On July 4, President Donald Trump signed into law the One Big Beautiful Bill Act (OBBBA), a sweeping package of tax changes that extends key provisions from the 2017 Tax Cuts and Jobs Act (TCJA) and introduces several new measures. The legislation includes updates to individual tax rates, enhanced deductions, and new exclusions for certain types of income, such as tips and overtime pay. These changes have implications for millions of taxpayers and will play a key role in tax planning. Below are the provisions for individual taxpayers:
Tax Rates: The bill generally makes the TCJA tax rates permanent. The bill adds an additional year of inflation adjustment for determining the dollar amounts at which any rate bracket higher than 12% ends and at which any rate bracket higher than 22% begins.
Standard Deduction: OBBBA makes the TCJA’s increased standard deduction amounts permanent. For tax years beginning after 2024, the standard deduction increases to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married individuals filing jointly. The standard deduction will be adjusted for inflation after that. These changes have been made retroactive to include 2025.
SALT Cap: The bill temporarily increases the limit on the federal deduction for state and local taxes (the SALT cap) to $40,000 (from the current $10,000) and adjusts it for inflation. In 2026, the cap will be $40,400, and then it will increase by 1% annually through 2029. Starting in 2030, it will revert to the current $10,000.
The amount of the deduction available to a taxpayer phases down for taxpayers with modified adjusted gross income (MAGI) over $500,000 (in 2025). The MAGI threshold will be adjusted for inflation through 2029. The phasedown will reduce the taxpayer’s SALT deduction by 30% of the amount by which the taxpayer’s MAGI exceeds the threshold, but the limit on a taxpayer’s SALT deduction can never be less than $10,000.
Personal Exemptions and Senior Deduction: The bill permanently sets the deduction for personal exemptions at zero. However, it provides a temporary $6,000 deduction under Section 151 for individual taxpayers who are age 65 or older. This senior deduction begins to phase out when a taxpayer’s MAGI exceeds $75,000 ($150,000 in the case of a joint return). It will be in effect from 2025 through 2028.
Child Tax Credit: Beginning in 2025, OBBBA increases the non-refundable child tax credit to $2,200 per child and indexes it for inflation. The law also makes permanent the $1,400 refundable portion of the credit, adjusted for inflation. In addition, it locks in the higher income phaseout thresholds of $200,000 for single filers and $400,000 for joint filers, along with the $500 non-refundable credit for each non-qualifying child dependent.
QBI Deduction: OBBBA makes the 20% qualified business income (QBI) deduction (Section 199A) permanent. It also expands the phase-in range for income limits that apply to specified service trades or businesses (SSTBs) and other entities subject to wage and investment limitations, raising the threshold from $50,000 to $75,000 for single filers and from $100,000 to $150,000 for joint filers.
OBBBA also introduces an inflation-adjusted minimum deduction of $400 for taxpayers who have at least $1,000 of QBI from one or more active trades or businesses in which they materially participate.
Estate and Gift Tax Exemption Amounts: The bill amends the unified credit against estate and gift taxes (Section 2010), permanently increasing the exemption to $15 million for single filers ($30 million for married filing jointly) beginning in 2026 and indexing it for inflation thereafter.
Alternative Minimum Tax Exemption: OBBBA permanently extends the TCJA’s increased individual alternative minimum tax (AMT) exemption amounts and reverts the exemption phaseout thresholds to their 2018 levels of $500,000 ($1 million in the case of a joint return), indexed for inflation. It increases the phaseout of the exemption amount from 25% to 50% of the amount by which the taxpayer’s alternative minimum taxable income exceeds the threshold amount.
Mortgage Interest Deduction: The bill permanently extends the TCJA’s provision limiting the qualified residence interest deduction (Section 163) to the first $750,000 in home mortgage acquisition debt. It also makes permanent the exclusion of interest on home-equity indebtedness from the definition of qualified residence interest. OBBBA also treats certain mortgage insurance premiums on acquisition indebtedness as qualified residence interest.
Casualty Loss Deductions: Under OBBBA, TCJA’s provision limiting the itemized deduction for personal casualty losses to losses resulting from federally declared disasters becomes permanent, but the bill expands the provision to include certain state-declared disasters.
Miscellaneous Itemized Deductions: The bill makes permanent the TCJA’s suspension of the miscellaneous itemized deduction (Section 67(g)) but removes unreimbursed employee expenses for eligible educators from the list of miscellaneous itemized deductions.
