The Top 10 Changes for Individual Taxpayers

 

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, brings the most sweeping changes to the U.S. tax code since the Tax Cuts and Jobs Act of 2017. While many provisions extend or modify existing law, OBBBA also introduces new deductions, credits, and planning opportunities for individuals. Here are the top 10 changes every taxpayer should know:

1. Permanent Lower Individual Tax Rates and Brackets

The OBBBA makes the lower individual income tax rates and wider brackets from the TCJA permanent, preventing a scheduled tax hike in 2026. For 2026, the top rate remains 37% (for income over $640,600 single/$768,700 joint), with other brackets and thresholds adjusted for inflation. This change provides long-term certainty and stability for tax planning.

 

2. Increased and Permanent Standard Deduction

The standard deduction is permanently increased and indexed for inflation. For 2026, the standard deduction is:

• $32,200 for married filing jointly

• $16,100 for single or married filing separately

• $24,150 for heads of household

This simplifies filing for millions and reduces taxable income for most households

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3. Temporary $6,000 Senior Deduction

From 2025 through 2028, individuals age 65 and older can claim an additional $6,000 deduction ($12,000 for a married couple if both qualify). This deduction phases out for modified AGI above $75,000 ($150,000 joint) and is available whether or not you itemize.

 

4. New Deductions for Tips, Overtime, and Car Loan Interest (2025–2028)

• Tips: Up to $25,000 of qualified tips can be deducted annually, subject to phaseouts for high earners and occupation restrictions.

• Overtime: The “premium” portion of overtime pay (the extra half of “time-and-a-half”) is deductible up to $12,500 ($25,000 joint) per year, also with phaseouts.

• Car Loan Interest: Up to $10,000 of interest on new U.S.-assembled personal vehicles is deductible, with income phaseouts starting at $100,000 ($200,000 joint).

These deductions are available to both itemizers and non-itemizers and are subject to new reporting requirement.

 

5. Expanded and Permanent Child Tax Credit

The child tax credit is increased to $2,200 per qualifying child for 2025 and beyond, with inflation adjustments. The refundable portion is also increased, and stricter Social Security number requirements apply for both the taxpayer and the child.

 

6. Higher State and Local Tax (SALT) Deduction Cap

The SALT deduction cap is raised to $40,000 ($20,000 married filing separately) for 2025–2029, indexed for inflation, with a phase-down for high-income taxpayers. After 2029, the cap reverts to $10,000. This change especially benefits taxpayers in high-tax states.

 

7. Permanent 20% Qualified Business Income (QBI) Deduction

The 20% deduction for qualified business income from pass-through entities (sole proprietorships, partnerships, S corporations) is made permanent, with higher phase-in thresholds and a new $400 minimum deduction for active business income.

 

8. Charitable Deduction Changes

• Above-the-line Deduction: Non-itemizers can deduct up to $1,000 ($2,000 joint) for charitable contributions starting in 2026.

• Itemizers: A new 0.5% of AGI floor applies to charitable deductions for itemizers, meaning only contributions above 0.5% of AGI are deductible. The 60% AGI limit for cash contributions to public charities is made permanent.

9. Estate and Gift Tax Exemption Increased

The unified estate and gift tax exemption is permanently increased to $15 million per individual (indexed for inflation starting in 2027), up from $13.99 million in 2025. This provides significant planning opportunities for high-net-worth individuals.

 

10. Other Notable Changes

• Enhanced Adoption Credit: Up to $5,000 of the adoption credit is now refundable, with higher limits and expanded eligibility for Indian tribal government determinations.

• Expanded Child and Dependent Care Credit: The maximum credit percentage is increased to 50%, with higher AGI thresholds for phase-down.

• Opportunity Zones: The program is made permanent, with new rules for rural areas and rolling 10-year designations.

• Health Savings Accounts (HSAs): Eligibility is expanded to include bronze and catastrophic plans, and telehealth services can be covered before meeting the deductible.

 

What Does This Mean for You?

• Larger Refunds in 2026: Many taxpayers will see larger refunds for 2025 due to the retroactive effect of these tax cuts and new deductions.

• More Complexity: While some changes simplify filing (like the higher standard deduction), others add complexity, especially the new temporary deductions and phaseouts.

• Planning Opportunities: With higher exemptions, expanded credits, and new deductions, now is the time to revisit your tax and estate planning strategies.

Conclusion

The OBBBA delivers a mix of permanent and temporary tax relief, with significant benefits for families, seniors, business owners, and high-net-worth individuals. However, the new law also introduces new rules and compliance requirements. Taxpayers should consult with a qualified tax advisor to maximize benefits and ensure compliance with the new provisions.

For more details, visit the IRS OBBBA resource page and consult the latest IRS forms and instructions.

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Sources:

• IRS.gov: One, Big, Beautiful Bill provisions
• Tax Foundation: What the OBBBA Tax Changes Mean for You
• RSM: One Big Beautiful Bill Act: 5 Taxpayer Items
• Cornell Law – 26 U.S. Code §1202 (QSBS Statute)
• Journal of Accountancy – QSBS Planning & Pitfalls
• Forbes – QSBS Tax Planning for Founders & Investors
• KPMG – Qualified Small Business Stock Overview
• U.S. Small Business Administration – Business Structures