What’s Inside the “One Big Beautiful Bill”:

Key Tax Changes for 2025 and Beyond

The “One Big Beautiful Bill (OBBB),” recently passed by Congress and signed by the President, is a sweeping tax and spending package. It makes many provisions from the 2017 Tax Cuts and Jobs Act (TCJA) permanent and introduces new tax relief measures for individuals, families, and businesses, while eliminating a few components of previous tax regulation. The bill is being described as the largest tax cut in American history.

Below is a detailed breakdown highlighting some of the most significant tax provisions included in the legislation, with a focus on how they reshape the landscape for individuals, families, and businesses starting in 2025.

Key Individual Tax Provisions

Individual Income Tax Rates: The lower tax brackets on ordinary income introduced by the TCJA are made permanent. The TCJA reduced marginal tax rates by approximately 1 to 4 percentage points across most brackets, except for the 10% and 35% brackets, which remained unchanged. Under the OBBB, the top marginal rate will remain at 37%, rather than reverting to 39.6% if the TCJA were to sunset. The OBBB also added an extra year of inflation adjustments to the lowest three tax brackets.

No Tax on Tips and Overtime: Tip income (up to $25,000/year) and overtime pay (up to $12,500/year for singles, $25,000 for joint filers) are temporarily deductible for 2025–2028, phasing out for higher earners.

Car Loan Interest: Interest paid on loans for new cars assembled in the U.S. is deductible (up to $10,000), with phaseouts for higher incomes, for 2025–2028.

Mortgage Interest Deduction: The OBBB permanently extends the TCJA’s provision limiting qualified residence interest deduction to the first $750,000 in home mortgage acquisition debt.

Standard Deduction Increase: The standard deduction rises to $15,750 for singles and $31,500 for married couples in 2025, with further boosts and inflation adjustments in subsequent years. Higher standard deductions for each filing status are made permanent under the OBBB.
Child Tax Credit: The OBBB expands the child tax credit, which was increased from $1,000 to $2,000 under the TCJA. The bill further raises the credit from $2,000 to $2,200 in 2025, with additional increases tied to inflation in subsequent years. It also introduces a new requirement that recipients must have a valid Social Security number. The expanded child tax credit is expected to benefit 40 million families.

Estate and Gift Tax Exemption: The higher estate and gift tax exemption amounts established under the TCJA are made permanent and will be adjusted annually for inflation starting in 2026. Under the OBBB the exemption is increased to $15 million for single filers and $30 million for married couples, up from $7.14 million and $14.28 million, respectively, if the TCJA were to sunset.

State and Local Tax (SALT) Deduction Cap: The cap increases from $10,000 to $40,000 ($20,000 for married individuals filing separately) for 2025, with 1 percent phased increases each year through 2029, before reverting to $10,000 in 2030. Under the OBBB, SALT deductions are subject to income-based phaseouts, though the phaseout itself is capped at $10,000. The income phaseout thresholds will also rise by 1 percent annually, mirroring the phased increase in the SALT deduction cap. It’s important to note that the OBBB does not restrict the use of SALT cap workarounds implemented by various states for pass-through entities.

Alternative Minimum Tax (AMT): The higher AMT exemption amounts established under the TCJA are made permanent and will be adjusted annually for inflation. However, under OBBB, the income thresholds at which the exemption begins to phase out will revert to the lower, 2018 levels starting in 2026. These thresholds will also be indexed for inflation each year. Additionally, the phaseout rate will double from 25% to 50%, accelerating the reduction of the exemption for higher-income taxpayers.

Charitable Contributions: The OBBB expanded the charitable income tax deduction for itemizers by permanently extending the 60% adjusted gross income (AGI) limit for cash gifts to public charities, that was first introduced under TCJA. The OBBB added a 0.5% floor on deductible charitable contributions for taxpayers who itemize.

Similar to the 7.5% floor on deducting medical expenses, charitable contributions will only be deductible for the amount in excess of the 0.5% floor. OBBB expanded charitable tax deduction for non-itemizers with the development of an above-the-line deduction of $1,000 ($2,000 for joint filers). This above-the-line charitable deduction is only available for certain types of contributions.

Itemized Deductions: TCJA suspended what was known as the “Pease Limitation” on itemized deductions, with OBBB repealing this regulation. However, the OBBB added a 35% cap on itemized deductions for high earners in the highest tax bracket (37%).

Miscellaneous Itemized Deductions: Miscellaneous itemized deductions that were subject to the 2% adjusted gross income floor are permanently repealed, as suspended under TCJA. An exception is unreimbursed educator expenses, which were removed from the miscellaneous category under the TCJA. The deduction for unreimbursed educator expenses will remain.

Personal Exemptions: Permanently repealed, as suspended under the TCJA.

