One Big Beautiful Bill Tax Summary

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law.  This bill retains popular elements while introducing notable updates, deductions, and credits.  Below is a partial list highlighting key elements followed by a summary containing additional information.  At the bottom, you will find links to the tax summary and a more detailed fifty-five page document.

 OBBBA key elements:

• Extension of reduced income tax rates

• Extension and enhancement of increased standard deduction

• Temporary deduction for seniors

• Extension with changes to child tax credit (CTC)

• Enhancement of the child and dependent care tax credit

• Limitation on individual deductions for state and local taxes (SALT)

• No tax on tips (new)

• No tax on overtime (new)

• Deductible car loan interest (new)

• Mortgage interest deduction

• Changes to charitable contributions

• Charitable deduction for non-itemizers

• Trump Accounts (new)

• 529 plan new coverage for postsecondary credentialing expenses

• Enhancement of the adoption credit

• Estate and gift tax exemption

• Sunsetting of individual green energy tax credits

• Exclusion for employer payments of student loans

• SSN requirement for American Opportunity and Lifetime Learning credits

• Eliminating the limitation on recapture of advance premium tax credit (APTC)

• Qualified business income (QBI) deduction

• 1099-K reporting

• Forms 1099-MISC and 1099-NEC

One Big Beautiful Bill Tax Summary

Extension of reduced income tax rates

This provision permanently extends the individual income tax rates of 10%, 12%, 22%, 24%, 32%, 35% and 37% to provide continued tax relief to individuals and families.

Extension and enhancement of increased standard deduction

The law increases the base standard deduction amounts beginning in tax year 2025. For married taxpayers filing jointly (MFJ), the new base deduction is $31,500. For single filers, the new base is $15,750.

Temporary deduction for seniors

Beginning in tax year 2025, and continuing through 2028, individuals aged 65 or older by year-end may claim a new deduction of $6,000. On a joint return, each spouse may qualify, allowing for up to $12,000 in total deductions if both meet the age requirement.

The deduction is subject to a 6% phaseout based on a modified adjusted gross income (MAGI) exceeding $75,000 for single filers and $150,000 for joint filers. The senior must possess a valid Social Security number (SSN) to claim the deduction. In addition, married individuals must file a joint return to be eligible; married filing separately is not permitted for this deduction.

Extension with changes to child tax credit (CTC)

Effective for tax year 2025, the maximum credit per qualifying child increases from $2,000 to $2,200. Beginning in 2026, this amount is subject to annual inflation adjustments. The refundable portion of the credit remains capped at $1,400 per child but will also be indexed for inflation beginning in 2025.

To qualify for the CTC, a child must have a valid SSN issued to a U.S. citizen or certain legal residents. For joint returns, at least one spouse must also have a valid SSN. SSNs must be issued before the return due date, generally April 15.

Enhancement of the child and dependent care tax credit

Effective for tax years beginning after Dec. 31, 2025, the child and dependent tax credit increases from 35% to 50%.

Limitation on individual deductions for state and local taxes (SALT)

Under the revised provisions, the SALT deduction cap increases to $40,000 for tax year 2025. The limit rises slightly to $40,400 for 2026, and for years 2027 through 2029, it will be adjusted annually to 101% of the prior year’s cap. Despite these increases, the deduction limit will revert to the original $10,000 cap beginning in 2030 and for all subsequent years.

Importantly, eligibility to claim the enhanced SALT deduction from 2025-2029 is subject to a MAGI (Modified Adjusted Gross Income) threshold. For 2025, taxpayers with MAGI exceeding $500,000 ($250,000 MFS) are ineligible for the increased cap. These thresholds will adjust to $505,000 ($252,500 MFS) in 2026 and continue to increase by 1% annually through 2029. The deduction will not fall below the original $10,000 ($5,000 MFS), even for those exceeding the MAGI limits.

No tax on tips (new)

This provision allows individuals to deduct certain cash tips from their taxable income. The deduction is available for tax years beginning after Dec. 31, 2024, and before Jan. 1, 2029.

This applies to individuals who receive cash tips in an occupation that customarily and regularly received tips on or before Dec. 31, 2024 (to be determined and published by the IRS). Both employees and self-employed individuals may be eligible, but the deduction is limited for self- employed taxpayers if business expenses exceed income. Married taxpayers must file jointly to claim the deduction. Additionally, the taxpayer must provide a valid SSN on their Form 1040.

The deduction is capped at $25,000 per year and phases out if the taxpayer’s MAGI exceeds:

• $150,000 for individuals

• $300,000 for joint filers

The deduction is reduced by $100 for every $1,000 over the threshold.

