Cameron Miranda
The One Big Beautiful Bill, signed into law on July 4, 2025, introduces a host of changes to tax laws, government assistance programs, and immigration and border policies. Some changes took effect immediately, while others will be implemented in the coming years, with some not scheduled until 2028. The new tax laws are as much about cementing old tax laws as they are about introducing new ones. The bill makes permanent many of the temporary tax law changes first introduced in the 2017 Tax Cuts and Jobs Act (TCJA).
| Characteristics | Values |
|---|---|
| Name of the Act | One Big Beautiful Bill Act OBBB |
| Date signed into law | July 4, 2025 |
| Effective period | 2025-2028 |
| Effective date for changes to student loan repayment | July 2026 |
| Effective date for changes to premium tax credit rules | 2026 |
| Effective date for changes to household income eligibility | 2026 |
| Effective date for changes to eligibility for certain lawfully present individuals | 2027 |
| Maximum annual deduction for individuals receiving qualified overtime compensation | $12,500 |
| Maximum annual deduction for joint filers | $25,000 |
| Maximum annual deduction for individuals aged 65 and above | $6,000 |
| Maximum annual deduction for married couples where both spouses are aged 65 and above | $12,000 |
| Maximum annual deduction for individuals who are employees or self-employed and receive qualified tips | $25,000 |
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What You'll Learn
The One Big Beautiful Bill Act (OBBB)
One of the key provisions of the OBBB is the increase in the standard deduction, which will be $15,750 for single filers and $31,500 for joint filers in 2025, with adjustments for inflation in subsequent years. Personal exemptions for individuals, spouses, and dependents have been eliminated, except for certain seniors. The OBBB also introduces a new type of savings account for children under 18, with a contribution limit of $5,000 per tax year, adjusted for inflation after 2027.
Additionally, the OBBB provides tax deductions for working Americans and seniors. For 2025 through 2028, individuals who receive qualified overtime compensation can deduct pay exceeding their regular rate, with a maximum annual deduction of $12,500 ($25,000 for joint filers). This deduction phases out for taxpayers with a modified adjusted gross income over $150,000 ($300,000 for joint filers). Seniors aged 65 and older can claim an additional deduction of $6,000, with a phaseout for taxpayers with a modified adjusted gross income over $75,000 ($150,000 for joint filers).
Furthermore, the OBBB allows individuals to deduct interest paid on loans used to purchase qualified vehicles for personal use, with a maximum annual deduction of $10,000. This deduction is subject to income limits and eligibility criteria. The OBBB also includes provisions for tip deductions, allowing employees and self-employed individuals in certain occupations to deduct qualified tips received on or before December 31, 2024, with a maximum annual deduction of $25,000 for self-employed individuals.
Overall, the OBBB has far-reaching implications for taxpayers, with a mix of short-term and long-term tax changes. While some provisions are already in effect for the 2025 tax year, others will be implemented in 2026 and beyond. Taxpayers should refer to official sources and seek professional guidance to understand how these changes impact their specific situations.
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Changes to federal taxes, credits and deductions
The One, Big, Beautiful Bill Act of 2025 has had a significant impact on federal taxes, credits, and deductions. The Act, which was signed into law on July 4, 2025, introduced several changes that came into effect that year and will continue until 2028. These changes include:
- A new deduction for individuals aged 65 and older, allowing them to claim an additional $6,000 deduction on their taxes. This deduction is available for both itemizing and non-itemizing taxpayers and is in addition to the existing additional standard deduction for seniors.
- Employees and self-employed individuals can now deduct qualified tips received in occupations listed by the IRS as customarily and regularly receiving tips. The maximum annual deduction is $25,000, and for self-employed individuals, the deduction may not exceed their net income from the trade or business in which the tips were earned.
- Individuals who receive qualified overtime compensation can 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 for individuals and $25,000 for joint filers.
- 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.
In addition to the changes introduced by the One, Big, Beautiful Bill Act, there have been other updates to federal taxes, credits, and deductions:
- The Inflation Reduction Act of 2022 changed the rules for the clean vehicle tax credit. Individuals who purchase or lease a new plug-in electric vehicle (EV) or fuel cell vehicle (FCV) in 2023 or later may qualify for this credit.
- The IRS introduced a new online account system that allows taxpayers to securely access their personal tax information, including tax return transcripts, payment history, and prior-year adjusted gross income.
- The reporting rules for Form 1099-K have changed. Taxpayers who received third-party payments in the tax year 2022 for goods and services exceeding $600 will now receive Form 1099-K.
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Adjustments to tax brackets, deductions and retirement contributions
The One Big Beautiful Bill Act (OBBB) of 2025 has introduced significant changes to federal taxes, credits, and deductions. The Act, signed into law on July 4, 2025, has made permanent several temporary tax law changes initially introduced in the 2017 Tax Cuts and Jobs Act (TCJA).
The OBBB has introduced adjustments to tax brackets, deductions, and retirement contributions for the tax year 2025, with some changes retroactive and others coming into effect on January 1, 2026. For instance, the standard deduction for single taxpayers and married individuals filing separately has increased to $15,000, while for married couples filing jointly, it has risen to $30,000. The top tax rate remains unchanged at 37% for individual single taxpayers with incomes above $626,350, and $751,600 for married couples filing jointly.
Additionally, the OBBB has introduced new deductions for 2025 through 2028. Individuals aged 65 and older can claim an additional deduction of $6,000, with a maximum of $12,000 for married couples where both spouses qualify. Furthermore, employees and self-employed individuals can deduct qualified tips received in occupations listed by the IRS as regularly receiving tips before December 31, 2024, with a maximum annual deduction of $25,000.
