The “One Big Beautiful Bill Act” (OBBBA)

The OBBBA makes permanent many of the provisions of the Tax Cut and Jobs Act (TCJA) that were set to expire at the end of 2025.  The federal tax brackets, larger standard deductions, increased Child Tax Credits, and Qualified Business Income (QBI) deduction were made permanent.  Some of the key changes to individual taxes are highlighted below.

Tax Brackets and Standard Deduction

• The tax brackets established during the TCJA are made permanent, subject to annual inflation adjustments.  Without this legislation, the 2026 pending sunset would have increased taxes for nearly all individual taxpayers.
• The higher standard deductions set by TCJA are made permanent and will be adjusted for inflation annually.  For 2025 the standard deduction has been increased to:
  • $31,500 Married Filing Joint (MFJ) (vs. $30,000)
  • $15,750 Single / MFS (vs. $15,000)
  • $23,625 Head of Household (vs. $22,500)

Senior Deduction

• Available from 2025 to 2028 for seniors aged 65 or older.
• $6,000 additional deduction per senior aged 65 and over age.
• Married couples must file jointly to claim the deduction for both spouses.
• AGI phaseout: $75,000 - $175,000 (S/HOH) and $150,000 - $250,000 (MFJ)

Child Tax Credit

• $2,000 credit was scheduled to revert to $1,000 in 2026
• New law increases the 2025 maximum credit to $2,200 per qualifying child
• Credit phases out between $200,000 -$243,000 (S, HOH) and $400,000 - $443,000 (MFJ)
• Both the $2,200 credit maximum and $1,400 refundable cap will be adjusted for inflation

Child and Dependent Care Credit

• Effective for tax year 2026
• For lower income taxpayers, the maximum percentage of qualified childcare expense used to calculate the credit increases from 35% to 50%.
• For AGI above $75,000 ($150,000 MFJ), the percentage is further reduced to 20%.

Dependent Care FSA Contributions

• Beginning 2026, contribution limit increased to $7,500 (S, HOH, MFJ) or $3,750 (MFS).
• For 2025 contribution limit remains $5,000 (S, HOH, MFJ or $2,500 (MFS).

State and Local Taxes (SALT) Deduction

• Effective 2025, SALT maximum deduction is increased to $40,000.
• For future years the maximum SALT deduction is
  • 2026 = $40,400 (S, HOH, MFJ)  $20,000 (MFS)
  • 2027 through 2029 = 101% of the prior year’s max.
  • 2030 and after, cap will revert to $10,000 (S, HOH, MFJ) and $5,000 (MFS)
• The SALT deduction is phased down to a minimum of $10,000 or $5,000 for high earners.
  • To $10,000 (S, HOH, MFJ) filers with $500,000-$600,000 of AGI
  • To $5,000 (MFS) for filers with $250,000-$300,000 of AGI

No Tax on Tips

• Available for tax years 2025 through 2028.
• Applies to occupations that customarily and regularly received tips on or before 12/31/2024.  The IRS will publish a list of qualifying occupations.
• Tips must be made voluntarily by the customer, not subject to negotiation, and determined solely at the customer’s discretion.
• Employers and platforms must track and separately report tips.
• Married taxpayers must file jointly to claim the deduction.
• The deduction is capped at $25,000 per year and phases out if the taxpayer’s MAGI exceeds $150,000 for individuals or $300,000 for joint filers.
• This is an above-the-line deduction, meaning taxpayers do not have to itemize to claim.
• This deduction doesn't eliminate payroll taxes (Social Security and Medicare) or state and local income taxes on tips. It only affects federal income tax liability.