Itemized Deductions Limitation: The bill permanently removes the Pease limitation (Section 68) on itemized deductions and replaces it with a new overall limitation on the tax benefit of itemized deductions. The amount of itemized deductions otherwise allowable would be reduced by 2/37 of the lesser of the amount of the itemized deductions or the amount of the taxpayer’s taxable income that exceeds the start of the 37% tax rate bracket.
Bicycle Commuting Reimbursements: The bill permanently excludes qualified bicycle commuting reimbursements from the list of qualified transportation fringe and other commuting benefits, making them taxable to employees.
Moving Expense Deduction: The bill permanently eliminates the deduction for moving expenses (Section 217), except for members of the armed forces and certain members of the intelligence community.
Wagering Losses: The bill amends “losses from wagering transactions” (Section 165(d)) to include any deduction otherwise allowable under Chapter 1 of the Code incurred in carrying on any wagering transactions. OBBBA limits the term “losses from wagering transactions” to 90% of the amount of those losses, and losses will be deductible only to the extent of the taxpayer’s gains from wagering transactions during the tax year.
ABLE Accounts: OBBBA makes various changes to ABLE accounts (Section 529A), including making permanent the TJCA’s increased limitation on contributions to ABLE accounts. The bill also makes permanent the inclusion of ABLE account contributions as eligible savers’ credit contributions (Section 25B), but after 2026, only ABLE account contributions will be eligible for savers’ credit contributions. The credit amount increases from $2,000 to $2,100.
Student Loan Debt Discharge: The bill makes permanent, with modifications, the provision excluding from gross income student loans discharged due to death or disability (Section 108(f)(5)). It also requires the taxpayer’s Social Security number (SSN) to be included on the relevant income tax return when such a discharge occurs.
No Tax on Tips: OBBBA provides a temporary deduction of up to $25,000 for qualified tips received by an individual in an occupation that customarily and regularly receives tips. The deduction will be allowed for both employees receiving a Form W-2, Wage and Tax Statement, and independent contractors who receive Form 1099-K, Payment Card and Third Party Network Transactions, or Form 1099-NEC, Nonemployee Compensation, or who report tips on Form 4317, Social Security and Medicare Tax on Unreported Tip Income. The deduction would be an above-the-line deduction and, therefore, available for taxpayers who claim the standard deduction or itemize deductions. The deduction begins to phase out when the taxpayer’s MAGI exceeds $150,000 ($300,000 in the case of a joint return). This temporary deduction will be available for tax years 2025 through 2028. A transition rule will allow employers required to furnish statements enumerating an individual’s tips for tax year 2025 to use “any reasonable method” to estimate designated tip amounts.
The bill also extends the credit (Section 45B) for a portion of employer Social Security taxes paid with respect to employee cash tips to certain beauty service businesses.
No Tax on Overtime: The bill provides a temporary above-the-line deduction of up to $12,500 ($25,000 in the case of a joint return) for qualified overtime compensation received by an individual during a given tax year. The deduction begins to phase out when the taxpayer’s MAGI exceeds $150,000 ($300,000 in the case of a joint return). The bill defines qualified overtime compensation as overtime compensation paid to an individual who is required under Section 7 of the Fair Labor Standards Act of 1938 and is in excess of the regular rate (as defined in that section) at which the individual is employed. Overtime deductions would only be allowed for qualified overtime compensation if the total amount of qualified overtime compensation is reported separately on Form W-2 (or Form 1099, if the worker is not an employee). This temporary deduction will be available for tax years 2025 through 2028.
Car Loan Interest: For the years 2025 through 2028, the bill excludes qualified passenger vehicle loan interest (Section 163(h)) from the definition of personal interest. Qualified passenger vehicle loan interest is defined as interest paid or accrued during the tax year on indebtedness incurred by the taxpayer after December 31, 2024, for the purchase of, and that is secured by a first lien on, an applicable passenger vehicle for personal use. Among other restrictions, applicable passenger vehicles must have had their final assembly in the United States.
The exclusion is capped at $10,000 per year and will phase out for taxpayers with MAGI in excess of $100,000 ($200,000 for married taxpayers filing jointly).