Tips include cash, card-based payments and amounts distributed through tip-sharing arrangements. To qualify as a tip, the payment must be made voluntarily by the customer, not subject to negotiation and determined solely at the customer’s discretion. However, tips received in a specified service trade or business (SSTB) are excluded unless the recipient is an employee of an employer not classified as an SSTB.

No tax on overtime (new)

Taxpayers may deduct the amount of overtime compensation received during the taxable year, provided the compensation is reported on either Form W-2 or on an information return. Only overtime that qualifies under Section 7 of the Fair Labor Standards Act of 1938 is eligible; that is, pay for hours worked in excess of the standard workweek, calculated at a rate above the individual’s regular hourly rate.

The maximum deduction is $12,500 for single filers and $25,000 for MFJ. The deduction is gradually reduced for higher-income taxpayers. For every $1,000 that a taxpayer’s MAGI exceeds $150,000 ($300,000 MFJ), the deduction is reduced by $100. The deduction is permitted only when the taxpayer includes the recipient’s SSN on the return. Additionally, in the case of married individuals, the deduction is available solely if the taxpayer and spouse file a joint return.

Deductible car loan interest (new)

For tax years 2025 through 2028, interest paid on a loan to purchase a qualifying passenger vehicle for personal use may be deducted under a temporary provision. To qualify, the loan must be incurred after Dec. 31, 2024, and secured by a first lien on the vehicle. The interest is only deductible if the taxpayer includes the vehicle’s identification number (VIN) on their return. Refinancing of such loans is also eligible for the deduction, but only to the extent the refinanced amount does not exceed the original loan principal.

However, the deduction is subject to several exclusions. Interest on loans for fleet sales, commercial-use vehicles, leased vehicles, salvage-title vehicles or vehicles intended for scrap or parts is not deductible. Additionally, loans from related parties are excluded from eligibility.

The deduction is capped at $10,000 of interest per taxable year. It is also phased out for higher- income taxpayers. The phaseout begins when a taxpayer’s MAGI exceeds $100,000 ($200,000 for joint filers). The allowable deduction is reduced by $200 for every $1,000 (or part thereof) of MAGI above the applicable threshold.

To qualify, the vehicle must be intended for the taxpayer’s original use and primarily manufactured for use on public roads. Eligible vehicles include cars, minivans, vans, SUVs, pickup trucks and motorcycles, as long as they have at least two wheels and a gross vehicle weight rating (GVWR) under 14,000 pounds. The vehicle must also be classified as a motor vehicle under the Clean Air Act and assembled in the United States.

Importantly, this deduction is available to both itemizers and non-itemizers.

Mortgage interest deduction

The deduction for qualified residence interest is limited to acquisition debt of to $1 million ($500,000 if MFS) for loans incurred on or before Dec. 15, 2017. The limit for loans incurred after that date is $750,000 ($375,000 if MFS).

The new law also reinstates the deduction for mortgage insurance premiums (PMI), treating them as qualified residence interest.

Effective date: Applies for tax years beginning after Dec. 31, 2025.

Changes to charitable contributions

Taxpayers will not receive a tax benefit for the first 0.5% of their contribution base donated to charity. Only amounts contributed beyond this threshold are eligible for a deduction, subject to other existing percentage limitations for charitable deductions.

Effective date: Applicable tax years after Dec. 31, 2025.

Charitable deduction for non-itemizers

This permanent charitable contribution deduction is available for taxpayers who do not itemize.  Applicable tax years after Dec. 31, 2025.

• The maximum deduction for single filers is $1,000.

• The maximum deduction for married individuals filing jointly is $2,000.

Takeaways:  

• Individual taxpayers cannot deduct the first 0.5% of their contribution base in charitable contributions. For example, a taxpayer with $100,000 AGI must contribute more than $500 before any charitable deduction is allowed.

• Disallowed contributions due to the new floor can still be carried forward if total contributions exceed other applicable deduction limits, preserving the tax benefit in future years.

• Taxpayers with smaller charitable giving patterns or those with income volatility could see deductions reduced or eliminated in low-income years. Planning to bundle donations in alternate years or increase contribution levels may help maximize tax benefits.

Trump Accounts (new)

A new class of long-term savings vehicles, referred to as Trump Accounts, has been established to promote financial education, retirement readiness and asset accumulation for individuals under age 18. These accounts are structured as modified traditional IRAs, incorporating unique eligibility, contribution and distribution rules tailored to minors.

