Understanding the Individual Tax Implications of the One Big Beautiful Bill Act

The major individual tax law changes for 2025 and beyond under the One Big Beautiful Bill Act (“OBBBA”) are provided below. This summary highlights the most significant changes, their effective dates, and practical implications for individuals and families.  The OBBBA includes a combination of revenue raisers and tax cuts.  In addition, the bill is a combination of temporary provisions, permanent provisions, extensions and new policy.

Major Individual Tax Law Changes

Individual Tax Rates

• Permanent Lower Rates: With the passing of the Tax Cuts and Jobs Act (“TCJA”) in 2017, individual tax rates and brackets were adjusted and the standard deduction for individual taxpayers was nearly doubled.  These provisions were set to expire after 2025.  With the passing of the OBBBA, the reduced individual tax rates from the TCJA are made permanent. The scheduled expiration after 2025 is repealed, so the lower rates continue indefinitely.

Standard Deduction

• Increased and Permanent: The higher standard deduction from the TCJA is made permanent and further increased. For tax years after 2024, the standard deduction is:
  • $23,625 for heads of household
  • $15,750 for single
  • $31,500 for married filing jointly
• These amounts are indexed for inflation.

Personal Exemptions

• Eliminated: In conjunction with the increased standard deduction, the TCJA suspended the allowance of personal exemptions through December 31, 2025.   The OBBBA makes the disallowance of personal exemptions permanent for most taxpayers.
• Exception for Seniors: A new $6,000 deduction is allowed for seniors (age 65+) through 2028, subject to a phaseout at higher incomes and Social Security Number (SSN) requirements.

Child Tax Credit

• Increased and Permanent: The child tax credit is permanently increased to $2,200 per qualifying child (income phase-outs still apply), with inflation adjustments. Social security number requirements are in place for both the taxpayer and each qualifying child to claim the credit.

Qualified Business Income (“QBI”) Deduction (Section 199A)

• Enhanced and made permanent: The QBI deduction was originally set to expire at the end of 2025. However, the OBBBA makes the QBI deduction permanent.   The calculations for the QBI deduction have certain income limits and thresholds, exceeding the thresholds triggers a phase-in of limitations.  The phase-in threshold is increased to $75,000 ($150,000 for joint filers).  Prior to the OBBBA, the phase-in threshold was $50,000 ($100,000 for joint filers).  A new $400 minimum deduction is established for active business income for taxpayers with at least $1,000 in qualified business income from active trade or businesses, indexed for inflation after 2026.  The deduction remains at 20%, despite earlier proposals of an increase to 23%.

Estate and Gift Tax

• Higher Exemption: The estate and gift tax exemption is permanently increased to $15 million (indexed for inflation), effective for estates and gifts after 2025.

Alternative Minimum Tax (“AMT”)

• Permanent: The increased AMT exemption and phaseout thresholds are made permanent, with modifications to inflation adjustments and an increased phaseout rate.  The phaseout rate is increased from $.25 for every $1 of income in excess of the threshold to $.5 per every $1 in excess of the threshold.  The reversion of phase-out thresholds to 2018 levels and increased phase-out rates are likely to impact high-income taxpayers while reducing the AMT exposure for middle and upper-middle income earners.

Mortgage Interest Deduction

• $750,000 Cap Made Permanent: The $750,000 cap ($375,000 for married filing separately) of principal for acquisition indebtedness in determining the allowable mortgage interest deduction is made permanent. In addition, mortgage insurance premiums are now treated as qualified resident interest. 

Casualty Loss Deduction

• Expanded: The limitation of casualty loss deductions is made permanent.  Casualty loss deductions have also been expanded to include state-declared disasters in addition to federally declared disasters.

Miscellaneous Itemized Deductions

• Suspension Made Permanent: Miscellaneous itemized deductions are permanently terminated, except for educator expenses (now expanded to include coaches and nonathletic supplies).  Beginning in 2026, there is a carve out allowing educator expenses to be deducted as an itemized deduction, with no specific dollar limit applied.

Itemized Deduction Limitation

• New Formula: The previously suspended Pease limitation on itemized deductions is repealed starting in 2026 and replaced by a new limitation for taxpayers in the highest tax bracket.  A new formula reduces itemized deductions by 2/37 of the lesser of deductions or income above the 37% bracket threshold.

State and Local Tax (“SALT”) Deduction

• Temporary Increase: The SALT deduction cap is increased to $40,000 ($20,000 for married filing separately) for 2025, indexed for inflation, with a phase-down for high income taxpayers (Adjusted Gross Income (“AGI”) above $500,000 in 2025).  Every dollar in excess of $500,000 AGI reduces the SALT cap by 30%, but not below $10,000. The cap reverts to $10,000 after 2029. 

Temporary Deductions for Tips and Overtime

• Tips: Up to $25,000 in qualified tips per year can be deducted (phased out at higher income threshold) for 2025–2028, with new reporting requirements.  The deductions for qualified tips will be applicable to specific industries.  The Secretary of the Treasury has no more than 90 days after the bill was signed into law to provide a list of industries that regularly received tips prior to December 31, 2024.
• Overtime: Up to $12,500 ($25,000 joint) in qualified overtime pay per year can be deducted (phased out at higher income threshold) for 2025–2028.

