Anaya Nolan
The One Big Beautiful Bill (OBBB) was signed into law on July 4, 2025, introducing significant changes to the US tax code. The new legislation makes permanent many of the temporary provisions from the 2017 Tax Cuts and Jobs Act (TCJA), including lower individual tax rates, a larger standard deduction, and the elimination of personal and dependent exemptions. Additionally, the OBBB introduces new tax rules, both short-term and long-term, such as temporary tax breaks for tip income and a higher lifetime estate tax exemption amount. The bill also impacts health insurance coverage, charitable deductions, and gambling loss claims. These changes aim to simplify the tax filing process and provide tax relief for Americans, but understanding their implications can be overwhelming.
| Characteristics | Values |
|---|---|
| Name of the new tax law | One Big Beautiful Bill (OBBB) |
| Date of implementation | 4 July 2025 |
| Main purpose | Makes permanent many of the temporary tax law changes that were first introduced as part of the 2017 Tax Cut and Jobs Act (TCJA) |
| Main changes | Increased standard deduction, lower tax brackets, higher lifetime estate tax exemption amount, no tax on tips or overtime pay for certain workers, higher Child Tax Credit, higher alternative minimum tax exemption, higher standard deduction for seniors, higher optional standard mileage rate for business automobiles |
| Who does it affect? | Self-employed individuals, business owners, older adults, parents, individuals who have made their homes more energy efficient, individuals with gambling losses, individuals with health insurance coverage through the Marketplace |
| When do the changes take effect? | Most changes take effect in 2026 or later, some changes are retroactive to 2025 |
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What You'll Learn
The 2025 tax law changes
Firstly, the OBBB makes permanent many of the temporary tax law changes introduced as part of the 2017 Tax Cut and Jobs Act (TCJA). These include the larger standard deduction, which has been increased for the 2025 tax year, the elimination of personal and dependent exemptions, and lower tax brackets. The seven federal tax rates put in place by the TCJA are now permanent: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
Additionally, the OBBB introduces some new tax rules, both short-term and long-term. One notable change is the “No Tax on Tips” law, which allows workers to claim a dollar-for-dollar deduction for tips earned, up to an income of $25,000. This deduction begins to phase out for incomes above $150,000. The OBBB also introduces a similar deduction for qualified overtime income, allowing a deduction of up to $12,500 for tax years 2025 through 2028.
Other key tax changes for 2025 include adjustments to tax brackets, deductions, and retirement contributions, as well as insights into expiring TCJA provisions. The Child Tax Credit has been permanently increased to $2,200 per child under 17, with annual adjustments for inflation. The state and local tax (SALT) deduction cap has also been temporarily increased from $10,000 to $40,000 for the 2025 tax year.
It is important to note that these changes may impact your tax planning strategies and it is recommended to seek professional advice to understand how these new laws may affect your financial plan.
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Taxpayers who received payments for goods and services
Taxpayers who receive payments for goods and services through an online marketplace or payment app will receive a Form 1099-K if they exceed a certain payment threshold. This form is issued by third-party settlement organisations and credit card companies to report payment transactions for goods and services. The threshold for receiving a Form 1099-K is $20,000 in gross payments and over 200 transactions during the calendar year.
It is important to note that this form is not a substitute for a tax return, and taxpayers must still report all income on their tax returns, regardless of whether they receive a Form 1099-K or not. The form simply helps taxpayers determine their correct tax owed by providing information on gross payment amounts. It is also important to note that all income, regardless of amount, is taxable unless the tax law specifies otherwise. This includes cash, property, or services received as payment.
For taxpayers who receive advance payments for goods and services, the TCJA (Tax Cuts and Jobs Act) has amended Section 451(c) to require accrual-method taxpayers to include advance payments in their income in the tax year of receipt. This is known as the full-inclusion method. Under the new standard, taxpayers treat these advance payments as future revenue rather than accrued expenses.
Additionally, there are specific provisions for a "specified good". This refers to a good that the taxpayer does not have on hand at the end of the year in which the advance payment is received. In this case, the taxpayer recognises the revenue from the sale of the good in their AFS in the year of delivery.
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Tax relief for disaster-affected areas
Taxpayers affected by federally declared disasters can benefit from tax relief. This includes individuals whose principal residence is located in a covered disaster area, as well as their spouses (if filing jointly). Business entities or sole proprietors whose principal place of business is located in a covered disaster area are also eligible for relief. Relief workers affiliated with government or philanthropic organizations assisting in a covered disaster area can also benefit.
The IRS provides disaster loss workbooks to help taxpayers compile a list of their belongings or business equipment. These publications are designed to assist individuals and businesses in recalling and proving the market value of items for insurance and casualty loss claims. Taxpayers may deduct casualty and theft losses relating to their homes, household items, and vehicles on their federal income tax returns if the loss is caused by a federally declared disaster.
