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- [00:00]
A
Today is Saturday, February 28th. Tax season is here, and this year it looks different. A major new tax law just took effect with changes that could impact millions of Americans as they file their 2025 returns. At the same time, the IRS is operating with fewer staff and tighter funding, all while processing what's expected to be one of the most closely watched filing seasons in years. So today we're joined by Andrew Lautz, director of tax policy at the Bipartisan Policy Center. He walks us through what's new, what could be confusing and what questions you may want to ask your tax preparer before you file. We also talk about the bigger picture, what these tax cuts mean for federal revenue, what's happening with IRS funding and staffing, and even President Trump's lawsuit against the agency. And why this filing season is being watched so closely in Washington. Welcome to THE NEWSWORTHY Special edition Saturday when we sit down with a different expert or celebrity every Saturday to talk about something in the news. Don't forget to tune in every Monday through Friday for our regular episodes where we provide all the day's news in less than 15 minutes. I'm Erica Mandy. It's now time for today's special edition Saturday. Andrew Lautz, thank you so much for joining us here on THE newsworthy.
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B
Thanks so much for having me.
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A
So let's just dive right into a couple of the top or major changes that Americans should know about as they get their 2025 taxes ready to file.
- [01:20]
B
This is a big tax filing season because Republicans in Congress and President Trump signed into law the One Big Beautiful Bill Act. And as a result of that, the law made several changes that were essentially retroactive to January 1, 2025. And policymakers did that because they wanted taxpayers to be able to claim some new deductions and credits this year. And so a couple of highlights are a larger standard deduction. This is what 85 to 90% of taxpayers take when they file their federal taxes. The that's $750 larger for a single taxpayer, $1,500 larger for a married couple, larger maximum child tax credits. So if you claim the child tax credit for your kids, the maximum is $2,200 per child instead of $2,000 per child. And then we have new deductions as well for tip income, overtime income, auto loan, interest deduction on a new Made in America vehicle, and a larger deduction for seniors 65 and older as well.
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A
So reports have said this could lead to bigger federal refunds. To do you agree with that? And then also does it make the returns a little more complex to figure out before you get those refunds.
- [02:24]
B
I think for the vast majority of taxpayers, filing is going to be much like it was in previous years, especially if you have a relatively simple return and if you claim the standard deduction and if you're filing electronically and you're receiving a refund through direct deposit, this year might look a lot like last year. It could be more complex if you're claiming one of these new deductions, it even though something like no tax on tips or no tax on overtime can fit on a bumper sticker, there are a lot of terms and conditions apply. Taxpayers have to read the fine print. In terms of the refund size, I do agree with some of the professional estimates that it's going to be larger. On average, it'll probably be several hundred dollars larger than usual. In recent years, the average refund size has been about $3,000. So, you know, expect that to be potentially north of 3,500. We don't expect the majority of taxpayers to claim the TIPS deduction, but for those that do, it could be a tax cut in the thousands of dollars.
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A
Anything that either already is causing some confusion or that you anticipate is going to be a major thing that needs to be cleared up. Anything standing out in terms of that?
- [03:26]
B
I feel like the TIPS deduction has gotten a lot of the media attention and a lot of attention from the president and other policymakers. But the overtime deduction is actually expected to be bigger than the TIPS deduction in terms of its impact on the federal budget. How many taxpayers claim that deduction? I think there's a lot of confusion around just who qualifies for the overtime deduction. It has to be fair Labor Standards act over time. So if it's state mandated over time, sort of above and beyond flsa, or if it's union negotiated over time above and beyond flsa, it's probably not eligible for this deduction. I think also some taxpayers don't know that it's actually a deduction for the halftime bonus you get in the time and a half pay that you get in overtime. So it's not just. Just a deduction for the entire time and a half pay. It's just for that half bonus that you get during overtime.
- [04:12]
A
And for any parents listening, can you go over the changes for them? Potentially a little bit more?
- [04:18]
B
Sure. Yeah. So the major change for parents is a larger child tax credit. In recent years, the credit has been maximum of $2,000 per child. There was that one year in 2021, the expansion under Democrats and President Biden, it grew to $3,000 per child, $3,600 for young children, but that was just for one year only. After that, it dropped back down to 2,000 per child. Under the new law, the child tax credit is a maximum of 2,200 per child. So that's a 200 per child boost for a lot of families. And actually in future years, for the first time, that's going to grow with inflation. If you set aside money in an FSA for dependent care through work, your maximum amount you can set aside has actually grown from $5,000 to $7,500. So that's another change that won't affect taxpayers and parents this filing season, but could help them afford the rising cost of child care.
- [05:09]
A
For anyone who listens to all this and just finds it confusing or overwhelming and really just depends on their accountants to figure it all out. Any specific questions or kind of talking points that they should bring up with their accountants, even if they don't know all the details?
