Tax Law Changes Under the One Big Beautiful Bill Act

The One Big Beautiful Bill Act (OBBBA), enacted as Public Law 119-21 and signed into law on July 4, 2025, represents the most significant federal tax reform since the 2017 Tax Cuts and Jobs Act (TCJA). It primarily makes many TCJA individual and estate tax provisions permanent, introduces new temporary deductions for working families, seniors, and specific income levels, and adjusts certain itemized deduction limits with temporary enhancements.

These changes seek to provide tax relief for middle-class workers, families, and retirees while keeping overall rates low. Below is a two-page summary (approximately 800-900 words) of the key changes and their impacts on individuals, primarily for tax years 2025 (filed in 2026) and 2026 onward.

Permanent Extension of Core TCJA Provisions

The OBBBA locks in several TCJA features that were set to sunset after 2025, avoiding automatic tax increases for most taxpayers:

• Individual Income Tax Rates and Brackets: The seven marginal rates (10%, 12%, 22%, 24%, 32%, 35%, and 37%) remain permanent, with inflation-adjusted thresholds. For 2026, the top 37% rate applies to income above approximately $640,600 (single) or $768,700 (married filing jointly). Without this extension, rates would have reverted to higher (e.g., top rate to 39.6%), increasing taxes for many in higher brackets.
• Standard Deduction: Made permanent at doubled TCJA levels, with modest enhancements. For 2026: $16,100 (single/MFS), $32,200 (joint), and $24,150 (head of household), plus extras for age 65+ or blind. This simplifies filing and reduces taxable income for non-itemizers (about 90% of filers).
• Elimination of Personal Exemptions: Remains at $0 (no reinstatement), offset by the higher standard deduction.
• Child Tax Credit (CTC): Made permanent at enhanced levels—$2,200 per qualifying child (up from $2,000, with inflation indexing starting post-2025). The refundable portion (Additional CTC) is capped at $1,700 (inflation-adjusted). This benefits families with children under 17, reducing tax liability or increasing refunds.
• Estate and Gift Tax Exemption: Increased to $15,000,000 per individual ($30,000,000 for couples via portability) for 2026, indexed for inflation thereafter. This exempts most estates from the 40% tax, benefiting high-net-worth families.
• Qualified Business Income (QBI) Deduction (Section 199A): Made permanent at 20% for pass-through businesses (sole proprietorships, partnerships, S corps), with inflation-adjusted thresholds (~$201,775 single / $403,500 joint for full deduction in 2026) and a new minimum $400 deduction for those with at least $1,000 QBI.
• Other Limits: Mortgage interest deduction cap stays at $750,000 (permanent); home equity interest remains non-deductible.

These permanent changes prevent tax hikes for roughly 62% of taxpayers who would have faced them under pre-OBBBA law in 2026.

New and Temporary Deductions and Credits

OBBBA introduces targeted relief, mostly temporary (2025–2028 unless noted):

• "No Tax on Tips" Deduction: Above-the-line deduction for qualified tips (up to ~$25,000, with income limits), reducing federal income tax on tipped income (e.g., servers, drivers). Tips still count for payroll taxes (Social Security/Medicare). Benefits low to moderate wage service workers.
• "No Tax on Overtime" Deduction: Deduction for qualified overtime premium pay (e.g., the extra "half" in time-and-a-half, up to limits like $12,500 single / $25,000 joint). Helps hourly workers with overtime.
• Senior Deduction: Additional $6,000 deduction (phased out above $75,000/$150,000 MAGI) for those 65+, stackable with standard deduction. Provides meaningful relief for retirees.
• State and Local Tax (SALT) Deduction Cap: Temporarily raised to $40,400 (2026, inflation-adjusted ~1% annually through 2029), with phaseouts starting at higher incomes (e.g., $500,000 joint). Reverts to $10,000 in 2030.
• Other Minor Changes: New minimum QBI deduction; potential vehicle loan interest deduction in some cases; charitable deduction floors (0.5% of AGI) and value caps (35% for 37% bracket taxpayers) starting 2026.

Overall Impact on Individuals

For most middle and upper middle income households, OBBBA delivers tax cuts or stability: lower effective rates via permanent brackets/standard deduction, plus targeted breaks for families (higher CTC), seniors ($6,000 extra), tipped/overtime workers, and high-SALT itemizers. Estimates suggest average cuts of ~$600–$1,000 in 2025/2026 for qualifying groups, with larger refunds possible (e.g., up to $1,000+ average boost in some analyses). Lower-income filers with minimal liability see limited benefits; very high earners face some offsets (e.g., phaseouts, itemized limits).

Potential downsides include temporary provisions expiring (e.g., tips/overtime/senior deductions after 2028) and interactions with other taxes (e.g., AMT phaseouts adjusted but still relevant). High earners may see modest increases from new charitable floors or SALT phaseouts.