A one-time $1,000 deposit will be made into accounts opened for qualifying children born after Dec. 31, 2024, and before Jan. 1, 2029. Eligibility is restricted to individuals under age 18 (but only those individuals born between the years mentioned above will receive a $1,000 deposit), and contributions may only be made during the years before the beneficiary reaches that age. Distributions are prohibited until the calendar year in which the beneficiary turns 18. Additionally, contributions must be explicitly designated as Trump Account contributions at account creation. Following the legislation’s enactment, a mandatory 12-month waiting period applies before contributions may begin.

Annual contributions are capped at $5,000 per beneficiary, exclusive of rollovers, and are indexed for inflation starting in 2028. Contributions may be made by parents, employers, charitable organizations and governmental bodies, subject to the annual cap. Employers are permitted to make non-taxable contributions on behalf of minor employees. Charitable and government entities may also make general funding contributions based on specified eligibility criteria, such as birth year or geographic region.

Investment earnings within Trump Accounts grow tax-deferred. While the accounts mirror traditional IRA treatment, additional IRS guidance is anticipated to clarify taxation upon distribution. Permissible investments are limited to mutual funds and indexed ETFs, reinforcing the program’s long-term, education-focused savings objectives.

To encourage early adoption, the plan establishes a contribution pilot program that provides a $1,000 tax credit to initiate a Trump Account for eligible children born between Jan. 1, 2025, and Dec. 31, 2028.

529 Plan New coverage for postsecondary credentialing EXpenses

Expands §529 plan coverage to include expenses related to obtaining industry-recognized postsecondary credentials, not just traditional college expenses.

Newly eligible postsecondary credential expenses:

• Tuition, fees and materials for approved training programs

• Testing fees for credential or license exams

• Continuing education is needed to maintain credentials

Qualifying programs must:

• Be on a state-approved workforce list

• Be listed in the Veterans Benefits Administration’s WEAMS directory

• Prepare students for exams administered by credentialing organizations

• Be certified by the Secretary of the Treasury or the Labor Department as reputable

Qualifying credentials include:

• Industry-recognized certificates or licenses

• Apprenticeship completion certificates

• Occupational or professional licenses

• Credentials recognized under the Workforce Innovation and Opportunity Act

Effective date: Applies to §529 distributions made after the date of OBBB enactment.

Takeaway: These provisions significantly expand the flexibility and utility of 529 accounts, allowing families to use funds not only for college, but also for K-12 education, vocational training, credentialing and licensing programs.

Enhancement of the adoption credit

Beginning with tax years after Dec. 31, 2024, up to $5,000 of the adoption credit is refundable. This portion will be treated as a credit allowed under subpart C, making it payable even if the taxpayer has no tax liability. Any credit above $5,000 remains nonrefundable and subject to carry forward under existing rules.

Previously, the adoption credit and related income phaseout thresholds were indexed for inflation using 2001 as the base year. The amendment maintains these adjustments but adds a special inflation adjustment for the new $5,000 refundable portion, using 2024 as the base year with indexing beginning in 2025.

The refundable portion of the credit may not be carried forward; only the nonrefundable portion may be applied to future tax years.

Effective date: Applicable for tax years beginning after Dec. 31, 2024.

Estate and gift tax exemption

The estate and gift tax exemption was increased to $15 million, which will be indexed for inflation starting in 2026, and was made permanent.

Key takeaways:

Provision Effect

Base exemption raised From $5 million g $15 million, starting in 2026

Sunset prevented Makes TCJA-level estate/gift exemptions permanent and expanded

Major tax savings Benefits estates and gifts above ~$6-7 million

More beneficiaries High-net-worth individuals, family business owners, farmers and estate planners

Inflation-adjusted Like before, but now from a much higher base ($15 million vs. $5 million)

Sunsetting of individual green energy tax credits

Several clean energy tax incentives available to individual taxpayers are scheduled for repeal under new legislative changes. These repeals significantly curtail federal support for energy-efficient investments in personal vehicles and residential property. Tax professionals should take note of the key termination dates and advise clients accordingly as these provisions wind down. The table below summarizes the credits and when they are subject to termination.

Repeal effective date Credit/deduction name

After Sept. 30, 2025 Clean vehicle credit

Previously owned clean vehicle credit

Qualified commercial vehicles credit

After Dec. 31, 2025 Energy-efficient home improvement credit

Residential clean energy credit

After June 30, 2026 Alternative fuel vehicle refueling property credit

Energy-efficient commercial buildings deduction

New energy-efficient home credit

Taxable years with leased Clean electricity credits for leased residential

property to third parties property

Exclusion for employer payments of student loans

Employer-provided educational assistance was made permanent. This allows employers to exclude from an employee’s taxable income up to $5,250 per year in educational assistance. In addition, beginning in 2027, the $5,250 annual exclusion limit is adjusted for inflation.

