11/14/2025
On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law. This new law extended and replaced the Tax Cuts and Jobs Act (TCJA), which was set to expire at the end of 2025. The OBBBA takes effect from 2025 through 2028.
You may be wondering what the OBBBA will mean for you when tax time comes. Here’s a summary of the main changes for individuals.
1-Tax brackets
The new law permanently extends the tax brackets of 10%, 12%, 22%, 24%, 32%, 35%, and 37% that have been in place since TCJA became effective in 2018. One minor change is the 10% and 12% brackets will receive an additional inflation adjustment in 2026. This adjustment will slightly increase the income thresholds, allowing more income to be taxed in the lowest two brackets.
2-Standard deduction
The TCJA raised the standard deduction, removed the personal exemption, and reduced the eligible expenses and amounts for itemized deductions to encourage more taxpayers to choose the simpler option of claiming the standard deduction.
The OBBBA makes these changes permanent, with an enhancement. Starting in 2025, the standard deduction will be:
$31,500 for joint filers,
$23,625 for head of household, and
$15,750 for all other filers.
These amounts will be adjusted annually for inflation.
3-Tax benefits for families
The OBBBA makes permanent the TCJA’s expanded child tax credit (CTC). The law increases the maximum CTC to $2,200 per qualifying child in 2025 and adjusts the credit for inflation moving forward. The refundable portion (additional child tax credit or ACTC) is capped at $1,700 per child. The taxpayer and child are required to have an SSN to be eligible for the credit.
Dependents who don’t qualify for the CTC, may qualify for the $500 credit for other dependents, which has been made permanent by the OBBBA.
Starting with 2025 tax returns, a portion of the adoption tax credit is now refundable (up to $5,000).
If you paid someone to care for your child or other qualifying person so you (and your spouse if filing jointly) could work or look for work, you may be able to claim the credit for child and dependent care expenses. Your credit is a percentage of your work-related expenses, and the percentage you use is based on your adjusted gross income. The OBBBA increases the maximum percentage from 35% to 50% for 2026 and beyond. It also raises the income limits, making the phase down ranges at higher income levels.
The OBBBA has expanded what qualifies as eligible expenses for tax-exempt distributions from an educational 529 Plan. Some changes are effective immediately, while others start in 2026.
The OBBBA created new savings accounts for children (known as Trump accounts), which allow contributions of up to $5,000 per year. Employers may contribute up to $2,500 per year tax-free to the account of an employee or an employee’s dependent. Children can begin making withdrawals at age 18. Accounts will automatically be created by the federal government for U.S. citizen babies born between 2025-2028, and a one-time $1,000 contribution per child will be made.
4-Additional deduction for senior citizens
Whether taking the standard deduction or itemizing, taxpayers 65 and older can now take an additional $6,000 deduction. The deduction phases out when modified adjusted gross income exceeds $75,000 ($150,000 for married filing jointly, no deduction available if married filing separately). It requires an SSN valid for employment and will be available from 2025 through 2028.
Under the OBBBA, Social Security benefits continue to be treated the same as under prior law, meaning they may be partially subject to income tax based on the taxpayer’s total income for the year.
What is the new deduction for senior citizens, and how will it impact taxable Social Security benefits?
5-Considerations for workers and self-employed individuals
From 2025-2028, the OBBBA allows certain workers to deduct up to $12,500 in qualified overtime pay ($25,000 if married filing joint, not available if married filing separately). There’s also a deduction of up to $25,000 available for qualified tips. The deductions phase out when adjusted gross income exceeds $150,000 ($300,000 if married filing jointly).
For more information, read our articles:
Do I qualify for the new deduction for overtime pay?
Do I qualify for the new deduction of qualified tips? (COMING SOON)
The qualified business income (QBI) deduction (also known as the Section 199A deduction) allows eligible taxpayers to deduct up to 20% of their QBI, plus 20% of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. The OBBBA makes this deduction permanent and, starting in 2026, provides a $400 minimum deduction for material participants with $1,000 or more in QBI.
The OBBBA made permanent 100% bonus depreciation for property acquired and placed in service after January 19, 2025. Starting in 2025, the law also allows a maximum Section 179 deduction of $2.5 million, up from the previous limit of $1 million.
For those who receive payments through third-party payment networks, the OBBBA reinstates the previous threshold of $20,000 and 200 transactions for Form 1099-K reporting in 2025 and beyond. However, keep in mind that all income from selling goods or services must be reported on your tax return, whether you receive a tax form or not.
The OBBBA raises the reporting threshold for Form 1099-NEC and 1099-MISC. Under the new law, payers need to report payments of $2,000 or more made during the year, starting with tax year 2026.
6-State and Local Tax (SALT) deduction
The SALT deduction allows taxpayers who itemize deductions to subtract certain state and local taxes from their federal taxable income. Previously, the deduction was capped at $10,000. The OBBBA increases the cap to $40,000 for 2025, with a 1 percent increase from that level each year through 2029. After 2029, the cap will permanently return to $10,000.
The SALT deduction is subject to a phaseout for taxpayers with incomes above $500,000. Those with incomes over $600,000 are still subject to the $10,000 cap.
For more information, read our article: What are the advantages/disadvantages to the increase to $40k in the SALT deduction limit from the OBBBA? (COMING SOON)
7-Energy tax credits
Clean vehicle tax credits have been repealed for vehicles acquired after September 30, 2025.
The alternative fuel vehicle refueling property credit is terminated for property placed in service after June 30, 2026.
Home energy tax credits (including the Energy Efficiency Home Improvement Credit and the Residential Clean Energy Credit) will no longer be available for expenditures made after 2025.
For more information, read our articles:
What is happening to the clean vehicle credits and when will this take affect? (COMING SOON)
How does the One Big Beautiful Bill Act (OBBBA) impact energy efficient home improvement credits? (COMING SOON)
8-Auto loan interest deduction
From 2025-2028, the OBBBA makes auto loan interest deductible (for itemizers and non-itemizers) for new vehicles with final assembly in the United States. The deduction is limited to $10,000 and phases out when income exceeds $100,000 ($200,000 for married filing jointly).
For more information, read our article: Are my car loan interest payments deductible?
9-Charitable donations
For 2026 and subsequent years, the OBBBA establishes a new 0.5% threshold on itemized charitable contributions, limiting the amount you can deduct. This means taxpayers who itemize must first calculate 0.5% of their income and then exclude that amount from charitable contributions when determining their itemized deduction.
Also starting in 2026, taxpayers who claim the standard deduction can now claim a $1,000 above-the-line (adjustment to income) deduction for charitable cash contributions ($2,000 if married filing jointly).
For more information, read our article: How will the OBBBA changes to charitable donations affect my tax bill in the future? (COMING SOON)
10-Gambling loss deductions
The OBBBA introduces a cap on deductions for gambling losses. Beginning on January 1, 2026, gamblers will only be able to deduct 90% of gambling losses against winnings.
For more information, read our article: How does the OBBBA affect my gambling loss deductions? (COMING SOON)
Conclusion
As you can see, the OBBBA is making some significant changes to the tax code. This summary highlights potential impacts, providing guidance to help you prepare for upcoming changes. Rest assured FreeTaxUSA software is regularly updated, and we’ll be ready to help you prepare an accurate tax return when it’s time to file.