To determine eligibility for tax relief, individuals can use the FEMA search tool to find federally declared disasters. The IRS also provides a disaster hotline and a Taxpayer Advocate Service (TAS) that offers a variety of tax-related resources and preparedness tips.
In recent years, the IRS has announced tax relief for victims of various disasters, including hurricanes, storms, wildfires, and flooding in different states. Deadlines for filing returns and paying taxes have been extended, and penalty relief has been provided in some cases.
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Tax deductions for seniors
The "One Big Beautiful Bill" (also known as the OBBB) was signed into law on July 4, 2025, and includes several tax deductions for seniors. This bill makes permanent many of the temporary tax law changes from the 2017 Tax Cuts and Jobs Act (TCJA).
One notable provision in the OBBB is the additional tax deduction of $6,000 for individuals aged 65 and older. This deduction is per eligible individual, meaning a married couple where both spouses qualify can claim up to $12,000. To qualify, taxpayers must attain age 65 by the last day of the taxable year and have a modified adjusted gross income of less than $75,000 ($150,000 for joint filers). This deduction is in addition to the existing standard deduction for seniors and will be effective from 2025 through 2028.
The OBBB also includes a provision that eliminates federal income taxes on Social Security benefits for most beneficiaries. Additionally, it extends tax cuts from the TCJA, such as increasing the cap on the amount of state and local or sales tax and property tax (SALT) deductions. The SALT deduction cap has been increased from $10,000 to $40,000 for the 2025 tax year.
Furthermore, the OBBB introduces a new temporary deduction for tips of up to $25,000 for tax years 2025 through 2028. This deduction is available to employees and self-employed individuals who regularly receive tips and report them on Form W-2, Form 1099, or other specified statements.
The OBBB also provides tax benefits for retirees, such as the Credit for the Elderly or Disabled. This credit can range from $3,750 to $7,500, depending on the taxpayer's filing status and their spouse's age if filing jointly. Additionally, property tax breaks are offered by many state and local governments for older individuals who own property in their jurisdictions.
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Tax changes for 2026
The One Big Beautiful Bill (OBBB) will bring about several tax changes in 2026. The bill, signed into law on July 4, 2025, makes permanent many of the temporary tax law changes introduced as part of the 2017 Tax Cut and Jobs Act (TCJA).
Standard Deduction
The bill makes permanent the larger standard deduction created under the TCJA. The standard deduction reduces a taxpayer's taxable income by a set amount determined by the government. The standard deduction for taxpayers under 65 is expected to decrease to $8,300 for singles and $16,600 for married couples filing jointly. However, the amounts for 2025 are slightly expanded, and the deduction will be adjusted for inflation.
Personal Exemptions
Personal exemptions for individuals, spouses, and dependents are permanently removed, except for certain seniors. The personal exemption is expected to be $5,300 for each individual, spouse, and dependent child in 2026.
SALT Cap
The SALT cap, which limits state and local tax deductions to $10,000 per tax return, will be eliminated in 2026. This includes property taxes. As a result, more taxpayers may benefit from itemizing their tax deductions.
Marginal Tax Brackets
Taxpayers can expect to be in a higher marginal tax bracket across the board before any deductions or credits. The brackets in 2018 were 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These brackets are expected to adjust in 2026, with the first two brackets set to be 10% and 12% initially, followed by inflation adjustments.
Capital Gains Taxes
In 2026, taxpayers' tax rates for capital gains taxes will be linked to their ordinary income tax brackets.
Other Changes
The OBBB also includes changes to premium tax credit rules, household income eligibility, education-related tax benefits, and a new type of savings account for children under 18. Additionally, there will be limitations on personal casualty losses, miscellaneous itemized deductions, and moving expense deductions for most taxpayers.
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Frequently asked questions
The One Big Beautiful Bill is a 2025 Reconciliation Legislation (H.R.1) that makes permanent many of the temporary tax law changes that were first introduced as part of the 2017 Tax Cuts and Jobs Act (TCJA).
Some changes include adjustments to tax brackets, deductions, and retirement contributions. The standard deduction has increased, and there are new deductions for certain qualified tips and overtime income. There is also a new temporary deduction for up to $10,000 in car loan interest per year for qualified auto loans.
You can use an interactive Tax Reform Calculator provided by TurboTax to understand how the new tax laws affect your taxes.
Yes, there are changes to premium tax credit rules and underlying Marketplace eligibility, which may decrease the number of individuals with health insurance coverage through the Marketplace.
Yes, you may be eligible for tax credits if you have purchased a clean vehicle or made energy-efficient improvements to your home.