SSN requirement for American opportunity and lifetime learning credits

New documentation standards are required for taxpayers claiming the American opportunity tax credit (AOTC) and the lifetime learning credit (LLC) for tax years beginning after Dec. 31, 2025. Under these provisions, taxpayers must include specific identifying information to support their eligibility for these education-related tax benefits.

To claim either the AOTC or LLC, the taxpayer is required to provide a valid SSN for themselves. If the student for whom the credit is claimed is not the taxpayer or the taxpayer’s spouse, then that student’s SSN must also be reported. These SSNs must be issued by the Social Security Administration by the due date of the return (including extensions). Importantly, individual taxpayer identification numbers (ITINs) and other non-SSN identifiers do not satisfy this requirement.

In addition, for purposes of the AOTC, taxpayers must also report the employer identification number (EIN) of the educational institution to which qualifying tuition and related expenses were paid. This measure allows the IRS to better match information with Form 1098-T, which institutions are required to furnish to both students and the IRS.

Eliminating the limitation on recapture of advance premium tax credit (APTC)

Beginning Dec. 31, 2026, taxpayers will no longer benefit from repayment caps on excess advance premium tax credits (APTCs). Under current law, individuals who receive more APTC than they are ultimately eligible for, often due to underestimating income, are subject to repayment limits based on their income level. The repeal of this provision eliminates the income-based caps. As a result, all taxpayers, regardless of income, must repay the full amount of any excess advance premium tax credit received.

Effective date: For tax years beginning after Dec. 31, 2026.

Implication: It strengthens taxpayers’ incentive to estimate income accurately when applying for coverage. It shifts the financial burden of overpayment from the government to the individual.

Effective dates:

Provision Applies to

Verification & pre-enrollment rules (71303) Tax years after Dec. 31, 2027

Disallowed PTC for certain SEPs (71304) Plan years after Dec. 31, 2025

Unlimited repayment of APTC (71305) Tax years after Dec. 31, 2025

Qualified business income (QBI) deduction

Expanded phase-in thresholds for income-based limitations

The amendment increases the phase-in ranges for the W-2 wage and qualified property requirement limitations. For single filers, the phase-in window expands from $50,000 to $75,000; for joint filers, from $100,000 to $150,000. This adjustment means more taxpayers can take full advantage of the 20% QBI deduction before encountering any income-based restrictions.

Guaranteed minimum deduction for active businesses

A new provision, §199A(i), introduces a minimum QBI deduction of $400 for qualifying taxpayers. To be eligible, taxpayers must have at least $1,000 in qualified business income from an active business they materially participate in. This minimum deduction ensures that small, actively managed businesses receive meaningful QBI relief even when the calculated 20% deduction would otherwise be negligible.

Beginning in 2027, the $400 minimum deduction and the $1,000 QBI floor will be adjusted annually for inflation, rounded to the nearest $5.

Effective date: Applicable to tax years beginning after Dec. 31, 2025.

Takeaways:

Provision Impact

Raised phase-in amounts Delays income-based QBI limits, helping higher earners

$400 minimum deduction Helps very small, active businesses

Inflation adjustments Keeps dollar thresholds relevant over time

Material participation rule Ensures minimum benefit applies only to truly active business

1099-K Reporting

Recent legislation rolls back the expanded Form 1099-K reporting requirements. It restores the original threshold for reporting third-party network transactions by third-party settlement organizations (TPSOs). A TPSO is only required to issue a Form 1099-K if the total payments to a payee exceed $20,000 and the number of transactions surpasses 200 within a calendar year.

Forms 1099-MISC & 1099-NEC

Beginning with payments made after Dec. 31, 2025, the threshold for information reporting will increase from $600 to $2,000. This change means businesses will only need to file information returns, such as Forms 1099-NEC or 1099-MISC, if total payments to a recipient in a calendar year exceed $2,000. Starting in calendar year 2027, the $2,000 threshold will be adjusted annually for inflation.

A copy of this summary can be found in the attached pdf.

https://drive.google.com/file/d/1Hi62aOcwOFU6w0lWVyZczXdWD9g...

Full details on the entire OBBA for individuals and business can be found in the attached pdf.

https://drive.google.com/file/d/1BI1Ko-4xirNDlSYsx5eKM8tiTD3...