Cameron Miranda
Understanding how tax laws will impact you can be challenging, and it is always recommended to seek professional advice. The One Big Beautiful Bill Act (OBBA) of 2025 introduces significant tax changes, including adjustments to tax brackets, deductions, and retirement contributions. The bill extends provisions of the 2017 Tax Cuts and Jobs Act (TCJA), such as increased standard deductions, lower tax brackets, and a higher lifetime estate tax exemption. The alternative minimum tax exemption thresholds have been reduced for phase-out, and the child tax credit has increased. The bill also introduces temporary changes, such as the No Tax on Overtime rule and the No Tax on Tips law. President Trump's tax plan includes proposals like eliminating capital gains taxes on primary home sales and preserving the higher estate and gift tax exemption threshold. Biden's plan, on the other hand, targets rolling back parts of the TCJA benefiting high earners and large businesses.
| Characteristics | Values |
|---|---|
| Tax Brackets | 10%, 12%, 22%, 24%, 32%, 35%, 37% |
| Standard Deductions | Increased |
| Alternative Minimum Tax (AMT) | Increased to $88,100 for individuals and $137,300 for married couples filing jointly |
| Child Tax Credit | Increased to $2,200 per qualifying child |
| SALT Deduction Cap | Increased temporarily, with income-based phaseouts |
| Income Threshold for High-Income Filers | $197,300 for single filers and $394,600 for married couples filing jointly |
| Estate and Gift Tax Exemption | Higher exemption threshold maintained |
| Clean Energy Tax Credits | Repealed or phased out |
| Medicaid and SNAP | Rules tightened with federal work or community engagement requirements |
| Planned Parenthood | Federal funding eliminated |
| Trump Savings Accounts | Introduced, providing each newborn with a $1,000 tax-deferred account |
| No Tax on Overtime | Introduced, allowing certain workers to claim a dollar-for-dollar deduction for overtime pay |
| No Tax on Tips | Introduced, allowing certain workers to claim a dollar-for-dollar deduction for tips |
| Adoption Tax Credit | Made partially refundable, up to $5,000 |
| 529 Plan | More options for what qualifies as an eligible expense |
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What You'll Learn
Changes to tax brackets
The Internal Revenue Service (IRS) makes yearly adjustments to more than 60 tax provisions to account for inflation. The 2025 tax changes, which will be filed in early 2026, include adjustments to the seven federal tax brackets, which are now permanent: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These brackets are based on income levels, with higher incomes falling into higher tax brackets. The income limits for all tax brackets and filers will be adjusted for inflation, with an average increase of about 2.8%.
For single filers, a key income threshold to watch is $197,300, which is the threshold for moving from the 24% tax rate bracket to the higher 32% rate bracket. For married couples filing jointly, this threshold is $394,600. The standard deduction has also increased, with an additional "bonus" deduction for older adults. For single taxpayers and married individuals filing separately for tax year 2025, the standard deduction rises to $15,000, an increase of $400 from 2024. For married couples filing jointly, the standard deduction rises to $30,000, an increase of $800 from tax year 2024.
The alternative minimum tax exemption thresholds have been reduced for phase-out. The AMT exemption has increased to $88,100 for individuals and $137,300 for married couples filing jointly. The AMT exemptions phase out at 25 cents per dollar earned once AMT income reaches $500,000 for single filers and $1,000,000 for married couples filing jointly.
Additionally, the child tax credit has increased to $2,200 per qualifying child, with a maximum refund of up to $1,700 in 2025 as part of the additional child tax credit. Families with dependents who do not qualify for the Child Tax Credit may qualify for the Other Dependent Credit, which has a value of $500 and has been made permanent.
Other changes include the "No Tax on Overtime" rule, which allows certain workers to claim a dollar-for-dollar deduction for a designated amount of overtime pay. The "No Tax on Tips" law also allows for a dollar-for-dollar deduction for a designated amount of tips earned by workers where tipping is customary. These changes will impact how Americans file their taxes in 2025 and beyond.
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Adjustments to deductions
The "One Big Beautiful Bill Act" (OBBA) has brought about several adjustments to deductions, which will come into effect for the 2025 tax year. The standard deduction has increased by $400 to $15,000 for single taxpayers and married individuals filing separately. For married couples filing jointly, the standard deduction has increased by $800 to $30,000. Heads of households will see a $600 increase to a total of $22,500.
The new legislation also introduces a ""bonus" deduction for older adults. Individuals aged 65 and above can claim an additional deduction of $6,000 for the tax years 2025 through 2028. This is in addition to the current additional standard deduction for seniors, and the amount is per eligible individual, meaning a married couple where both spouses qualify can claim a total of $12,000.
The OBBA also allows employees and self-employed individuals to deduct qualified tips received in occupations that are listed by the IRS as customarily and regularly receiving tips. The maximum annual deduction is $25,000, and for the self-employed, the deduction cannot exceed the individual's net income from the relevant trade or business.
Additionally, individuals can deduct interest paid on a loan used to purchase a qualified vehicle for personal use for the tax years 2025 through 2028. Qualified vehicles include cars, minivans, vans, SUVs, pick-up trucks, and motorcycles, and the vehicle must meet other eligibility criteria.
There is also an increase in the maximum Earned Income Tax Credit amount for qualifying taxpayers with three or more qualifying children, rising to $8,046 for the 2025 tax year.
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Retirement contributions
Secure 2.0 and Retirement Savings Reforms:
The Secure 2.0 legislation has brought about several changes aimed at assisting taxpayers with their retirement savings. One notable aspect is the adjustment to catch-up contributions, allowing taxpayers who may have fallen behind to boost their retirement funds. This flexibility helps individuals to make additional contributions beyond the standard limits, helping them to potentially maximize their retirement savings.
