Anaya Nolan
The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, and introduces significant changes to the tax code, impacting how Americans file their taxes in 2025 and beyond. While some changes are retroactive and will impact 2025 tax returns, most of the new provisions will take effect on January 1, 2026, and will continue to evolve in the coming years. Therefore, the new tax law will be in effect indefinitely, with certain provisions lasting only a few years.
| Characteristics | Values |
|---|---|
| Name of the new tax law | One Big Beautiful Bill Act (OBBB) |
| Date signed into law | July 4, 2025 |
| Effective date | 2025 through 2028 |
| Taxpayers eligible for the new deduction | Employees, self-employed individuals, and individuals aged 65 and older |
| Maximum annual deduction for taxpayers eligible for the new deduction | $25,000 |
| Maximum annual deduction for individuals aged 65 and older | $6,000 |
| Maximum annual deduction for car loan interest | $10,000 |
| Child Tax Credit | $2,200 |
| Federal tax brackets | 10%, 12%, 22%, 24%, 32%, 35%, 37% |
| Alternative minimum tax exemption thresholds | $88,100 for individuals and $137,300 for married couples filing jointly |
| Phaseout for Modified Adjusted Gross Income (MAGI) | $150,000 for single filers and $300,000 for married couples filing jointly |
| Phaseout for taxpayers aged 65 and older | $75,000 for single filers and $150,000 for married couples filing jointly |
| Phaseout for car loan interest deduction | $100,000 for single filers and $200,000 for married couples filing jointly |
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What You'll Learn
The One Big Beautiful Bill Act of 2025
One key change in the new law is the "No Tax on Tips" provision, which allows workers in industries where tipping is customary to deduct a designated amount of tip income from their taxes. This deduction is capped at $25,000 per taxpayer and begins to phase out for taxpayers with a Modified Adjusted Gross Income (MAGI) of $150,000 for single filers or $300,000 for married couples filing jointly.
Additionally, the One Big Beautiful Bill Act introduces a deduction for qualified overtime income. This deduction allows individuals to deduct the portion of their income that exceeds their regular rate of pay, as required by the Fair Labor Standards Act (FLSA). The maximum deduction for overtime income is $12,500 per taxpayer, and it also begins to phase out for taxpayers with a MAGI of $150,000 for single filers or $300,000 for married couples filing jointly.
The new law also includes an enhanced deduction for seniors aged 65 and older, who can claim an additional deduction of $6,000 per eligible individual ($12,000 for married couples where both spouses qualify). This deduction is available for taxpayers with a MAGI of up to $75,000 for single filers or $150,000 for married couples filing jointly.
Furthermore, the One Big Beautiful Bill Act of 2025 increases the Child Tax Credit to $2,200 per qualifying child, with annual adjustments for inflation. This credit requires a valid Social Security number for the child and the taxpayer claiming the credit.
These are just a few of the key provisions of the One Big Beautiful Bill Act of 2025. The law includes various other changes that may impact taxpayers, such as adjustments to standard deductions, alternative minimum tax exemptions, and eligibility criteria for certain deductions. It is important for taxpayers to stay informed about these changes and how they may affect their unique financial situations.
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New tax laws
The One Big Beautiful Bill Act, also known as the One Big Beautiful Bill (OBBB) or the Trump Tax Plan 2025, was signed into law on July 4, 2025, as Public Law 119-21. The new tax laws are a mix of old and new provisions, making some temporary changes permanent while introducing a few temporary and permanent changes to the tax code.
Most of the changes in the One Big Beautiful Bill will take effect on January 1, 2026, but some are retroactive and will impact 2025 tax returns filed in 2026. The changes include adjustments to tax brackets, deductions, retirement contributions, and extended TCJA provisions. The seven federal tax brackets (10%, 12%, 22%, 24%, 32%, 35%, and 37%) have been made 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, with the AMT exemption increased to $88,100 for individuals and $137,300 for married couples filing jointly. The Child Tax Credit has been increased from $2,000 to $2,200 for qualified taxpayers, with a potential refund of up to $1,700 in 2025 as part of the additional child tax credit.
The new tax laws also introduce a deduction for individuals who receive qualified overtime compensation. This allows them to deduct the pay that exceeds their regular rate, such as the "half" portion of "time-and-a-half" compensation required by the Fair Labor Standards Act (FLSA). The maximum annual deduction is $12,500 ($25,000 for joint filers), and it phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers). Additionally, individuals may deduct interest paid on a loan used to purchase a qualified vehicle for personal use, with a maximum annual deduction of $10,000. This deduction also phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers).
