Anaya Nolan
On July 4, 2025, President Trump signed the One Big Beautiful Bill Act into law, introducing significant updates to the tax code. The new law impacts how Americans file their taxes in 2025 and beyond. Most of the changes in the One Big Beautiful Bill take effect on January 1, 2026, but some are retroactive and could impact tax returns filed in 2026 for the 2025 tax year. The legislation makes permanent many temporary tax law changes from the 2017 Tax Cuts and Jobs Act (TCJA), while also introducing new provisions. These changes include updates to deductions, tax credits, and tax rates, as well as reforms to Medicaid, Pell Grants, and student loans. Understanding how these changes affect an individual's taxes can be complex, and it is important to seek expert guidance when necessary.
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What You'll Learn
The One Big Beautiful Bill Act
On July 4, 2025, President Trump signed the One Big Beautiful Bill Act into law as Public Law 119-21. The Act introduces significant updates across the tax code, impacting how Americans file their taxes in 2025 and beyond.
- Lower individual tax rates (10%, 12%, 22%, 24%, 32%, 35%, 37%)
- Elimination of personal and dependent exemptions
- Elimination of itemized deductions for miscellaneous expenses like unreimbursed employee expenses
- Increasing the cap on the amount of state and local or sales tax and property tax (SALT) that can be deducted from $10,000 to $40,000
- Cuts to energy credits passed under the Inflation Reduction Act
- Changes to taxes on tips and overtime for certain workers
- Reforming Medicaid
- Increasing the Debt ceiling
- Reforming Pell Grants and student loans
The Act also introduces new temporary tax provisions, including:
- No tax on tip or overtime income for certain workers, effective 2025-2028
- A temporary tax deduction of up to $10,000 in car loan interest per year for qualified auto loans, effective 2025-2028
- A new additional deduction of $6,000 for individuals aged 65 and older, effective 2025-2028
Some of the new tax laws under the One Big Beautiful Bill Act affect 2025 taxes (filed in 2026), but most will start in 2026 or later.
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Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act (TCJA) of 2017 was a significant piece of legislation that brought about several changes to the tax landscape in the United States. The Act made alterations to deductions, depreciation, expensing, tax credits, and other tax items that affect both businesses and individuals.
One of the key provisions of the TCJA was the reduction of taxes for most U.S. taxpayers. According to the Tax Policy Center, the TCJA lowered individual income taxes for approximately 65% of American households in 2018 and 2025. However, it is important to note that the benefits of the tax cuts were unevenly distributed, with the top 20% of Americans by income receiving about 65% of the savings.
The TCJA also simplified the tax code for some taxpayers, lowered corporate debt, and brought money back from overseas. Additionally, the Act included a variety of miscellaneous tax provisions, such as a tax credit for employers providing paid family and medical leave, a tax break for citrus growers, and the extension of "full expensing" for film and television production companies.
The impact of the TCJA on business investment and economic activity has been debated. While business investment increased in 2018, relatively little of that activity was attributed to lower taxes. Additionally, a study by the Federal Reserve Bank found that corporations prioritized stock buybacks and debt repayment over new capital expenditures or research and development investments.
Overall, the Tax Cuts and Jobs Act of 2017 had a mixed impact on taxpayers and businesses, with some benefiting significantly from the tax cuts and simplifications while others saw little change or even negative consequences.
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Taxpayers who claim the standard deduction
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduces significant updates to the tax code, impacting how Americans file their taxes in 2025 and beyond.
For taxpayers who claim the standard deduction, here are some key points to note:
- The standard deduction is a fixed dollar amount that reduces the income you are taxed on. It is adjusted annually for inflation and varies based on filing status, age, blindness, and dependent status.
- Most taxpayers qualify for the standard deduction, but some must itemize deductions as they are not entitled to the standard deduction.
- Taxpayers who claim the standard deduction cannot itemize their deductions. They must choose one or the other.
- With the new law, taxpayers claiming the standard deduction can also claim a charitable deduction for cash contributions. This does not apply to property contributions made to a charity.
- The standard deduction for 2024 is limited to $1,300 or your earned income plus $450 (up to the basic standard deduction for your filing status) if you can be claimed as a dependent by another taxpayer.
- For tax year 2024, if you are age 65 or older and blind, you are entitled to a basic standard deduction plus an additional amount for age and blindness. For example, a single taxpayer who is 65 and blind would have an additional standard deduction of $1,550, increasing to $1,950 if unmarried and not a surviving spouse.
