Anaya Nolan
On July 4, 2025, the One Big Beautiful Bill Act was signed into law, introducing significant changes to the tax code and impacting how Americans file their taxes in 2025 and beyond. The new law modifies and makes permanent individual income and estate tax provisions of the 2017 Tax Cuts and Jobs Act (TCJA), such as higher standard deductions, lower tax brackets, and higher gift and estate tax exemptions. While some taxpayers will benefit from lower taxes, others may face a more complex tax code with new rules and compliance costs. The law introduces dozens of new tax provisions, including changes to deductions, credits, and incentives for saving, which may either positively or negatively impact individuals depending on their specific circumstances.
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What You'll Learn
Changes to income and estate tax provisions
The One Big Beautiful Bill Act (OBBBA) of 2025 makes permanent many of the temporary tax law changes that were first introduced as part of the 2017 Tax Cuts and Jobs Act (TCJA). It also introduces new tax provisions, including:
Income Tax Provisions
- Permanently extends lower individual income tax rates and thresholds from TCJA, which were scheduled to expire after 2025.
- Expands the standard deduction and child tax credit incrementally.
- Provides a more generous deduction for state and local taxes (SALT) paid, with the SALT deduction cap increasing to $40,000 for certain taxpayers, but returning to $10,000 in 2030.
- Creates a new haircut for itemized deductions and limits for itemized charitable deductions, with charitable deductions for non-itemizers permanently reinstated.
- Creates new temporary income tax deductions for tips, overtime income, seniors, and auto loans (all subject to income limits).
- Caps deductions on tipped income of up to $25,000 and overtime income of $12,500 ($25,000 for joint filers).
- Adds an additional $6,000 deduction for people aged 65 and older, which begins to phase out at incomes of $75,000 for single filers and $150,000 for joint filers.
- Allows a deduction of up to $10,000 for loan interest on vehicles assembled in the US.
- Increases the threshold for Form 1099-NEC and some items on Form 1099-MISC to $2,000 from $600, with adjustments for inflation.
- Limits how much of a gambling loss can be claimed on taxes to 90% of wagering losses, up to the amount of winnings.
Estate Tax Provisions
- Makes the more generous estate tax exemption from TCJA permanent and increases it to $15 million per decedent in 2026, reducing the number of estates subject to the estate tax.
- Permanently extends the higher gift and estate tax exemptions from TCJA.
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Tax breaks for seniors
The One Big Beautiful Bill Act (also known as the Big Beautiful Bill or OBBB) has been hailed as a landmark piece of legislation by the Social Security Administration (SSA), as it delivers meaningful and immediate tax relief to seniors. The bill includes a $6,000 tax deduction for individuals aged 65 and older, which will reduce tax bills for many older Americans. This deduction is in addition to the existing standard deduction for seniors and is available to both itemizing and non-itemizing taxpayers.
The new legislation also includes a provision that eliminates federal income taxes on Social Security benefits for most beneficiaries, providing relief to individuals and couples. This means that nearly 90% of Social Security beneficiaries will no longer pay federal income taxes on their benefits. For example, married seniors who both receive the average $24,000 Social Security income will see deductions that exceed their taxable Social Security income. This amounts to the largest tax break in history for America's seniors.
The additional $6,000 deduction for seniors is set to expire after the 2028 tax year, but Congress could extend it or make it permanent before then. This deduction is available in full only to taxpayers with incomes below a certain level and phases out above that threshold. For example, the deduction phases out for taxpayers with a modified adjusted gross income over $75,000, or $150,000 for joint filers.
The 2025 Tax Bill also introduces other tax breaks, such as the ability to deduct interest paid on a loan for a qualified vehicle, and the ability for employees and self-employed individuals to deduct qualified tips received in occupations that customarily receive tips. These deductions are also effective for the 2025 through 2028 tax years.
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Tax breaks for parents
The One Big Beautiful Bill Act (OBBBA) introduced significant changes to the tax code in 2025, impacting how Americans file their taxes. While some of these changes are beneficial for parents, others may negatively affect them.
- Child Tax Credit: The Child Tax Credit was doubled to $2,000 per child under the Trump administration, benefiting over 47 million American families. However, under the new bill, this credit is reduced by half for families with incomes below $400,000, while families earning up to $400,000 receive the full $2,500 credit. This negatively impacts approximately 20 million children in low- and moderate-income families.
- Other Dependent Credit: Families with dependents who do not qualify for the Child Tax Credit may be eligible for the Other Dependent Credit, which has a value of $500 and has been made permanent.
- Adoption Tax Credit: The new tax plan makes a portion of the Adoption Tax Credit refundable, allowing for up to $5,000 to be returned as a refund. This amount is adjusted for inflation.
- Education Savings: The bill expands 529 education savings accounts, allowing for tax-exempt distributions of up to $20,000 for K-12 expenses.
