The One Big Beautiful Bill Act: What Individual Taxpayers Should Know
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, includes a range of tax changes aimed at working individuals, families, retirees, and anyone earning variable income like overtime, tips, or gambling winnings. Many of these provisions start in 2025, with additional updates coming in 2026.
Here’s what to know now and how to prepare.
What’s New for Individuals in 2025
Overtime Deduction
Beginning in 2025, individuals can deduct up to $12,500 of eligible overtime income each year. Joint filers can deduct up to $25,000. This applies only to overtime that qualifies under federal law (FLSA). Any custom overtime agreements or payments based on state law may not qualify.
The deduction phases out for those with adjusted gross income (AGI) above $150,000 for individuals or $300,000 for couples filing jointly. The deduction is limited to the pay over the employee’s annual rate (if overtime is $30, than the deduction is $10, the amount over the employee’s standard hourly rate of $20 if the overtime offered is time and a half).
Tip: Keep records of how much overtime you worked and how it was paid. A year-end pay summary or regular pay stubs can make this easier at tax time.
Tip Income Deduction
You may also be able to deduct up to $25,000 in qualified tip income. To qualify, the tips must be voluntary and not part of a required service charge or negotiated agreement. Certain industries like food service, beauty, and personal care may benefit most, while professionals in law, finance, or healthcare are excluded.
This deduction also uses the same income phaseouts as the overtime provision.
Tip: If you receive tips regularly, keep a personal log or review your employer's reporting systems to ensure the numbers are accurate. Only properly reported tips will count.
Child Tax Credit Expansion
The Child Tax Credit will increase from $2,000 to $2,200 per qualifying child. In addition, the refundable portion will rise to $1,400, which may offer more support for lower- and middle-income families. The credit is slated to be adjusted for inflation going forward.
Tip: Make sure all dependents have valid Social Security numbers on file with the IRS. Without that, you won’t be eligible to claim the credit.
Car Loan Interest Deduction
If you purchase a U.S.-assembled vehicle and take out a loan, you may deduct up to $10,000 per year in interest paid. This deduction is subject to income limitations and is only available for loans taken out between 2025 and 2028. There are also exclusions on fleet, commercial, lease, salvage, or scrap vehicles.
Tip: Keep your loan paperwork and note your vehicle’s VIN. The deduction requires that your car be assembled in the U.S. and that this detail is included on your return.
New Deduction for Seniors
Taxpayers aged 65 and older will receive an additional $6,000 deduction beginning in 2025. Joint filers where both spouses are 65 or older will receive $12,000. This benefit phases out for higher earners and is currently set to expire after 2028.
Tip: Consider grouping charitable giving into one tax year to cross the deduction threshold if you usually itemize. Doner Advised Funds are a great tool to help you accomplish this strategy.
SALT Deduction Cap Raised
The state and local tax (SALT) deduction cap is temporarily increased to $40,000 for all filing statuses, except for married filing separately (MFS), which is capped at $20,000.
This change applies for tax year 2025 and is indexed for inflation from 2026 through 2029. For taxpayers with modified adjusted gross income (MAGI) over $500,000 in 2025 (also indexed for inflation in future years), the higher cap phases down.
After 2029, the SALT cap reverts to $10,000 under current law.
Tip: If you’re expecting high state income or property taxes in 2025, consider timing payments before year-end to fully leverage the temporarily expanded deduction. Especially if your income stays below the phase-down threshold.
Clean Energy Credit Rollbacks
Several federal clean energy tax credits are being scaled back under the new law, with key benefits ending in 2025. If you're considering upgrades or purchases, now is the time to act.
The electric vehicle (EV) credit ends September 30, 2025. Vehicles purchased after this date will not qualify for the federal tax subsidy.
The residential clean energy credit for solar panels and home battery storage expires December 31, 2025.
The energy-efficient home improvement credit for insulation, energy-efficient windows, doors, HVAC systems, and similar upgrades also ends December 31, 2025.
Tip: If you’ve been planning to invest in home solar or an electric vehicle, completing the purchase or installation in 2025 will ensure you still qualify for the full credit.
What’s New in 2026
Charitable Deduction for Non-Itemizers
Even if you do not itemize deductions, you may deduct up to $1,000 in charitable contributions (or $2,000 for joint filers). This deduction is available in 2025 and becomes permanent in 2026. This is only cash donations, not property.
Tip: Ask for and save receipts from every donation. Even small gifts to qualified charities can add up.
Adjustments to Charitable Deductions for Itemizers
Itemizers may now only deduct charitable gifts that exceed 0.5% of AGI. However, the maximum deduction remains at 60% of AGI for cash donations. This change applies starting in 2025 and is permanent.
Gambling Loss Deduction Limit
Beginning in 2026, individuals can still deduct gambling losses, but only up to 90% of their reported gambling winnings. Previously, the deduction was not capped in this way.
Tip: Keep detailed logs of both winnings and losses, along with receipts or player statements from casinos or betting apps.
Itemized Deduction Cap
Beginning in 2026, a new limitation will apply to the tax benefit of itemized deductions for high-income earners. Specifically, if you fall into the 37% top tax bracket, the total value of your itemized deductions may be capped or reduced, even if you qualify for them in full.
This means that things like mortgage interest, charitable contributions, and state and local taxes may not offer the full offset you’d expect at higher income levels. While the details of the cap calculation are still being finalized, the concept is similar to the “Pease limitation” that existed in earlier tax law: the higher your income, the less benefit you receive from itemizing.
Tip: If you are a high earner who typically itemizes, you may want to run the numbers in advance. In some cases, bunching deductions into 2025 or shifting strategy to make greater use of above-the-line deductions or retirement contributions could be more effective starting in 2026.
1099 Reporting Changes
Starting in 2026, the minimum reporting threshold for Form 1099-NEC and 1099-MISC increases from $600 to $2,000. This means you may receive fewer 1099 forms for small jobs or freelance income, though you'll still need to report all income earned.
Clean Energy Credit Rollbacks
Beginning in 2026, several federal tax credits for clean energy improvements will begin to phase out, with many ending entirely by the close of 2027. These changes impact some of the most widely used residential energy incentives, including credits for:
The home EV charging station credit expires June 30, 2026.
The new energy-efficient home credit for builders and developers also ends June 30, 2026.
Clean electricity project credits (such as for wind, solar, and battery infrastructure) will only apply to projects that begin construction by June 30, 2026 and are completed by December 31, 2027.
Tip: For projects like home EV charging or new construction, starting the process early in 2026 may still give you access to some incentives, but delays could make you ineligible.
Estate Tax Exemption Increase
Though this doesn’t affect annual filing, the federal estate tax exemption will increase to $15 million per person starting in 2026. This may be important for families doing estate or wealth transfer planning.
What This Means for You
Many of these new provisions offer potential tax savings, but they require you to stay organized and plan ahead. You may need to update your recordkeeping habits, revisit how you make donations, or take advantage of temporary deductions like the car loan interest write-off or the expanded senior standard deduction.
Let's Talk Through It Together
Whether you work hourly, live on tips, are planning for retirement, or are simply trying to stay ahead of the curve, the changes in this bill affect how you plan for 2025 and 2026. Some will help lower your tax bill right away. Others are opportunities you might miss without the right planning.
Schedule a personalized tax review with our team and we’ll help you take advantage of what applies to you and make the most of what’s ahead. Schedule with us today.