- For 2025, individuals aged 65 and older may claim an additional deduction of $6,000 on top of the current additional standard deduction for seniors. This phases out for taxpayers with a modified adjusted gross income over $75,000 ($150,000 for joint filers).
- Nonresident aliens and dual-status aliens may take the standard deduction in certain cases, such as being married to a U.S. citizen and making a joint election to be treated as a resident for the tax year.
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Tax changes for 2025
The Internal Revenue Service (IRS) announced annual inflation adjustments for the 2025 tax year, impacting taxpayers when they file their returns in 2026. The changes include adjustments to tax brackets, deductions, and retirement contributions.
The "One Big Beautiful Bill Act" (OBBBA), signed into law in July 2025, introduced significant updates to the tax code, including the following:
- The seven federal tax brackets (10%, 12%, 22%, 24%, 32%, 35%, and 37%) are now permanent.
- Standard deductions have increased, and a new "bonus" deduction for older adults has been introduced.
- The alternative minimum tax exemption thresholds have been reduced for phase-out.
- The child tax credit has increased to $2,200 per qualifying child.
- The SALT deduction cap has been temporarily increased, with income-based phase-outs.
- The new "No Tax on Tips" law allows a dollar-for-dollar deduction for a designated amount of tips earned by workers in industries where tipping is customary.
- The maximum Earned Income Tax Credit amount for qualifying taxpayers with three or more qualifying children has increased to $8,046.
- The monthly limitation for the qualified transportation fringe benefit and qualified parking has risen to $325.
- The dollar limitation for employee salary reductions for contributions to health flexible spending arrangements has increased to $3,300.
- The maximum carryover amount for cafeteria plans that permit the carryover of unused amounts has risen to $660.
- Individuals aged 65 and older can claim an additional deduction of $6,000, in addition to the current additional standard deduction for seniors.
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Tax changes for 2026
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduces significant updates to the tax code, impacting how Americans file their taxes in 2025 and beyond. While some changes apply to taxes filed in 2026 for the 2025 tax year, others will start in 2026 or later. Here are the key tax changes expected to take effect in 2026:
Changes to Premium Tax Credit Rules
The new law expands the situations where individuals may be required to repay the full amount of any excess advance premium tax credit received during the year. This change may decrease the number of individuals with health insurance coverage through the Marketplace.
Household Income Changes and Eligibility
This change eliminates eligibility for the premium tax credit for individuals who enroll in Marketplace coverage during a special enrollment period solely due to a change in household income. This will take effect for individuals with income below 100% of the federal poverty level.
Expansion of Education-Related Tax Benefits
The new law allows individuals to claim education-related tax benefits, such as the student loan debt cancellation exclusion. If a student loan is discharged due to disability or death, the amount can be excluded from gross income.
New Type of Savings Account for Children
The bill creates a new type of savings account for children under 18, with a contribution limit of up to $5,000 per tax year (adjusted for inflation after 2027). Employers can also contribute up to $2,500 per year to an employee's or dependent's account. Contributions are not tax-deductible until the child turns 18.
Inflation Adjustment for Standard Deduction
The standard deduction amounts for 2025 are expected to be slightly expanded, with an initial inflation adjustment in 2026 for the first two brackets (10%, 12%). The larger standard deduction created under the TCJA is made permanent by the OBBBA.
Excise Tax on Money Transfers to Foreign Locations
Money transfers going to foreign locations will be subject to a 1% excise tax starting in 2026.
It's important to note that these changes may evolve as new legislation or amendments are introduced. For the most up-to-date information, it is recommended to refer to official sources, such as the Internal Revenue Service (IRS) or seek advice from tax professionals.
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Frequently asked questions
The One Big Beautiful Bill Act was signed into law on July 4, 2025, and most of its provisions will come into effect in 2026. However, some provisions are already effective for 2025 and will impact tax returns filed in 2026.
The Act makes permanent many of the temporary tax law changes introduced by the 2017 Tax Cuts and Jobs Act (TCJA). It also includes new provisions such as no tax on tips and overtime pay for certain workers, an increased Child Tax Credit, and higher state and local tax (SALT) deductions.
The Act impacts all taxpayers, including individuals and businesses of all sizes, and tax-exempt organizations. It also affects retirement plans and governments.
You can refer to the official website of the Internal Revenue Service (IRS) for updates and guidance on tax laws. Additionally, tax preparation companies like H&R Block and TurboTax offer resources and tools to help you understand the changes and their impact on your specific situation.
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