime must be reported on Form W-2, Form 1099, another statement furnished to the individual or directly by the individual.

Two, no tax on car loan interest deduction. If you buy a new American assembled vehicle, you can deduct the interest you pay on that loan. Deduction limit, you can deduct up to $10,000 per year. income limits. This phases out for taxpayers with modified adjusted gross income over $100,000 or $200,000 for joint filers. Qualifying rules. The vehicle must be new, cannot be used, must be for personal use, not business use, and must be assembled in the United States of America. The loan also must have been signed after January 1st, 2025. Special note here, lease payments do not qualify, and if a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally still eligible for the deduction.

Three, the deduction for seniors. Now this is huge for our PERS retirees out there. If you are 65 or older, there is a new bonus deduction. Deduction amount, $6,000 applies per eligible individual or $12,000 for a married couple if both spouses qualify. Income limits. This phase is out for taxpayers with modified adjusted gross income over $75,000 or $150,000 for joint filers. Qualifying rules. You must be age 65 on or before the last day of the tax year.

Looking ahead to 2026 federal income tax return that you will file in early 2027, the standard deduction climbs again to $16,100 for individuals and $32,200 for joint filers. 2026 brings one very negative change to those with student loans and one potential positive change to educators.

Student loan forgiveness. Most student loan forgiveness is taxable again starting in 2026. The exceptions are public service loan forgiveness or PSLF and disability or death discharges will remain income tax free for federal income tax purposes. Special note here you will still pay state income taxes since Mississippi still taxes forgiven student loan debt.

Educators Expense Deduction Modernization Act. Bills have been introduced in the United States Congress to increase the teacher federal expense deduction from the current $300 to $1,000 in 2026. Keep your receipts because if this passes, your tax break more than triples.

Tax laws can feel like a moving target, but you don't have to be a victim of the changes. Here are your action items you can take now. One, check your pay stubs in W-2. For 2025 and 2026, ensure that your employer is tracking qualified overtime. Also, if you've bought or are planning to buy a new car, check the VIN and assembly plant for the car loan interest deduction eligibility. Two, educators keep your receipts. With the possible increase to the educator deduction, digital or physical record keeping now will save you a headache later. Three, review withholding. With the new above-the-line deductions previously discussed, you might be over withholding in 2026. Use IRS's withholding calculator and adjust your W-4 if needed to keep more of your paycheck now to help with cash flow management throughout the year. I hope this breakdown helps you minimize your federal income taxes for 2025 and 2026.

In our next video, we'll bring it closer to home as we discuss Mississippi state income tax changes. Please make sure you subscribe so you don't miss that video. If you found this video helpful, can thank me by hitting the thumbs up button and sharing it with other PERS members. If you have a follow up question about PERS or anything else related to personal finance, please visit our website at perspro.ms and submit your question or topic for a future episode. Thank you for your valuable public service to the state of Mississippi. We'll see you next time.

Disclaimer, this video is for educational and informational purposes only. Neither the host nor this YouTube channel are officially affiliated with, endorsed by, or sponsored by the Public Employees Retirement System of Mississippi. Always consult a qualified professional for personal advice specific to your situation.