The One Big Beautiful Bill Act (OBBBA) makes permanent several of the expiring tax cuts contained in Trump’s signature 2017 tax legislation—the Tax Cuts and Jobs Act (TCJA). It also introduces a few new provisions, including some temporary tax breaks for individuals.
Do not ignore this bill. For higher-net-worth families, estate planning and Roth conversions are more critical than ever. Even small changes, like the charitable deductions for non-itemizers or new rules for tips and overtime, can translate into thousands of dollars in tax savings. Avoid surprises, as some benefits phase out after 2028.
The IRS has not issued much guidance yet — except for a draft version of the 2026 Form W-2, Wage and Tax Statement, with new fields added to prepare the way for the tax exemptions on tips and overtime income. Expect more news in the coming weeks and months in the run-up to next tax season.
PROVISIONS IMPACTING INDIVIDUALS:
- Child Tax Credit: Under OBBBA, the child tax credit allows families a tax break of up to $2,200 per qualifying child beginning in 2025, adjusted for inflation. The credit remains subject to phase-outs of $200,000 for single filers and $400,000 for joint filers. At least one parent must hold a valid Social Security number.
- State and Local Tax (SALT) Deduction: Under OBBBA, if you itemize your deductions, you can deduct state and local income taxes or sales taxes, and you can deduct state and local property taxes up to a $40,000 cap, often referred to as the SALT cap. The cap—which is an increase from last year’s $10,000 cap—goes into effect for the 2025 tax year. There’s a 1% increase in the cap each year, but only until 2029 (it goes back to $10,000 in 2030). A phase-down applies for taxpayers with modified adjusted gross income (MAGI) over $500,000— the threshold, like the initial cap, increases by 1% each year through 2029. Unlike a phaseout, which eliminates the deduction, a phase-down simply reduces it. This provision does not impact most taxpayers. It impacts taxpayers who itemize and carry a high overall state and local tax burden.
- Charitable Deductions: Under OBBBA, the charitable donation deduction has been expanded to include a permanent “above-the-line” deduction for taxpayers who do not itemize their deductions. Beginning in 2026, taxpayers who do not itemize can claim a deduction of up to $1,000 ($2,000 for those taxpayers who are married filing jointly) for certain charitable contributions. Taxpayers who itemize are subject to a new limit on deductions—new carryover rules would also apply. OBBBA also makes the 60% contribution limit for cash gifts to qualified charities permanent.
- Temporary Deduction for Seniors: Under OBBBA, seniors who are age 65 and older are eligible to claim a new, temporary deduction of $6,000 beginning in 2025—the deduction would expire after 2028. The deduction would be available to both taxpayers who itemize and those who claim the standard deduction. This is a stand-in for Trump’s “no tax on Social Security” promise—there is no separate provision. You must have reached age 65 as of the end of the tax year. It is age-dependent, not benefits-dependent. It is subject to phaseouts, which means the deduction decreases as income increases. In this case, the phaseout begins at $150,000 for joint filers ($75,000 for all other taxpayers)—up until those amounts, you would qualify for the full deduction. The deduction begins to shrink at a rate of 6% over those amounts. In other words, for every $100 extra you earn, you lose $6 of the deduction. That means the deduction completely disappears once income reaches $350,000 for joint filers ($175,000 for all other taxpayers).
- No Tax On Tips: Tip income would be temporarily deductible—only for tax years 2025 through 2028—for individuals in traditionally and customarily tipped industries, regardless of whether they itemize. The deduction is limited to $25,000 of reported tips. It’s important to note that this is a federal income tax deduction, not an exclusion. That means that tips would still be reportable—and taxable at the state and local level. Highly compensated employees (those who make more than $160,000 in 2025) would be excluded. You can deduct up to $25,000 of reported tips (you can have other income) and you do not need to itemize to claim the deduction. The deduction applies to cash or cash-equivalent tips (including those tips on credit cards). Under OBBBA, tips remain subject to payroll taxes, including Social Security and Medicare, for employees. The tax break is a deduction, not an exemption, so some taxpayers will likely want to have income tax withheld from their wages because they will still owe tax. Those who won’t owe any tax will likely want to make an adjustment, but indications are that will happen on a case-by-case basis. Currently, we don’t expect any automatic changes to withholding on tips or other income. Depending on your income, you may well see a significant difference in your tax bill as a tipped worker. However, wait for new guidance before updating your withholdings (or, since the halfway point in the year has already passed, you could also just wait and receive a fat refund next year). Treasury is supposed to release a list of “traditionally tipped industries” that are eligible for the credit in addition to the traditional restaurant and beauty companies.