Age Requirements for Minimum Distributions:
Secure 2.0 has also increased the age at which individuals are required to start taking minimum distributions from their retirement accounts. Previously, this was mandated at age 72, but the new law increases this threshold to 73 in 2023, and it will further increase to 75 by 2033. This change allows taxpayers more time to grow their retirement savings before needing to make withdrawals.
Changes to Saver's Credit:
The recent reforms have also made alterations to the saver's credit, benefiting low and middle-income taxpayers. Single filers earning under $36,500 and joint filers earning under $73,000 may now be eligible for a nonrefundable credit of up to $1,000 when they contribute to their retirement accounts. This provision is designed to encourage and support retirement savings for those who may find it challenging.
Impact of "One Big Beautiful Bill":
The "One Big Beautiful Bill" (OBBA), also known as the "One Big Beautiful Bill Act", includes a $6,000 bonus deduction for taxpayers aged 65 and above. This provision could significantly benefit older adults by reducing their taxable income. Additionally, the bill introduces a charitable gift deduction for non-itemizers, allowing singles a $1,000 deduction and married couples a $2,000 deduction for charitable contributions.
Retirement Plan Contribution Limits:
While the recent tax law changes have brought adjustments to tax brackets, deductions, and other areas, it's important to note that retirement plan contribution limits have not been impacted. These limits remain unchanged, allowing individuals to continue contributing to their retirement plans within the existing parameters.
Overall, while the proposed tax laws bring various changes, they also offer opportunities for individuals to optimize their retirement savings through strategic financial planning. It is always advisable to consult with a tax professional or financial advisor to understand how these changes might specifically affect your situation and to make informed decisions regarding your retirement contributions.
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Child tax credits
The Child Tax Credit (CTC) has been expanded by the American Rescue Plan, which has made the credit available to new families and supplemented the earnings of families already receiving the credit. The credit has been made fully refundable, meaning that low-income households will be entitled to receive the full benefit. The American Rescue Plan has also extended the full Child Tax Credit to Puerto Rico and the U.S. Territories.
In July 2025, President Trump signed the One Big Beautiful Bill (OBBB) into law, making changes to the Child Tax Credit. The bill adjusted the eligibility requirements to now mandate valid Social Security numbers (SSNs) for both the qualifying child and the taxpayer claiming the child. The credit amount will be reduced by $50 for every $1,000 above your income cap. The maximum refundable credit in 2025 is $1,700 per child.
The changes also affect the 2026 Child Tax Credit, which will be increased from $2,000 to $2,200 and indexed to inflation. However, the package also introduces new parameters that will directly affect immigrants and the lowest-income families. For example, families headed by an undocumented single parent, where the child is an American citizen, will not receive the credit.
There are multiple proposals on the table for the future of the CTC, including Representative Blake Moore's (R-UT) proposal of $4,200 for families with children under six, $3,000 for families with children aged six to 17, and $2,800 for pregnant mothers. Another proposal by Representative Emilia Sykes (D-OH) suggests payments of $350 per month for children under six and $300 per month for children over six.
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Capital gains tax on primary home sales
Capital gains tax is a tax on the profit you make when you sell an asset, such as a home. The current federal tax system includes provisions enacted through the 2017 Tax Cuts and Jobs Act (TCJA). President Biden did not make direct changes to the TCJA, but he proposed adjustments to provisions that benefit high earners and large businesses.
Under the TCJA, if you sell your primary home, you may qualify to exclude up to $250,000 of capital gains from your income, or up to $500,000 if you file a joint return with your spouse. To qualify for this exclusion, you must meet both the ownership and use tests. This means that you must have owned and used the home as your main residence for at least two years out of the five years before its sale date.
If your capital gains exceed the exclusion threshold, you may owe taxes on the amount that goes over the limit. These rates are determined by your income, filing status, and how long you owned the property.
There are ways to reduce or eliminate capital gains tax on primary home sales. One strategy is to convert a second home or rental property into your primary residence before selling it. By doing so, you can take advantage of the IRS capital gains tax exclusion. Additionally, capital losses from previous years can be carried forward to offset gains in future years.
It is important to note that the Trump administration has proposed eliminating capital gains taxes on primary home sales. This proposal could benefit longtime homeowners with significant property value appreciation. However, it is uncertain, and it may favour older, higher-income homeowners.
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Frequently asked questions
The new tax laws will impact income tax differently depending on your income level and filing status. The “One Big Beautiful Bill Act” (OBBA) has made permanent the seven federal tax brackets of 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These brackets will apply to the 2025 tax year, with adjustments for inflation in subsequent years. High-income filers should watch out for the key income threshold of $197,300 for single filers and $394,600 for married couples filing jointly, which marks the boundary between the 24% and 32% tax rate brackets.
The new tax laws have introduced a “bonus” deduction for older adults, increased the standard deduction, and raised the alternative minimum tax (AMT) exemption thresholds. The AMT exemption is now $88,100 for individuals and $137,300 for married couples filing jointly. Additionally, the child tax credit has increased to $2,200 per qualifying child, and the Adoption Tax Credit now offers a refundable portion of up to $5,000. However, the new legislation has removed certain education and health-related deductions and repealed clean energy credits.
The new tax laws introduce the “No Tax on Overtime” and “No Tax on Tips” rules, allowing certain workers to claim dollar-for-dollar deductions for a designated amount of overtime pay and tips earned. Additionally, the legislation tightens rules for Medicaid and SNAP by adding work requirements and shifting more administrative costs to the states. It also eliminates federal funding for Planned Parenthood, impacting support for reproductive health services. These changes reflect a shift in focus, offering new savings accounts for newborns while reducing funding for specific programs.
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