Furthermore, the new tax laws include a provision for individuals aged 65 and older to claim an additional deduction of $6,000, which is in addition to the existing standard deduction for seniors. This deduction is per eligible individual, resulting in a total of $12,000 for a married couple where both spouses qualify. It phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers). Lastly, employees and self-employed individuals may deduct qualified tips received in occupations listed by the IRS as customarily and regularly receiving tips before December 31, 2024. The maximum annual deduction is $25,000, and it phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
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Tax deductions
The One Big Beautiful Bill Act, signed into law on July 4, 2025, introduces several tax deductions for working Americans and seniors. Here are the key provisions related to tax deductions:
- Deduction for Qualified Tips: From 2025 to 2028, employees and self-employed individuals can deduct qualified tips received in occupations listed by the IRS as regularly receiving tips before December 31, 2024. The maximum annual deduction is $25,000, and it phases out for taxpayers with a modified adjusted gross income over $150,000.
- Additional Deduction for Seniors: Individuals aged 65 and older can claim an additional deduction of $6,000 from 2025 to 2028. This is on top of the existing standard deduction for seniors. The deduction phases out for taxpayers with a modified adjusted gross income over $75,000.
- Deduction for Qualified Overtime Compensation: Individuals can deduct the portion of their pay that exceeds their regular rate for qualified overtime compensation required by the Fair Labor Standards Act (FLSA). This deduction is also effective from 2025 to 2028.
- Interest Deduction for Qualified Vehicle Purchases: Individuals can deduct interest paid on a loan used to purchase a qualified vehicle for personal use, with a maximum annual deduction of $10,000. This deduction is available from 2025 to 2028 and phases out for taxpayers with a modified adjusted gross income over $100,000.
These deductions are in addition to other common tax deductions that individuals may be eligible for, such as deductions for health savings account (HSA) contributions, alimony payments, teacher expenses, mortgage interest, charitable donations, and medical expenses. It's important to review the specific eligibility criteria and requirements for each deduction to determine if you qualify.
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Tax exemptions
A tax exemption is the reduction or removal of a liability to make a compulsory payment that would otherwise be imposed by a ruling power upon persons, property, income, or transactions. Tax-exempt status may provide complete relief from taxes, reduced rates, or tax on only a portion of items. Tax exemption is distinct from a tax exclusion and a tax deduction, all of which are types of tax expenditures. A tax exemption is an income stream on which no tax is levied, such as interest income from state and local bonds, which is often exempt from federal income tax.
Some jurisdictions allow for a specific monetary reduction of the tax base, which may be referred to as an exemption. For example, the U.S. Federal and many state tax systems allow a deduction of a specified dollar amount for each of several categories of "personal exemptions". Similar amounts may be called "personal allowances". Some systems may provide thresholds at which such exemptions or allowances are phased out or removed. Some governments grant broad exclusions from all taxation for certain types of organizations.
The United States, for example, exempts certain organizations from Federal income taxes, but not from various excise or most employment taxes. Many tax systems provide complete exemption from tax for recognized charitable or nonprofit organizations, including religious organizations, fraternal organizations, and public charities. The UK generally exempts public charities from business rates, corporation tax, income tax, and certain other taxes.
Most systems do not tax entities organized to conduct retirement investment and pension activities for employees. In addition, many systems also provide tax exemption for personal pension schemes. Some jurisdictions provide separate total or partial tax exemptions for educational institutions. These exemptions may be limited to certain functions or income.
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Tax credits
The One Big Beautiful Bill Act, signed into law on July 4, 2025, introduces new tax laws that will impact Americans' 2025 taxes (filed in 2026). However, most of the changes will come into effect in 2026 and beyond. The new law includes provisions for various tax credits, which can help reduce the income tax owed by eligible taxpayers.
The Child Tax Credit, for example, was a non-refundable credit but became partially refundable (up to $1,700 in 2024 and 2025) due to the Tax Cuts and Jobs Act (TCJA). The One Big Beautiful Bill further increased the Child Tax Credit from $2,000 to $2,200 for qualified taxpayers. Additionally, the Earned Income Tax Credit (EITC) is a popular refundable tax credit for moderate- and low-income taxpayers.
The new tax law also introduces an increased focus on tip and overtime income. For 2025 through 2028, employees and self-employed individuals can deduct qualified tips received in occupations listed by the IRS as customarily receiving tips, with a maximum annual deduction of $25,000. Similarly, individuals who receive qualified overtime compensation can deduct the excess over their regular rate of pay, with a maximum annual deduction of $12,500. These changes provide no tax on tips and overtime income for certain workers.
While the One Big Beautiful Bill introduces several changes, it is important to note that the majority of them will take effect in 2026. Taxpayers should carefully review the current tax credits and provisions when preparing their tax returns to maximize their benefits and understand how the new law impacts their finances.
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Frequently asked questions
The new tax laws are already in effect for the 2025 tax year, which you'll file in 2026. However, most of the changes will take effect on January 1, 2026.
Some of the key changes in the new tax laws include:
- Increased standard deductions
- Lower tax brackets
- Enhanced deduction for seniors up to $6,000 for individuals 65 and over
- Deduction of up to $25,000 for tips
- Deduction of up to $12,500 for overtime pay
- Increased Child Tax Credit
The new tax laws will be in effect for the next few years, with some changes lasting until 2028. However, some changes, such as the elimination of personal and dependent exemptions, are permanent.
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