- [05:23]
B
Yeah, that's a great question. I would, you know, if I were talking to my accountant or my tax preparer, I would ask them, hey, what are the new benefits from last year's tax law? Am I eligible for any of them? I think sometimes you don't know if you don't ask. And your accountant or your preparer should know the right questions to ask you. Like, hey, did you buy a new car last year? Did you take out a loan on a new car because then you might be eligible for the auto loan interest deduction, or did you work overtime at work? And if you worked overtime, was this EP LSA overtime or was it not? You know, I think the simplest question you can ask is, what are these new deductions and credits and might I be eligible for any of them?
- [06:01]
A
I also know the IRS has removed its free online Direct File program. Is there any impact to that? And what are alternatives for. For people if they need them?
- [06:10]
B
We're still getting data on how Direct File worked. It certainly wasn't a majority of taxpayers using the Direct File program since the IRS was still kind of building it from the ground up. In terms of alternatives, two I would flag one is that the IRS does still have a free file partner program with private sector partners, and that's restricted based on your income. And you have to be in a relatively simple tax situation to be able to take advantage of that program. I'd also point folks to Taxpayer Assistance Centers and volunteer Income Tax Assistance Centers. The These are where volunteers help folks who need some assistance, but maybe don't have the resources to pay an accountant or pay for TurboTax or H& R Block.
- [06:48]
A
You know, we've seen a lot of debate about tax cuts for the rich. We're seeing some of these cuts and higher deductions for the average American. How does that compare to tax cuts for the wealthy? And what should people know about that?
- [07:02]
B
Yeah, great question. So the biggest thing that the one big beautiful bill does to tax policy is something that most taxpayers won't notice. It just continues a lot of tax tax policy. Republicans did their first round of tax cuts in 2017 with President Trump in his first term. They scheduled a lot of the individual tax cuts to expire on December 31, 2025. And so the big motivation last year was preventing a lot of these tax cuts from expiring. What the one big beautiful bill does is makes the vast majority of those tax cuts permanent. And those are a mix of tax cuts that benefit middle income taxpayers and benefit wealthier taxpayers. So when you think about, for example, a higher exemption for the estate tax or making sure fewer taxpayers are hit by the alternative minimum tax, those are some changes that are going to benefit high income taxpayers more than middle and low income taxpayers. Another that I'll flag is the higher state and local tax or SALT deduction cap. The Salt cap was $10,000. That means if you itemize your deductions, you could only itemize up to $10,000 of state and local taxes. That cap has been lifted to $40,000 this year. Your folks out there who are paying 20, 30, $40,000 in state income and local property taxes, or typically higher income taxpayers.
- [08:12]
A
And while it's nice for individuals, obviously tax cuts means less revenue for the government. We've seen the IRS have its funding cut repeatedly. Is that likely to impact how quickly Americans can expect their refunds? And then also what are the just broader implications, both short and long term, of some of these cuts?
- [08:31]
B
The IRS is funded through September 30, 2026. And there's good news in the bill that Congress passed to fund the there's an increase in funding for taxpayer services. There's also some bad news that lawmakers cut operations funding at the irs. The IRS does have a pot of funding that they can draw on that might help backfill some of those needs. But the funding cuts do have an impact. And there's also been major staff reductions at the IRS. 20 to 25% of the staff that were in place at the beginning of 2025 were gone by November. And so when you have those massive staffing cuts, when you have a relatively slow hiring process, which is what we've heard is happening at the IRS the last couple months, and when you have all these funding cut in place, it does challenge the agency. Now again, my optimistic take is that if you have a simple return should be a hopefully a smooth process, you should get your refund fairly quickly. But if you have questions for the irs, if you have to fill out a lot of complicated returns and different schedules on your form, it may take longer to work with the IRS than usual just because they are facing all these constraints.
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Still ahead, what the IRS funding cuts could mean long term. And we talk about the President's unprecedented legal case against his own administration that could impact the agency's budget. That and more coming up. But first, a quick break for our sponsor. The Newsworthy is brought to you by Hiya Health. One of the easiest and most consistent parts of my kiddo's morning routine is taking his Haya children's vitamins. He loves the feeling of getting vitamins like mommy every morning. And he loves the taste. I honestly thought the novelty of it would wear off eventually, but we're now two and a half years in and he's still loving and benefiting from both the children's vitamins and Haya's children's probiotics. Of course, I appreciate that Haya's chewable vitamin is supporting his immune system, energy, brain function, teeth and bones and more. And that Haya earned Clean Label Project's highest purity award certification. And by the way, if getting your kids to eat vegetables feels like an impossible daily battle, Haya's New Kids Daily Greens plus Superfoods is a game changer. It's basically chocolate milk stuffed with veggies. It's a greens powder that's packed with over 55 whole food sourced ingredients. Just mix one scoop with milk or any non dairy beverage and watch them actually enjoy something that's secretly fueling their growing bodies. We've worked out a special deal with Haya for their best selling children's vitamin. Receive 50% off your first order to claim this deal you must go to hyahealth.comnewsworthy this deal is not available on their regular website. Go to H I Y A H E a l t h.com newsworthy and get your kids the full body nourishment they need to grow into healthy adults. The Newsworthy is also brought to you by Rosetta Stone. Learning a language is one of those skills that truly stays with you and can be so rewarding. Not to mention it can be great for brain health and of course, international travel. Plus, I'm always so impressed when I see someone else who knows multiple languages. So this year I'm ready to start learning and I'm turning to Rosetta Stone. Rosetta Stone has been the trusted leader in language learning for over 30 years, has millions of users and 25 languages to choose from, including Spanish, French, German, Japanese and more. Their method ensures you're learning the language naturally, no memorizing random vocabulary lists or feeling lost. And I appreciate that Rosetta Stone allows for on the go learning so it can fit into my busy schedule. Listen, they've got a great deal right now. Lifetime membership gives you access to all 25 languages forever. So don't wait. Unlock your language learning potential. Now the newsworthy listeners can grab Rosetta Stone's lifetime membership for 50% off. That's unlimited access to 25 language courses for life. Visit RosettaStone.com Newsworthy to get started and claim your 50% off today. Go to Rosetta Stone.com Newsworthy and start learning today. Now back to my conversation with Andrew Lautz from the Bipartisan Policy Center. Any broader implications, long term, of some of these cuts or what are you watching for next?
