Summer is slowly coming to an end, and we are heading back into the full swing of our busy lives with work, school, sports, and taxes. While we were enjoying our summer vacations and beach days down the shore, there were some important changes to the tax law that we wanted to highlight as we begin to prepare for the end of the year.
In the world of taxes and financial planning, things rarely stay the same. Just as we settle into a strategy, new legislation comes along to shake things up. The recently passed "One Big Beautiful Bill" (OBBB) is one of those pivotal moments. President Trump signed this comprehensive tax reform into law on July 4, 2025, bringing significant changes to individual and business tax planning. While interpretations and opinions may vary, the practical implications are real and worth understanding, especially for higher-income W-2 workers, business owners, and retirees navigating today's evolving financial landscape.
In this article, we're summarizing key highlights from the OBBB and what they could mean for you and your family.
1. Increased Standard Deduction
The bill makes the larger standard deduction created under the TCJA permanent. Additionally, the amounts for 2025 are slightly expanded.
Single or Married Filing Separately — $15,750
Head of Household — $23,625
Married Filing Jointly or Qualifying Surviving Spouse — $31,500
Income tax rates
The legislation generally makes permanent the seven rates created by the TCJA, with an initial inflation adjustment in 2026 for the first two brackets (10%, 12%).
The permanent brackets are: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
2. Enhanced Standard Deduction for Seniors
If you're 65 or older, the OBBB provides a significant tax break: an additional $6,000 standard deduction starting in 2025. This is in addition to the existing additional standard deduction for seniors.
Things to Know:
- Available for tax years 2025 through 2028
- Phases out for single filers with MAGI over $75,000 and joint filers over $150,000
- Fully phased out at $175,000 for single filers and $250,000 for joint filers
- Both spouses can claim the deduction if both are 65 or older
- Available to both itemizers and non-itemizers
- According to government analysis, 88% of seniors will effectively pay no tax on Social Security benefits due to this and other deductions
3. SALT Deduction Limit Raised (for Some)
The cap on the State and Local Tax (SALT) deduction has increased from $10,000 to $40,000, but only for households earning under $500,000. This new cap is effective starting in 2025 and will benefit many in higher-tax states like California, New Jersey, and New York.
Things to Know:
- Applies only to households with less than $500,000 in modified adjusted gross income (MAGI) in 2025
- The cap increases by 1% annually through 2029, reaching $40,000 in 2025, $40,400 in 2026, and so on
- This increase is set to expire in 2030, reverting to $10,000, so planning for sunset provisions is important
- Only applies at the federal level, state tax conformity may differ
- For those with MAGI between $500,000 and $600,000, the deduction phases out by 30% of the amount over $500,000
- Those with MAGI of $600,000 or more are limited to the $10,000 cap
- Married couples filing separately have a $20,000 cap each
4. Tip and Overtime Income – New Partial Deductions
The OBBB introduces two significant new deductions for specific types of income, both effective from 2025 through 2028:
Tip Income: Up to $25,000 annually may now be deducted for workers in "traditionally tipped occupations". The Treasury Secretary has 90 days from enactment to publish a list of qualifying occupations.
Overtime Income: Up to $12,500 per year ($25,000 for married filing jointly) is deductible for overtime compensation required under the Fair Labor Standards Act.
Things to Know:
- These are capped deductions…not exclusions from income
- Deductions only apply to W-2 wage earners (not self-employed)
- Income thresholds apply: full deduction for those earning under $150,000 ($300,000 for joint filers), then phases out by $100 for every $1,000 over the threshold
- You must retain documentation of qualifying income
- Social Security and Medicare taxes still apply to these amounts
- Deductibility begins with the 2025 tax year and runs through 2028
5. Child Tax Credit – Now Increased and Permanent
The Child Tax Credit has been enhanced and made permanent under the OBBB. The credit increases to $2,200 per qualifying child beginning in 2025, up from the previous $2,000.
Things to Know:
- Applies to dependents under age 17
- The credit amount will be indexed for inflation starting in 2026
- Income phaseouts remain at $200,000 for single filers and $400,000 for married filing jointly
- The refundable portion remains at $1,400 and is also indexed for inflation
- Parents should adjust withholdings or estimated payments accordingly
6. Auto Loan Interest Deduction – For U.S.-Made Vehicles
A new deduction allows up to $10,000 of interest to be deducted on loans used to purchase new U.S.-assembled vehicles. This benefit is available for tax years 2025 through 2028.