Adoption Credit: OBBBA makes a portion (up to $5,000) of the adoption credit (Section 23) refundable. That amount will be adjusted for inflation.
Dependent Care Assistance Programs: The maximum annual amount excludable from income under a dependent care assistance program (Section 129) increases from $5,000 to $7,500 under OBBBA
Child and Dependent Care Credit: The bill permanently increases the amount of the child and dependent care tax credit from 35% to 50% of qualifying expenses. The credit rate phases down for taxpayers with adjusted gross income (AGI) over $15,000. It will be reduced by one (1) percentage point (but not below 35%) for each $2,000 that the taxpayer’s AGI exceeds $15,000. It will then be further reduced by (but not below 20%) one (1) percentage point for each $2,000 ($4,000 for joint returns) that their AGI exceeds $75,000 ($150,000 for joint returns).
Trump Accounts: OBBBA introduces tax-free savings accounts for minors, known as Trump accounts, structured as a type of individual retirement account (IRA), but not classified as Roth IRAs. These accounts are intended exclusively for individuals under age 18. Contributions may be made only in calendar years before the beneficiary turns 18, and distributions are allowed beginning in the year the beneficiary turns 18. Trump accounts must be designated as such when established, and contributions cannot begin until 12 months after the law’s enactment. The Treasury is authorized to create accounts for eligible individuals who do not already have one.
Eligible investments in Trump accounts include mutual funds and indexed ETFs. Contributions (other than qualified rollover contributions) will be capped at $5,000 a year (adjusted for inflation after 2027). State, local, and tribal governments, as well as charitable organizations, could make “general funding contributions” to a specified qualified class of Trump account beneficiaries, including beneficiaries under the age of 18. The general funding contribution can specify geographical areas or specific birth years of beneficiaries whose accounts will receive the contributions.
The bill creates a new Section 128 that allows for employer contributions to Trump accounts. These contributions will not be included in the employee’s income.
A new Section 6434 establishes a Trump accounts contribution pilot program, offering a $1,000 tax credit for opening a Trump account for a child born between January 1, 2025, and December 31, 2028. The bill appropriates $410 million to remain available through September 30, 2034, to fund Trump accounts.
Credit for Contributions to Scholarship-granting Organizations: OBBBA enacts a new Section 25F that provides a credit of the greater of $5,000 or 10% of the taxpayer’s AGI for charitable contributions to scholarship-granting organizations. The credit is capped at $4 billion annually (starting in 2027) and will be allocated on a first-come, first-served basis, up to the cap.
The provision also creates Section 139K, which excludes from income scholarships for the qualified secondary or elementary education expenses of eligible students.
Section 529 Plans: The bill allows tax-exempt distributions from Section 529 savings plans to be used for additional educational expenses related to enrollment or attendance at an elementary or secondary school. OBBBA also allows tax-exempt distributions from 529 savings plans to be used for additional qualified higher education expenses, including “qualified postsecondary credentialing expenses.”
Charitable Contribution Deduction: OBBBA creates a charitable contribution deduction for taxpayers who do not itemize, allowing a deduction of up to $1,000 for single filers and $2,000 for married couples filing jointly for qualifying charitable contributions. For taxpayers who do itemize, the bill imposes a 0.5% floor on the charitable contribution deduction, reducing the allowable deduction by 0.5% of the taxpayer’s contribution base for the tax year. For corporations, the floor is set at 1% of taxable income, and the total deduction cannot exceed the existing limit of 10% of taxable income.
This is a fluid situation, and we are still learning more details on the provisions in the final bill. We will keep you updated as new information becomes available. Contact your Stephano Slack tax manager or partner at 610-687-1600 or TaxInfo@StephanoSlack.com to discuss your situation.
Author Jessica Parson Gartensleben, Esq., LLM, specializes in helping high-net-worth individuals and families preserve their wealth by reducing their tax burdens. With her expertise in estate and trust planning, generational wealth transfers, and family business succession, she can guide you through every step of securing your financial legacy. Contact Jessica today at 610.235.4400 or jparson@stephanoslack.com for personalized support tailored to your unique needs.
Source: Tax provisions in the One Big Beautiful Bill Act. Alistair M. Nevius, J.D., Journal of Accountancy. June 29, 2025 Updated: July 4, 2025
Disclaimer: This content is for informational purposes only and doesn’t constitute professional advice.
Recent Comments