The OBBB has also impacted retirement contributions. For 2025, a higher catch-up contribution limit of $11,250 applies to employees aged 60 to 63 participating in certain plans. Additionally, a higher catch-up contribution limit of $5,250 is applicable for individuals aged 60 to 63 contributing to a SIMPLE IRA. These changes demonstrate the OBBB's impact on adjustments to tax brackets, deductions, and retirement contributions.
Looking ahead to 2026, the new legislation will increase the lifetime exclusion amount to $15 million per individual, adjusted annually for inflation. The SALT deduction limit will also increase to up to $40,000 for married couples filing jointly, depending on their MAGI. These changes build upon the adjustments made in 2025 and reflect the ongoing evolution of tax laws.
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Changes to student loan repayment
The following paragraphs outline the changes to student loan repayment in the UK for the 2025-2026 period:
Repayment Thresholds
The repayment threshold for student loans varies depending on the type of loan and individual circumstances. For Plan 1 loans, the repayment threshold will rise to £26,900 from 6 April 2026 to 5 April 2027. For Plan 2 loans, the repayment threshold is currently £26,065 per year, £2,172 per month, or £501 per week. The income threshold for Plan 5 loans is currently £28,470 per year, £2,372 per month, or £547 per week. The income thresholds for Postgraduate Masters and Doctoral Loans will be announced at a later date and are set to apply from April 2026.
Interest Rates
The interest rates for student loans also vary depending on the loan plan and individual circumstances. For Plan 1 loans, the interest rate is either the Retail Price Index (RPI) rate of 3.2% or the Bank Base Rate of 4% + 1% (5%), whichever is lower. The maximum interest rate for Plan 1 loans is 3.2%. For Plan 2 loans, the interest rate varies between RPI (3.2%) and RPI (3.2%) +3% (6.2%). The interest rate for Plan 5 loans is the RPI rate of 3.2%. For Mortgage Style Loans, the interest rate is the RPI rate of 3.2%, with a deferment threshold of £41,613.
Repayment Calculation
The calculation of student loan repayments depends on the borrower's employment status. For employees repaying via PAYE, repayments are taken at a fixed percentage of earnings above the repayment threshold. For self-employed individuals completing self-assessment, repayments are calculated based on the previous tax year's income. With the introduction of Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) in 2026, self-employed individuals will need to report income quarterly, resulting in more frequent calculation of student loan repayments.
Overpayment Prevention
In summer 2024, a new automatic reporting system was implemented to prevent overpayments. This system ensures that the Student Loans Company (SLC) informs HMRC immediately when a loan is repaid, stopping PAYE repayments within the tax year. However, self-employed individuals must still take action to avoid overpayments, as automatic deductions may still be applied through Self-Assessment unless the borrower manually notifies the SLC.
Loan Overpayments
Loan overpayments occur when an individual has been paid money that they are no longer entitled to due to a change in circumstances. In such cases, the overpaid amount must be repaid. Loan overpayments are normally repaid separately and earlier than the rest of the loan balance.
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Changes to premium tax credit rules
The premium tax credit, also known as PTC, is a refundable credit that helps eligible individuals and families cover the premiums for their health insurance purchased through the Health Insurance Marketplace.
To be eligible for the premium tax credit, you must meet the following requirements:
- You must have household income that falls within a certain range. For tax years 2021 through 2025, Congress temporarily expanded eligibility for the Premium Tax Credit by eliminating the requirement that a taxpayer's household income may not be more than 400% of the federal poverty line.
- You must receive unemployment compensation for at least one week beginning in 2021.
- You must not file a tax return using the filing status of "Married Filing Separately." There are exceptions to this rule for survivors of domestic abuse and spousal abandonment.
- You cannot be claimed as a dependent by another person.
Additionally, you must have health insurance coverage through a Health Insurance Marketplace, and you can choose to have payments of the premium tax credit go directly to insurers to lower your monthly premiums or wait until you file taxes to claim them.
It is important to note that if you enroll in an employer-sponsored plan, you are not eligible for the Premium Tax Credit for your Marketplace coverage, even if the employer plan is unaffordable or fails to provide minimum value. However, you may be eligible for a Premium Tax Credit for coverage of another family member who enrolls in Marketplace coverage and is not enrolled in the employer plan.
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Frequently asked questions
The OBBB was signed into law on July 4, 2025, and it will introduce a host of changes to tax laws, government assistance programs, and immigration and border policies. Some changes took effect immediately, while others will be implemented in the coming years, with some not scheduled until 2028.
Some of the immediate changes to tax laws under the OBBB include:
- The Child Tax Credit now requires taxpayers to have a work-eligible Social Security Number.
- The credit itself has increased to $2,200 in 2025 and will change with inflation annually.
- Service workers do not have to pay federal taxes on up to $25,000 of tip pay.
- Up to 250 hours of overtime pay will be exempt from federal taxes.
- Taxpayers 65 and older can deduct an additional $6,000.
Some of the upcoming changes to tax laws under the OBBB include:
- Changes to premium tax credit rules and Marketplace eligibility may decrease the number of individuals with health insurance coverage through the Marketplace starting in 2026.
- Limitations on personal casualty losses, miscellaneous itemized deductions, and moving expense deductions for most taxpayers starting on January 1, 2026.
- Limitations on itemized deductions for taxpayers in the highest tax bracket starting in 2026.
- Limitations on how much of a gambling loss can be claimed on taxes each year, with only 90% of wagering losses being deductible, starting in 2026.
Yes, the OBBB also includes some long-term changes to tax laws, such as:
- The seven federal tax brackets (10%, 12%, 22%, 24%, 32%, 35%, and 37%) are now permanent.
- The larger Standard Deduction, elimination of personal and dependent exemptions, and lower tax brackets are now permanent.
- The SALT deduction cap has increased temporarily and will revert in 2030.
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