Understanding the One Big, Beautiful Bill Act (OBBBA): What Taxpayers Need to Know for 2025 (and beyond)
On July 4, 2025, President Trump signed into law the One Big, Beautiful Bill Act (OBBBA)—a sweeping piece of legislation that brings the most significant tax changes since the 2017 Tax Cuts and Jobs Act (TCJA). This new law impacts nearly every American individual and family and includes numerous provisions that affect income taxes, deductions, savings, and credits.
The new law went into effect on various dates, but most of the provisions affecting individuals apply starting in the 2025 tax year. This post provides a clear and thorough overview of what’s changing, what remains the same, and how it might impact your personal tax situation.
Key Takeaways
OBBBA permanently extends many provisions of the TCJA, including tax rates and standard deduction increases.
New above-the-line deductions are available for tip income, overtime pay, and seniors.
A higher SALT cap, expanded education benefits, and the reintroduction of certain deductions provide new planning opportunities.
Trump accounts and expanded 529 plans encourage long-term savings for children’s education.
Several clean energy tax credits are ending after 2025—act quickly if you still plan to claim them.
Overview of OBBBA Tax Changes Affecting Individuals
Let’s break down each change, starting with the core tax structure and then diving into deductions, credits, and new savings vehicles.
Permanent Tax Rates and Brackets
The tax cuts introduced by the 2017 TCJA were originally set to expire at the end of 2025. OBBBA makes these lower tax rates permanent, removing any uncertainty for taxpayers planning for future years.
For the 2025 tax year, the top marginal tax rate of 37% applies to:
$751,600 for joint filers
$375,800 for married filing separately
$626,350 for all other individual filers
These thresholds will continue to be adjusted for inflation in future years.
Permanent Standard Deduction Increases
OBBBA permanently extends the standard deduction increases introduced by the TCJA, with further adjustments for 2025:
$15,750 – Single
$23,625 – Head of household
$31,500 – Married filing jointly
As with tax brackets, these amounts will be indexed annually for inflation. The personal exemption remains repealed.
State and Local Tax (SALT) Deduction Cap Increased
For taxpayers who itemize deductions, OBBBA increases the SALT cap:
$40,000 for the 2025 tax year
$40,400 for 2026
Indexed for inflation through 2029
Reverts to $10,000 cap in 2030
However, this enhanced deduction is phased out entirely for taxpayers with a modified adjusted gross income (MAGI) over $500,000.
New Deduction for Tip Income (No Tax on Tips)
Recognizing the service industry’s reliance on tip-based income, OBBBA introduces a new above-the-line deduction of up to $25,000 for qualified tips received during the tax year.
Applies to both employees and independent contractors
Available regardless of whether you itemize
Phases out at $150,000 MAGI (or $300,000 for joint returns)
Applies to tax years 2025 through 2028
This deduction is a benefit for workers in the hospitality, service, and gig economy sectors, offering tax relief for income that’s often underreported or inconsistently taxed. If your income qualifies and falls within the phase-out range, claiming this deduction could lower your taxable income by thousands.
New Deduction for Overtime Pay (No Tax on Overtime)
OBBBA also adds a deduction for workers receiving overtime pay, defined by the Fair Labor Standards Act (Section 7):
Deduct up to $12,500 ($25,000 for joint returns)
Above-the-line deduction—you don’t have to itemize
Same income phase-out thresholds as the tip deduction
Applies to tax years 2025 through 2028
This deduction provides tax relief for employees whose income includes qualified overtime pay. By allowing an above-the-line deduction of up to $12,500 ($25,000 for joint filers), it helps reduce taxable income without requiring itemized deductions. For those whose income falls within the eligibility thresholds, this provision offers a straightforward way to lower their overall tax liability during the 2025–2028 tax years.
Senior Deduction (No Tax on Social Security)
For taxpayers age 65 or older by the end of the tax year, OBBBA offers a $6,000 deduction per individual.
Phases out at $75,000 MAGI ($150,000 joint)
Does not require itemizing
Available 2025 through 2028
This change is especially helpful to seniors with limited taxable income who rely on Social Security and modest retirement withdrawals.
New Deduction for Car Loan Interest
Beginning in 2025, you may deduct up to $10,000 in interest on loans used to purchase a new vehicle—but there are a few conditions:
The vehicle must be new and assembled in the U.S.
The loan must be incurred after December 31, 2024
Phases out at $100,000 MAGI ($200,000 joint)
Applies 2025 through 2028
Available regardless of itemization
This deduction is designed to support domestic vehicle purchases by offering tax relief on interest paid for qualifying car loans. It is limited to new vehicles assembled in the United States and is subject to income-based phaseouts. For eligible taxpayers, this provision creates a new opportunity to reduce taxable income, even without itemizing, during the 2025 through 2028 tax years.
Trump Accounts for Children
OBBBA creates a new tax-exempt savings account known as a Trump account, available beginning in 2026.
