A Tax Overview of the One Big Beautiful Bill Act

The One Big Beautiful Bill Act (or OBBBA) was signed into law by President Trump on July 4, 2025, marking the first major legislative milestone of his second term. Featuring over 1,000 pages of legislation, this sizable bill extends previous tax provisions, introduces new deductions and savings programs, and cuts federal funding to several large programs.

While some changes went into effect immediately, others will be rolling out over the next few months (and even years). According to the Council of Economic Advisors, the average American family with two children should expect to see their take-home pay increase by up to $13,300 in the coming years as a result of these changes.¹  

Let’s take a closer look at what’s changing, what’s staying the same, and how your tax bill may be impacted moving ahead.

Tax brackets and standard deductions

The OBBBA extends some of the most prominent policies first introduced under the 2017 Tax Cuts and Jobs Act (TCJA), President Trump’s tax reform legislation from his first term.

Prior to the OBBBA passing into law, all provisions outlined in the TCJA were set to expire at the end of 2025. That would mean returning to pre-2018 tax rates, standard deduction rates, estate exemption limits, and more. Let’s take a look at what’s staying put now that OBBBA has passed.

Tax brackets

The TCJA-era tax brackets will be made permanent, effective immediately.

Here’s a look at the 2025 tax rates and income ranges (for taxes filed in 2026):²

As a reminder, the tax system is progressive—meaning your taxable income is broken up into the brackets (outlined in the chart above) and taxed only at the rate of the bracket they fall into. For example, your first $11,925 is taxed at a rate of 10%. And if you’re a single filer earning $300,000, your “tax rate” may be 35% but only the last $49,474 earned will actually be taxed at that rate (since it applies to the last bit of income, $250,526 and up).

Standard deduction

The standard deduction nearly doubled when the TCJA passed in 2017, jumping from $6,500 for single filers ($13,000 joint) to $12,000 ($24,000) in 2018.3 Each year, inflation adjustments have been made. While 2025’s original standard deduction was $15,000 for single filers and $30,000 for joint filers, the OBBBA provided taxpayers an extra deduction boost—raising it to $15,750 and $31,500, respectively.^2,4 

Prior to the OBBBA, the standard deduction was set to return to its pre-TCJA levels (adjusted for inflation) in 2026. But with this recent legislation, the standard deduction will remain elevated moving forward.

Senior standard deduction

Seniors who opt for the standard deduction will soon be able to benefit from the OBBBA’s introduction of a “super deduction.” 

Between 2025 and 2028, taxpayers 65 and older will be eligible for an additional $6,000 deduction if their modified adjusted gross income (MAGI) falls below $75,000 (or $150,000 for couples filing jointly).³  

For married couples where both spouses meet the age and income criteria, the deduction doubles to $12,000. If one spouse is over 65 and the other is younger, the benefit remains at $6,000 for joint filers. This new benefit phases out once income exceeds $175,000 for single filers or $250,000 for joint filers.⁴  

Other TCJA-era changes

While tax rates and the standard deduction are the most far-reaching TCJA changes to be made permanent, a few additional provisions from the TCJA will be sticking around as well. 

Alternative minimum tax (AMT)

Some high earners, or those offered incentive stock options (ISOs) through their employer, may be subject to a separate tax system called the alternative minimum tax (AMT). To determine who’s required to pay AMT, deductions are added back into a filer’s gross income to determine their Alternative Minimum Taxable Income (AMTI). (This would be comparable to the regular tax system’s MAGI.)

Once AMTI is determined, an AMT exemption is deducted from the AMTI. The remaining balance is then taxed at either a flat 26% or 28% AMT rate, depending on the income threshold (which adjusts annually for inflation). Taxpayers are required to pay whichever tax bill is greater, either ordinary tax or AMT. For the majority of Americans, this will be ordinary tax.

As part of the TCJA, the AMT exemption limit was raised, as well as the income threshold in which the exemption would begin phasing out. 

Prior to the TCJA, around 5 million taxpayers were subject to AMT. This number dropped dramatically to around 200,000 in 2018 (once higher exemptions were put in place), and has remained around the same since.⁵ 

Originally set to revert to pre-TCJA levels next year, the higher AMT exemption limits will remain in place, indexed annually for inflation.

For the 2025 tax year, the AMT exemption amount is $88,100 for individuals ($137,000 for joint filers). The exemption phase-outs begin once an individual taxpayer reaches $626,350 (or $1,252,700 for joint filers).²    

Estate tax exemption limit

Depending on the size of your estate at the time of death, it could be subject to federal estate taxes of up to 40% when transferred to your heirs and beneficiaries. Some states also impose a state estate or inheritance tax.

