There’s a lot of buzz about the new “Big Beautiful Bill” that just passed through Congress, and for good reason. This sweeping legislation brings some big changes to the tax code—changes that will directly impact millions of Americans, including federal employees.
While the headlines are focused on broader issues, there are a few key updates tucked inside the bill that you need to know about—especially if you’re approaching retirement, working overtime, giving to charity, or paying off a car loan.
Here’s a breakdown of the changes that are most likely to impact federal employees and retirees.
Extra Deduction for Seniors 65+
This is probably the biggest change for federal retirees. If you are age 65 or older—or married to one—the standard deduction just got a little sweeter.
Under the new law, the additional standard deduction for everyone is increasing by $750 per person. That means if you’re filing jointly and both of you are 65 or older, you’ll get a $1,500 bump on top of your regular standard deduction.
On top of the extra deduction, people turning 65 and older will get an additional $6,000 per person deduction or $12,000 for married couples. This extra deduction phases out from $75,000 to $175,000 for individuals and $150,000 to $250,000 for married couples. These phase-out numbers are based on Modified Adjusted Gross Income (MAGI) which will end up being Adjusted Gross Income (AGI) for most individuals. This part of the new bill is temporary and will last through 2028.
If the additional $12,000 of income is all in the 22% tax bracket, then a couple could save an additional $2,640 with this added deduction.
SALT Deduction Cap Raised
The state and local tax (SALT) deduction has been a sticking point for federal employees in high-tax states since the 2017 Tax Cuts and Jobs Act capped it at $10,000.
The new bill doesn’t scrap the cap entirely—but it raises it to $40,000 per return, so the same amount if you are single or married.
If you live in a high tax state like New York, California, Maryland, or Virginia, this change could make a noticeable difference. For feds with higher incomes that live in high tax states like New York, California, Maryland, Virginia, or my lovely state of Illinois, this may help put you over the standard deduction. Take the example of a dual federal employee household living in Illinois with a home appraised at 500k and a household income of 300k. Here is what deductions could look like for this couple.
· Real estate tax = $15,000
· State income tax = $15,000
Then if you add mortgage interest of $10,000 and charitable contributions, you are well above $35,000 and exceeding the standard deduction.
It could be even easier for single filers to exceed their standard deduction of $15,750.
Charitable Giving for People Taking the Standard Deduction
The new bill reinstates and expands the above-the-line deduction for charitable donations. That means you can now deduct up to $2,000 (married) or $1,000 (single) in charitable gifts—even if you don’t itemize.
Why does this matter? Because the majority of federal employees take the standard deduction in retirement and previously lost the tax benefit of small charitable contributions. Now, even if you’re not itemizing, you can still get a little credit for gifting to charities.
If you’re giving to churches, veteran organizations, or other qualified nonprofits, this change could put a few extra dollars back in your pocket while supporting causes you care about.
Tax-Free Overtime Pay
For those of you still working—especially some law enforcement positions, healthcare personnel, and other federal positions with overtime—this change will benefit you.
Starting in 2025, overtime pay up to $12,500 per person can be excluded from taxes. This limit is phased out at $150,000 to $400,000 for individuals and $550,000 for married couples. This exclusion goes through 2028.
Car Loan Interest Deduction
Starting in 2025, you may be able to deduct up to $10,000 of interest on your car loan, but there are some requirements that need to be met to claim the deduction.
1. The car’s final assembly must be done in the U.S.
2. The loan can’t start earlier than 2025.
The income phaseouts for this deduction range from $100,000 to $150,000 for single and $200,000 to $250,000 MFJ.
This deduction lasts through 2028 and can be taken whether a person itemizes or takes the standard deduction.
Summary
There are some other changes in the bill as well but these are the ones most likely to have an impact on the average taxpayer, and especially retirees. The additional deduction for seniors age 65 or older will likely put more money in many retirees’ pockets. The rest of the changes, like the SALT cap increase, will help some taxpayers, but one thing this bill should not do is saddle taxpayers with a bigger tax bill at the end of the year. One additional note is that many of these changes are only temporary and will go through 2028 or 2029.