 No Tax on Overtime

• Available for tax years 2025 through 2028.
• Only overtime that qualifies under Section 7 of the Fair Labor Standards Act of 1938
• is eligible; that is, pay for hours worked in excess of the standard workweek, calculated at a rate above the individual’s regular hourly rate.
• The maximum deduction is $12,500 for single filers and $25,000 for MFJ.
• For every $1,000 that a taxpayer’s MAGI exceeds $150,000 ($300,000 MFJ), the deduction is reduced by $100.
• This is an above-the-line deduction, meaning taxpayers do not have to itemize to claim.
• This deduction doesn't eliminate payroll taxes (Social Security and Medicare) or state and local income taxes on overtime. It only affects federal income tax liability.

Deductible Car Loan Interest

• Available for tax years 2025 through 2028, for certain vehicles assembled in the USA.
• Below the line deduction up to $10,000 per year.
• Phases out starting at MAGI over $100,000 (S/MFS) and $200,000 (MFJ).
• Available for new loans taken after 12/31/2024 or existing loans refinanced in 2025  - 2028.

Charitable Contributions

• Effective 2026.
• A 0.5% AGI floor applies to charitable deductions itemized on Schedule A.
• Charitable deduction for non-itemizers of $1,000 (single) and $2,000 (MFJ).

Termination of Misc Itemized Deductions

• TCJA temporarily suspended miscellaneous itemized deductions subject to the 2% adjusted gross income (AGI) threshold through 2025. These deductions included unreimbursed employee expenses, tax preparation fees, investment expenses, union dues, hobby expenses, safe deposit box fees and other similar items.

Limitation on tax benefit of itemized deductions

• A modified version of the Pease limitation is reinstated.  This curtails the benefit of itemized deductions for high income taxpayers.

529 Plans

• Effective dates vary.
• Increase limit paid for tuition at K-12 schools from $10,000 to $20,000 per student and expands the definition of eligible expenses.
• Expands eligible postsecondary expenses to include trade schools, credential testing and licensing exams, and continuing education needed to maintain credentials.

Energy Tax Credits

Repeals or significantly curtails deductions and credits for energy-efficient investments.

• Repealed after 9/30/2025
  1. Clean vehicle credit
  2. Previously owned clean vehicle credit
  3. Qualified commercial vehicles credit
• Repealed after 12/31/2025
  1. Energy-efficient home improvement credit
  2. Residential clean energy credit
• Repealed after 6/30/2026
  1. Alternative fuel vehicle refueling property credit
  2. Energy-efficient commercial buildings deduction
  3. New energy-efficient home credit

Estate and Gift Tax Exemption

• The TCJA provision that increased the estate and gift tax exemption was scheduled to sunset in 2026.  OBBBA permanently increased the exemption to $15 million, which will be indexed for inflation starting in 2026.

Trump Accounts

• New type of long-term saving account for individuals under age 18
• Annual contributions capped at $5,000 per beneficiary, indexed for inflation starting in 2028.  Contributions must be explicitly designated as Trump Account contributions at account creation.
• Contributions may be made by parents, employers, charitable organizations and governmental bodies, subject to the annual cap.
• Employers can contribute up to $2,500 per year to an employee’s child’s account, tax-free to the employee.
• For children born between 2025 and 2028 a one-time $1,000 deposit is made into account by the US Treasury, most likely in the form of a tax credit.
• Until the child turns 18, investments are limited to funds that track a qualified index, defined as the S&P 500 or any index composed primarily of U.S. equities.
• Tax deferred growth.
• No withdrawals are allowed until the year the beneficiary turns 18.
• Distributions after age 18 are taxed under normal IRA rules.

Other Provisions

There are several other provisions in the 900+ page bill that affect individual taxpayers.  

• Federal student loan borrowing limits, payment plans, and taxation of debt discharge
• Enhancements to the adoption credit
• Alternative minimum tax
• Casualty losses
• Transportation fringe benefits
• Moving expenses for military and intelligence employees
• Wagering losses
• ABLE accounts
• Tax credit for contributions to scholarship-granting organizations
• Premium tax credit (Healthcare Marketplace subsidies)
• Health Savings Accounts eligibility and Direct Primary Care (DPC) arrangements
• Reporting limits for 1099-K third party payment processors