Things to Know:
- Applies only to new vehicles with final assembly in the United States
- Deduction phases out for individuals earning over $100,000 or couples making over $200,000
- The deduction is reduced by $200 for every $1,000 of income over the threshold
- Proof of domestic assembly may be required
- Does not apply to fleet sales, commercial vehicles, or vehicles with salvage titles
- Most buyers will see tax savings of around $500 in the first year, with amounts decreasing over time
7. Platform Reporting and 1099 Changes
The OBBB makes significant changes to third-party payment reporting requirements starting in 2026:
Things to Know:
- Form 1099-K threshold reverts to $20,000 in payments and at least 200 transactions per year
- This means fewer people will receive 1099-K forms for occasional sales or small side hustles
- Use separate business and personal accounts for clarity
- You may need to dispute misclassified income during tax season
8. Business Tax Provisions
The OBBB includes several significant provisions for business owners:
100% Bonus Depreciation Returns: For property placed in service after January 19, 2025, businesses can immediately deduct the full cost of qualifying equipment and improvements, rather than spreading deductions over several years.
QBI Deduction Made Permanent: The 20% qualified business income deduction for pass-through entities is now permanent, with expanded income thresholds for specified service businesses.
Things to Know:
- Bonus depreciation applies to property placed in service after January 19, 2025
- The QBI deduction phaseout range increases to $75,000-$150,000 for single filers and $150,000-$300,000 for joint filers
- Pass-through entity tax (PTET) workarounds for SALT deductions are preserved
9. Implementation Timeline and Guidance
With the law now in effect, the Treasury Department and IRS are working to issue interpretive guidance and update tax infrastructure.
Things to Know:
- Most provisions are effective for the 2025 tax year
- The law is retroactive to January 1, 2025, for most provisions
- Temporary regulations will be released first for public comment
- The IRS will follow with Revenue Procedures, new forms, and FAQs
- Expect delays and evolving interpretations as implementation unfolds
- Not all states automatically conform to federal law, check local tax rules
10. Premium Tax Credits Not Extended
While the OBBB introduces sweeping changes across the tax landscape, it notably does not extend the expanded premium tax credits introduced under the American Rescue Plan. These credits which have helped lower health insurance costs for millions of Americans purchasing coverage through the federal and state exchanges are currently scheduled to expire at the end of 2025.
Things to Know:
- The enhanced premium tax credits will sunset after December 31, 2025, unless further action is taken by Congress.
- This could mean higher health insurance premiums for many individuals and families starting with the 2026 plan year, particularly for those earning above 400% of the federal poverty level who previously benefited from expanded eligibility.
- Households purchasing individual coverage through Healthcare.gov or state marketplaces should pay close attention to their renewal options for 2026 and beyond.
- Health coverage affordability may be impacted, especially for early retirees, self-employed individuals, and others not covered by employer plans.
- Those affected should connect with qualified insurance agents during open enrollment for advice on alternatives and potential strategies before the credit expires.
- The omission of a premium tax credit extension in the OBBB underscores the importance of planning ahead for rising healthcare costs, particularly for those who have come to rely on these subsidies for affordable coverage. Stay tuned for potential updates, as this remains an area of ongoing legislative interest.
Final Thoughts
Whether you're excited or apprehensive about the OBBB, it's important to focus on what's actionable. The legislation brings meaningful changes for W-2 workers earning $100,000+, business owners, and retirees…each group facing different opportunities and considerations.
For higher-income W-2 workers, the expanded SALT deduction and potential overtime/tip benefits (if applicable) may provide relief, while the enhanced Child Tax Credit offers additional family support, but minimal. Business owners can take advantage of permanent QBI deductions and 100% bonus depreciation for strategic investments. Retirees benefit significantly from the enhanced senior deduction, with many effectively eliminating taxes on Social Security benefits at least through 2028.
As always, we encourage a proactive but patient approach. Stay informed, review your tax strategy regularly, and when in doubt, consult with a qualified professional who can help you navigate the details as guidance unfolds.
The OBBB represents one of the most significant tax changes since the original Tax Cuts and Jobs Act, and understanding its implications will be crucial for effective financial planning in the years ahead.
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