Repeal and Phase-out of Green Energy Credits: The OBBB eliminated or accelerated the expiration of many consumer tax credits related to clean energy, electric vehicles, and home energy efficiency. Credits such as the Clean Vehicle Credit, Used Clean Vehicle Credit, Energy Efficient Home Improvement Credit, and Residential Clean Energy Credit are among those set to expire at the end of 2025, with other green energy credits phasing out in 2026 or later.

Senior & Family Provisions

Senior “Bonus”: The OBBB adds a $6,000 per person bonus deduction for taxpayers age 65+ for tax years 2025-2028, with phase-outs for high earners.
Child and Dependent Care Credit: The OBBB expanded the child and dependent care credit by increasing the credit from 35% to 50% of qualifying expenses, with phaseouts for high earners.

529 Education Accounts: OBBB expanded 529 plans, allowing for qualified distributions to broader educational uses, including K-12 and trades credentials. OBBB also increased the annual withdrawal limit to $20,000 from the previous $10,000.

Money Accounts for Growth and Advancement (MAGA): The OBBB introduced a new type of savings vehicle designed to encourage early saving through tax incentives. MAGA accounts allow parents, relatives, and others to contribute up to $5,000 per year for the child’s future higher education expenses, business start-up costs, or first-time home buyer expenses.

These accounts grow tax-deferred, with qualified distributions permitted once the child turns 18. A special provision in the OBBB states that for children born between 2025 and 2028, the federal government will contribute $1,000 to each newly opened MAGA account.

Dependent Care FSA: The OBBB increased the contribution limit from $5,000 to $7,500 ($3,750 for MFS). However, the new limit is not indexed for inflation.

Business & Other Provisions

Qualified Business Deduction for Flow-Through Entities: The OBBB makes the Qualified Business Income (QBI) deduction permanent, maintaining the maximum deduction of 20% for pass-through entities. It also expands the phase-in thresholds for the deduction limits. Additionally, OBBB introduces a new minimum deduction of $400 for taxpayers with at least $1,000 in qualified business income, even if 20% of that income would result in a smaller deduction.

Limits on Executive Compensation: Stricter limits on deductibility for highly compensated employees.

Paid Family and Medical Leave (PFML): OBBB expanded the PFML tax credit, from the base created by TCJA. The improvements expanded eligibility, increased credit amount, and made the credit permanent.

International Taxation: Adjustments to foreign tax credits and deductions for multinational corporations.

Form 1099 Reporting: The OBBB increased the 1099 reporting threshold from $600 to $2,000 for certain payments for services beginning in 2026.

Repeal and Phase-out of Green Energy Credits: Similar to the clean energy credits available to individuals, the OBBB eliminated or accelerated the expiration of many business tax credits for clean energy production.

Fiscal Impact

Revenue Effects: The bill is projected to reduce federal tax revenue by approximately $5 trillion over 10 years, with most of the reduction coming after 2025.

Deficit Impact: The Congressional Budget Office estimates a $3–4 trillion increase in deficits over the next decade, before added interest costs.

Distributional Effects

Middle-Income Gains: Middle-income households see the largest increases in after-tax income, especially in the early years of the bill.

Low-Income Impact: Some low-income households may see reduced benefits as certain credits tighten, though economic growth effects may offset this.

Notable Temporary Provisions

Tip, Overtime, Senior “Bonus” Deductions, Auto Loan Deductions: Available only for tax years 2025–2028, with phaseouts for higher earners.

SALT Deduction Cap: The higher cap is temporary and reverts after 2029.

To help clarify the scope and impact of these changes, the following table summarizes key provisions under the new law compared to what would have been in effect for 2025 had the TCJA expired. This snapshot highlights the major tax shifts affecting households, including changes to deductions, credits, and special provisions.

Major Tax Provisions: Previous Law vs. OBBB (2025+)

 

Provision	Previous Law (2025)	New Law: OBBB (2025+)
Standard Deduction (Married)	$30,000	$31,500 (with further increases)
Child Tax Credit	$2,000	$2,200 (with further increases)
SALT Deduction Cap	$10,000	$40,000 (phased, then reverts)
Estate Tax Exemption (Married)	$27.98 Million	$30 Million
No Tax on Tips/Overtime/Car Loans	Taxable	Deductible (temporary, phased out)
Green Energy Credits	Available	Repealed after 2025
Senior Deduction	N/A	$6,000 (2025 – 2028)

This bill represents a major restructuring of the U.S. tax code, with significant benefits for families, workers, seniors, and businesses but also a substantial projected increase in federal deficits. As always, our team is here to help you understand how these changes may affect your personal financial situation and to guide you through any necessary adjustments.

Disclaimer: The information in this material is not presented as personal, financial, tax, or legal advice and should not be relied upon as a substitute for obtaining advice specific to your situation.