Auto Loan Interest Deduction

• Temporary Deduction: Up to $10,000/year for interest on loans for new U.S.-assembled passenger vehicles (2025–2028), phased out at higher incomes.

“Trump Accounts” for Children

• New Savings Vehicle: Establishes “Trump Accounts” for children under 18, with a $5,000 annual contribution limit per beneficiary (including up to $2,500 tax-free from a parent’s employer), and a $1,000 government-funded pilot for newborns (2025–2028).  The accounts are individual retirement accounts that will be created and organized by the Secretary of the Treasury.  Deposited funds can grow within the accounts, tax-free until the beneficiary reaches adulthood and distributes the funds, but do not allow for early distribution.  Qualifying withdrawals would be eligible for the reduced long-term capital gains rate, others would be taxed at ordinary rates.  Only three expenditures would qualify for long-term capital gain treatment, college tuition or credentialing expenses, small business expenditures and first-time home purchase.

Charitable Contributions

• Above-the-Line Deduction: The above-the-line (before the determination of AGI) charitable deduction is increased to $1,000 ($2,000 joint) and made permanent.  The above-the-line deduction allows taxpayers who do not itemize to receive a benefit for charitable donations. 
• New Floors: Only contributions exceeding 0.5% of AGI are deductible for individuals.
• Scholarship Fund Contributions: A new federal tax credit (effective in 2027) allows taxpayers to claim a nonrefundable tax credit, up to $1,700 for donations to specified organizations providing scholarships to qualifying K-12 schools.

Education-Related Changes

• 529 Accounts: Expanded to allow funds to be used for additional K-12 expenses (curriculum, tutoring, testing, therapies), with the limit increased to $20,000/year. Now also allows use for postsecondary credentialing expenses.
• Student Loan Exclusion: Ability for employers to provide employees with tax-free assistance for student loan repayment  (up to $5,250 annually) is made permanent, with inflation adjustments beginning after December 31, 2025.

Child and Dependent Care

• Increased Dependent Care Flexible Spending (“FSA”) Limits: Dependent Care FSA Limit increased from $5,000 to $7,500 for joint filers ($3,750 married filing separate), effective after December 31, 2025.
• Child and Dependent Care Credit: The OBBBA builds upon the existing credit, increasing the amount of child and dependent care tax credit from 35% to 50% of qualifying expenses. However, the credit phases out as taxpayer income increases. 

Adoption Credit

• Partially Refundable: Effective after December 31, 2024, up to $5,000 of the adoption credit is refundable, with inflation adjustments.  Previously, the credit was nonrefundable, meaning it could only reduce the taxpayers tax liability.

1099-MISC/NEC Reporting Thresholds

• 1099-MISC/NEC: The 1099-MISC/NEC reporting threshold increases from $600 to $2,000, indexed for inflation.

• Third-Party Network Transactions: The de minimis threshold for third-party network transactions is restored to $20,000/200 transactions for reporting and backup withholding.

Excess Business Loss Limitation

• Made Permanent: The Excess Business Loss limitation was enacted as part of the TCJA of 2017.  An excess business loss is the amount by which the total deductions attributable to all of your trades or businesses exceed your total gross income and gains attributable to those trades or businesses plus a threshold amount, adjusted for inflation.  The 2024 threshold was $305,000 for single filers and $610,000 for taxpayers filing jointly.  Previously set to expire after 2025 (later extended to 2028), and ultimately made permanent through the passing of the OBBBA.

Gambling Losses

• New Formula: The wagering loss deduction is now limited to 90% of losses and only deductible against wagering gains.  Previously taxpayers could deduct 100% of their wagering losses dollar for dollar to the extent of their winnings.

Qualified Opportunity Zone (“QOZ”)

• Made Permanent: The OBBBA makes the QOZ program permanent and introduces a decennial re-designation (10-year cycle of identifying new zones), includes expanded reporting requirements, new rural opportunity funds, and extended/modified benefits.

Energy and Clean Vehicle Credits

• Terminated Early: Credits for new and used clean vehicles, alternative fuel property, energy efficient home improvements, and residential clean energy are terminated for property placed in service or acquired after various dates in 2025 or 2026.

Summary Table: Key Individual Provisions

Practical Implications for Clients

• Tax Planning: The permanency of lower rates and higher standard deduction means continued simplification and lower tax for many.
• Itemized Deductions: Fewer taxpayers will itemize, but those who do face new limitations and floors.
• Family Benefits: Enhanced child tax credit, dependent care, and adoption credits provide more support for families.
• Reporting: Higher 1099 thresholds reduce reporting burden for small payees.
• Energy Credits: Accelerated phase-out of clean energy and vehicle credits may affect planned purchases.

Action Items

• Review withholding and estimated tax in light of new rates and deduction amounts.
• Consider timing of major purchases or charitable contributions.
• Seniors should assess eligibility for the new $6,000 personal exemption.
• Families should update planning for child, dependent care, and adoption credits.
• Review eligibility for new or expanded savings vehicles (Trump Accounts, 529s).

Effective Dates

• Most changes apply for tax years beginning after December 31, 2024 (i.e., for 2025 returns and beyond).
• Some temporary provisions (e.g., tip and overtime deductions, car loan interest) are available only for 2025–2028.

If you have questions on how the OBBBA affects your tax situation, please reach out to your contact at GreerWalker so we can help you interpret the impact to you or your company.