- [12:25]
B
At bpc, we believe the IRS needs to be robustly funded to serve its mission. It's one of the few government agencies tens of millions of Americans interact with on an annual basis. There is a concern that if the funding doesn't keep up in the years ahead, that the IRS will continue to lag behind private sector tax services in terms of what it can offer taxpayers. There's also a risk that there's trouble manning the phone lines and that as Congress continues to tinker with the tax code. The more Congress asks IRS to do without actually providing the funding to do it, the harder it gets for the IRS to deliver tax credits and deductions and other benefits that people are eligible for. We have a large tax gap in this country. That is the gap between taxes that are owed to the IRS and taxes that are actually paid. Some of that is people making honest mistakes. Some of that is people essentially trying to evade taxes. And so it becomes easier for folks to cheat the system long term. We don't want that tax gap to grow. We want it to shrink. And in order for it to shrink, we need to invest in a modern irs.
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A
What steps do you want to see federal lawmakers take to create that modern IRS or to be More of a solution.
- [13:31]
B
Congress needs to provide more funding to the irs, to modernize its systems, to hire a sufficient workforce. And the Congress also has an important role in overseeing the irs. More funding is not the solution alone for the irs. The agency has dealt with some longstanding management challenges and operational challenges. When Democrats passed $80 billion in funding for the IRS, they demanded a modernization plan from the agency. The agency turned in a 200 page modernization plan. Most of that 80 billion has since been taken away from Congress. So a lot of that modernization can't even happen because the funding isn't there anymore. But it has to be both funding and accountability from Congress.
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A
And when we're talking about funding, I think we have to address that. President Trump is suing the IRS and Treasury Department for $10 billion at least over his tax records being leaked during his first term. Now, this is unprecedented that a sitting president is suing his own administration. Right. Can you speak to why this is unprecedented? You know what you're watching for in the case and then the ultimate outcome on funding for the IRS and the Treasury Department, if $10 billion is paid.
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B
It's definitely an unusual case. Something that I have not seen in my time following tax policy developments and following developments at the IRS goes without saying $10 billion is a lot of money. And $10 billion actually to the entire IRS budget for this current fiscal year, fiscal year 2026, Congress just passed an $11.2 billion budget to the IRS in the scope of the broader federal budget, which is trillions of dollars every year, and our national debt, which is approaching $30 trillion, it's a relatively small blip on the radar. So I don't think it's actually going to materially impact our debt and deficit and fiscal outlook, but it is a lot of money. And yeah, it would be almost as much as the entire IRS budget for this year.
- [15:18]
A
And just so people are clear, whenever we're talking about government money like this, this is taxpayer dollars.
- [15:23]
B
Yes. So we, we have a persistent gap in our country in what the government spends versus what it takes in. We're running roughly $2 trillion deficits pretty much every year now. And that's, that's the projection going forward as well. So how we cover that spending is primarily tax revenue, and then it's also borrowing from others. It's from taxpayers, it's also from our creditors. But yeah, a lot of it comes from you and me as federal taxpayers
- [15:49]
A
as we wrap up. Anything else that people should be paying attention to now that tax season is underway.
- [15:55]
B
This is probably the most highly anticipated tax filing season since 2022. So this might be the most anticipated tax filing season since that pandemic tax filing season. And in some sense, there's even more new programs in place this year. A lot of policymakers in Congress and in the White House are interested in the results of this filing season, seeing people get larger refunds or new deductions or credits. So there's going to be a lot of attention on this, and we will be following it close.
- [16:24]
A
Thank you so much to our guest, Andrew Lautz, and the Bipartisan Policy Center. As always, join us again during the week to get caught up on the news of the day. We provide daily news roundups each Monday through Friday with a wide variety of stories, all in less than 15 minutes. So we'll be back on Monday. Until then, have a great rest of your weekend.