Parents of children under age 8 may open an account
Up to $5,000/year can be contributed
Contributions from tax-exempt entities (e.g., private foundations) are unlimited
Withdrawals:
50% accessible at age 18 for specific purposes (education, etc.)
100% accessible at age 30 for any purpose
$1,000 federal contribution to eligible children born between Jan 1, 2024 – Dec 31, 2028
Trump accounts are intended to promote long-term financial security for children by encouraging early, tax-advantaged savings. With flexible withdrawal options beginning at age 18 and full access by age 30, these accounts can support a range of life milestones, from education to homeownership. The added federal contribution for eligible children enhances the potential impact, particularly for families planning ahead. As with other tax-advantaged accounts, early participation may offer the greatest long-term benefit.
Enhancements to 529 Plans
Starting in 2026, OBBBA expands both the value and flexibility of 529 savings plans:
Annual withdrawal limit increased to $20,000
Funds can now be used for:
Curriculum and instructional materials
Tutoring and educational classes
Online educational programs
Testing and dual enrollment fees
Educational therapy for students with disabilities
These changes allow families to use 529 funds not just for college, but for a much broader range of K–12 and support services.
Charitable Deduction for Non-Itemizers
For the first time since 2021, non-itemizing taxpayers can deduct cash charitable contributions:
$1,000 for single filers
$2,000 for married filing jointly
Starts in 2026
For itemizers, a 0.5% AGI floor now applies to reduce the deduction amount slightly.
Child Tax Credit and Adoption Credit Updates
Beginning in 2025:
The child tax credit increases permanently to $2,200 per child and is indexed for inflation.
The adoption tax credit is now partially refundable up to $5,000, also indexed for inflation. This change is especially valuable for families without significant taxable income.
These updates provide expanded support for families with children, particularly those navigating the financial challenges of adoption or raising dependents on lower incomes. Making the child tax credit larger and permanent offers more predictability in year-to-year tax planning, while the partial refundability of the adoption credit ensures that more families—regardless of income level—can benefit from this financial support. Both credits are designed to reflect rising costs and will adjust over time with inflation.
Deduction for Mortgage Insurance Premiums Restored
Starting in 2026, mortgage insurance premiums will once again be deductible as mortgage interest:
Applies to acquisition debt
Phased out above $100,000 AGI ($50,000 if married filing separately)
The restoration of the mortgage insurance premium deduction provides renewed tax relief for homeowners, particularly those who purchased homes with smaller down payments. By treating these premiums as mortgage interest, eligible taxpayers can reduce their taxable income and potentially lower their overall housing costs. As with similar deductions, income limits apply, making early planning important for those near the phase-out threshold.
Limit on Gambling Loss Deductions
Currently, you can deduct gambling losses up to the amount of your winnings. Under OBBBA, starting in 2026, this deduction is limited to 90% of your gambling losses—still capped by the amount of winnings.
End of Clean Energy Credits
Several energy-related tax incentives are coming to a close:
The new and used clean vehicle credits expire after September 30, 2025
The residential clean energy and home improvement credits expire at the end of 2025
If you’re considering home upgrades or vehicle purchases, you’ll want to complete them soon to benefit from these credits.
Final Thoughts
The One Big, Beautiful Bill Act includes dozens of changes that could affect your tax return, both this year and in the years ahead. From new deductions and tax-free savings accounts to the phasing out of clean energy incentives, there’s a lot to digest.
Understanding how these changes apply to your unique financial situation is key to reducing your tax burden and avoiding surprises. If you have questions or want to build a smart tax strategy under the new law, we’re here to help.
Contact Steve Thienel today to schedule a consultation and ensure you’re positioned to make the most of the new tax code.
Frequently Asked Questions (FAQ)
Who qualifies for the tip and overtime deductions?
These deductions apply to individuals who regularly earn tips or overtime under federal labor law. Both employees and independent contractors are eligible. You don’t have to itemize, but income limits apply: $150,000 for individuals and $300,000 for couples.
Can I deduct car loan interest on any vehicle?
No. To claim the deduction, the vehicle must be new, purchased after December 31, 2024, and assembled in the U.S. The deduction also phases out if your income exceeds $100,000 (or $200,000 for joint returns).
What is the phase-out for the senior deduction?
The $6,000 senior deduction begins to phase out at $75,000 of modified adjusted gross income (or $150,000 for joint filers) and applies only to individuals age 65 or older.
How do Trump Accounts work?
These are tax-free savings accounts for children under age 8. Contributions are capped at $5,000 per year, and certain children receive a $1,000 government deposit. Funds become partially accessible at 18, fully accessible by 30.
Are the clean energy tax credits still available?
Yes—but only for a short time. Clean vehicle credits end after September 30, 2025.
About the Author
Steve Thienel is an experienced business and tax attorney serving Maryland, DC, and Virginia. With decades of leadership in corporate finance, government affairs, and law, Steve brings a uniquely strategic perspective to every client. He helps entrepreneurs, nonprofits, and individuals navigate complex legal matters—from contracts and compliance to estate planning and asset protection.