- Childcare Credit: The bill expands access to the childcare credit and makes the paid leave tax credit permanent.
While these tax breaks provide some relief for parents, it's important to note that the overall impact of the bill may still negatively affect low- and middle-income families. The bill includes significant tax cuts for high-income households, adding to the national debt and reducing funding for essential programs such as healthcare and food assistance. Additionally, the “No Tax on Tips" program may not benefit all workers as expected, and the tax cuts for the ultra-wealthy are permanent, while the program for tipped workers is temporary.
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Tax breaks for high state and local taxes
The State and Local Tax (SALT) deduction allows US taxpayers to deduct certain state and local taxes from their federal income tax returns. Eligible taxes include state and local income taxes, property taxes, and either state and local sales taxes or state and local general sales taxes. The SALT deduction is intended to avoid double taxation.
The Tax Cuts and Jobs Act (TCJA) of 2017 imposed a $10,000 cap on the SALT deduction, limiting the amount taxpayers could deduct for state and local taxes on their federal returns. This limit particularly affected residents in high-tax states, such as New York and California, where state and local tax liabilities often exceed the $10,000 threshold. The percentage of taxpayers claiming the SALT deduction in 2020 ranged from 3% in West Virginia to 21% in Maryland.
The SALT deduction cap will rise from $10,000 to $40,000 beginning in 2025, offering a temporary reprieve for households in high-tax states. President Trump's "One Big Beautiful Bill Act" includes this increase in the SALT deduction limit. This legislation makes permanent many of the temporary tax law changes that were first introduced as part of the TCJA.
In 2021, there were efforts to repeal the SALT deduction limit. House Representative Tom Suozzi and Senate Majority Leader Chuck Schumer pushed legislation in the US House of Representatives to repeal the $10,000 limit. The version of the Build Back Better Act that the House passed on November 19, 2021, would have increased the SALT deduction cap to $80,000 until 2030.
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Tax breaks for overtime pay
The "One Big Beautiful Bill", signed into law on July 4, 2025, brings about significant changes to the tax landscape for millions of American workers. The bill includes a "No Tax on Overtime" rule, allowing certain workers to claim a dollar-for-dollar deduction for a designated amount of overtime pay. This means that workers can keep more of their earnings, as they will no longer be taxed on their overtime pay at the same rate as their regular hourly pay.
Under the new law, employees who earn overtime may benefit from a break on their federal taxes. The overtime tax break will function similarly to the tip income deduction. While overtime wages will still be subject to withholding, workers will be able to deduct federal income taxes paid on those wages when filing their returns, even if they don't itemize. This deduction will apply to tax years 2025 through 2028.
The "No Tax on Overtime" provision creates an above-the-line deduction on the taxpayer's tax return for overtime pay during a given taxable year. In simpler terms, the bill would exempt the "half" portion of "time and a half" from federal tax. The employee would still be taxed at normal rates on their regular pay. However, if overtime pay pushes an employee's total income into a higher tax bracket, only the portion of their income that falls within that higher bracket is taxed at the increased rate.
There are some important considerations to note. Firstly, the maximum annual deduction for single filers is $12,500, while for married couples filing jointly, it is $25,000. Secondly, the deduction begins to phase out for taxpayers with higher Modified Adjusted Gross Incomes (MAGI). For single filers, the phase-out starts at $150,000, while for married couples filing jointly, it is $300,000. Additionally, the taxpayer receiving the overtime must have a valid work-eligible Social Security number. Employers will need to separately identify overtime wages on the taxpayer's Form W-2.
The White House estimates that the average overtime worker will receive a tax cut of between $1,400 and $1,750 annually. However, it is important to note that experts argue that the tax benefits will not significantly impact those with lower income levels. While the new tax law on overtime pay is a welcome change for many, it is always recommended to consult with tax experts or trusted resources to understand the full implications on your specific situation.
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Frequently asked questions
The new tax law will hurt and benefit different people in different ways. While some taxpayers will see their taxes lowered, others will have to navigate a maze of new rules and compliance costs that may outweigh the potential benefits.
The new law will modify and make permanent individual income and estate tax provisions. It will also provide an additional tax boost for parents of younger children and those with high state and local taxes.
The new law makes permanent the higher standard deduction and lowers tax brackets. It also increases the state and local tax (SALT) deduction cap to $40,000 for certain taxpayers, but this will return to $10,000 in 2030.
Yes, there are new deductions for cash charitable contributions of up to $1,000 for single filers and $2,000 for joint filers. There is also a new deduction of up to $10,000 for interest paid on a loan for a qualified vehicle.
The new law establishes a tax credit for donations to scholarship-granting organisations, which may be intended to work with Trump Accounts. There is also a new tax credit for qualified overtime compensation.