- No Tax On Overtime: Workers who receive overtime will be eligible for a deduction for qualified overtime pay of $12,500 ($25,000 for married taxpayers filing jointly). As with tips, this is a deduction, not an exclusion. The deduction would apply to taxpayers regardless of whether they itemize and would also be temporary—only for tax years 2025 through 2028. For purposes of the rule, overtime compensation is defined as the amount paid in excess of the employee’s regular rate—only the overtime compensation is part of the break. It phases out for taxpayers with income over $150,000 ($300,000 for married taxpayers filing jointly)—that means the maximum deduction would disappear at $275,000 for single filers. You can deduct up to $12,500 of your overtime pay per year. The deduction only applies to the “half” portion of “time and a half” from federal tax, not the entire amount. The employee would still be taxed at normal rates on their regular rate of pay. So, for example, if you normally get paid $20/hour and your overtime rate is $30/hour (that’s time and a half), the deduction only applies to the $10/hour—or the “half”—and not the entire amount you’re paid for overtime. The deduction is available for the 2025 to 2028 tax years.
- Auto loan interest deduction: A temporary provision would make auto loan interest deductible for new cars assembled in the U.S. in tax years 2025 through 2028. The deduction would be limited to cars for personal use, only $10,000, and subject to phase-outs for individuals with income above $100,000 (for single filers) or $200,000 (for married taxpayers filing jointly). And autos only—campers and RVs are excluded. The deduction allows you to deduct $10,000 in interest paid on a car loan (per year). But it only applies to cars purchased after December 31, 2024, and is available each year that you’re paying interest from 2025 to 2028 (the tax break disappears after that time).
- Federal Estate Tax: Under OBBBA, the federal estate tax remained in place, but the federal estate tax exclusion amount increased to $15,000,000 in 2026 ($30,000,000 for married couples filing jointly), adjusted for inflation in future years.
- Federal Gift Tax: You can use this exclusion to pass on wealth while you’re alive or through your estate. There are no separate changes to the annual gift exclusion, which is an amount you can give annually without eating into your lifetime exclusion. The annual exclusion is $19,000 in 2025. That means you can gift $19,000 per person to as many people as you want with no federal gift tax consequences in 2025; if you split gifts with your spouse, that total is $38,000.
- New enhanced deduction for people age 65 and older: Individuals age 65 and older can now claim an additional $6,000 deduction. Married couples (both 65-plus) can claim an additional $12,000. You can claim this $6,000 even if you itemize. This deduction phases out for those with AGI above $75,000 (single filers) and $150,000 (married, filing jointly). In practical terms, this means that older people earning below those thresholds can often offset most or all the income that would have triggered taxes on their Social Security benefits. This is not a repeal of the taxation of benefits, but it operates much like one for the majority of retirees. The tax relief is temporary however, the enhanced deduction is scheduled to expire after the 2028 tax year. Unless extended by future legislation, retirees might face a return to the old rules beginning in 2029.
- BBB further raises standard deduction: While the IRS already increased the standard deduction last fall due to inflation, the OBBB further raises it. If you’re someone who claims the standard deduction (rather than itemizing), you could see a bump in next year’s tax refund or a corresponding reduction in your tax liability. For 2025, the standard deduction amounts are as follows:
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- Married couples filing jointly receive $31,500.
- Single filers receive $15,750.
- Heads of household receive $23,625.
For example, if you’re single, you’ll get $1,150 more in standard deduction dollars on your 2025 federal return compared with last year. If you’re married and filing a joint return, you’ll see a $2,300 increase in your standard deduction compared with last year’s return.
CONTACT US: This may be the best “Tax-Planning Window” we’ve seen in years, so it is important to do the following:
- Plan any potential Roth conversions while rates remain low
- Evaluate new deductions or credits you might qualify for
- Review your charitable strategies for 2025-2028
Much of the discussion has been focused on the business impacts of the bill, but these spill over to the extent that individuals who own businesses or have interests in pass-through entities or C corporations, make the permanent increase in the estate tax exemption relevant.
If business holdings are close to the $15 million exemption amount, it’s important to know the amount is permanent, unless it’s changed by a future Congress. That helps with succession planning, if you want to hand the business off to your kids or put it into a trust. Also, the increase from $10,000 to $40,000 of deductible state and local taxes is relevant for a lot of pass-through entity owners. They can potentially deduct a greater share of their state income taxes if they’re below the income threshold of $600,000. An earlier version of the bill had discussed removing or limiting the use of the pass-through entity tax regimes, but the final version of the bill did not include that. The fact that this is still available is also a benefit for many flow-through business owners.
We are here to help clients develop advance tax strategies or a sustainable and advantageous tax position on a long-term basis. We welcome the opportunity to find solutions to meet our clients’ needs and discuss the impact of the legislation on our client’s situation to help reduce their tax bills. Email us at CPA @fuoco.com.