As part of the TCJA, the federal estate tax exemption limit doubled from $5.6 million to $11.2 million per person in 2018.⁶ The exemption limit is indexed for inflation annually and is currently set at $13.99 million per person (or $27.98 million per couple).² 

Originally set to revert back to pre-TCJA levels, the OBBBA has made the higher estate tax exemption limit permanent.

Changes to other deductions and credits

Aside from preserving TCJA-era changes, the OBBBA has introduced and modified a number of deductions for taxpayers.

State and local taxes (SALT)

Taxpayers have historically had the option to deduct the amount they pay in state and local taxes (SALT), as long as they itemized their deductions. The current limit for SALT deductions is $10,000. But starting this tax year, the limit is increasing significantly to $40,000.⁴ 

The cap will gradually rise by 1% annually between 2026 and 2029. However, for higher-income households with a modified adjusted gross income (MAGI) of $500,000 or more, a phase-out limit will apply—although the minimum deduction will not fall below $10,000.⁴ Despite elevated standard deductions, this increase in the SALT deduction may make itemizing more attractive for some high-income earners, particularly in states with higher income and property taxes.

Tips and overtime

The OBBBA also introduces new above-the-line deductions that affect both employees and service industry professionals.

Beginning with the 2025 tax year, service workers can deduct up to $25,000 in qualified tips. According to the new ruling, qualified tips refer to “cash tips received by an individual in an occupation which customarily and regularly receives tips.”⁴ 

Similarly, an overtime pay deduction is now available, allowing individuals to deduct up to $12,500 ($25,000 for joint filers) of qualifying overtime income. Both provisions are currently set to remain in effect through the 2028 tax year, after which they are scheduled to sunset.⁴ 

Both deductions will begin to phase out once an individual’s MAGI exceeds $150,000, or $300,000 for married couples filing jointly.⁴  

Child Tax Credit

Families will see a slight increase in the Child Tax Credit. Previously scheduled to drop to $1,000 in 2026, the credit instead rises to $2,200 per child starting in 2025 and remains in place through at least 2028. The credit will be indexed for inflation annually.⁴ 

Auto loan interest

The OBBBA also introduces a new tax deduction for car loan interest, a first at the federal level. Taxpayers earning up to $100,000 ($200,000 for joint filers) can deduct up to $10,000 in qualifying interest if the vehicle was assembled in the U.S. and not used for commercial purposes. This deduction phases out between $100,000 and $150,000 for single filers, and $200,000 to $250,000 for joint filers. It will be available for tax years 2025 through 2028.⁴ 

Mortgage interest

The TCJA reduced the mortgage interest deduction in 2017 from $1 million to $750,000. As part of the OBBBA, this reduction will remain in effect. Borrowers with mortgage debt under $750,000 will be allowed to deduct their mortgage interest, though they must itemize to take advantage of this deduction.⁴ 

Charitable deductions

Prior to the OBBBA, those who itemized deductions were allowed to deduct donations to qualifying charities and organizations. As part of the new tax changes, taxpayers can take above-the-line deductions (meaning they don’t have to itemize to claim them) of up to $1,000 per taxpayer ($2,000 for couples) starting in 2026.⁴ 

If you do opt to itemize your deductions and donate to charity, the deduction will only be available if you donate 0.5% of your AGI or more. For example, if you earn $100,000, 0.5% would be $500. If you donated $1,000, only $500 would be deducted (since the other $500 is below the limit).⁴  

You can, however, potentially carry forward unclaimed donations to apply in future tax years.

Trump Accounts

New this year, the OBBBA introduces what are being referred to as “Trump Accounts,” which will be available for children born between January 1, 2025, and December 31, 2028.

Parents will have the ability to open an account for each qualifying child and receive a one-time $1,000 contribution from the federal government. They can then contribute up to $5,000 annually on an after-tax basis (until the child turns 18), with earnings growing tax-deferred. Once the child turns 18, they may withdraw up to 50% of the account balance for qualifying expenses without triggering taxes or penalties.⁴ 

These include:

• Higher education (college tuition)
• Training programs
• First-time home purchases
• Small business startup costs

At age 25, the full balance becomes accessible for qualifying expenses. By age 30, funds may be withdrawn for any reason without penalty.⁴ 

Overwhelmed by the Big Bill? You’re not alone.

There’s no other way to say it—this bill is massive. It includes a number of new tax benefits for Americans, but it’s also set to reduce federal spending in some major areas of concern, including Medicaid and the Supplemental Nutrition Assistance Program (SNAP). 

Most (if not all) taxpayers will be impacted by the tax provisions and changes shared above—meaning it might be time to review your own tax situation and identify new opportunities for potential savings.