The Big Beautiful Bill: Everything a Taxpayer Needs to Know

On Friday, July 4th, 2025, President Trump signed the One Big Beautiful Bill Act (OBBB) into law. This highly contested legislation passed the Senate by a 51-50 vote, with Vice President JD Vance casting the tie-breaking vote, and was approved by the House with a 218-214 margin.

The bill extends many provisions of the Tax Cuts and Jobs Act (TCJA), which was set to expire at the end of the year, while also introducing new updates and modifications. Rather than offering political commentary on the potential implications for the federal budget or deficit, the focus here is to outline the tax provisions affecting individuals and businesses and highlight opportunities to reduce tax liability under the updated code.

Impacts to Individuals

Tax Rates

The OBBB makes the tax rate cuts established under the 2017 TCJA permanent, preserving the brackets at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The income thresholds for each bracket will continue to be adjusted annually for inflation. Making these brackets permanent provides clarity and stability for taxpayers who otherwise faced an automatic increase of at least 2% with the TCJA’s scheduled expiration in 2025. Unlike the TCJA, the OBBB ensures these reduced rates are no longer subject to future sunset provisions.

Standard Deductions

In addition to making lower tax rates permanent, the OBBB also codifies the higher standard deduction amounts introduced under the TCJA. For tax years after 2024, the standard deduction increases to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married couples filing jointly.

Additional deductions remain in place, providing $2,000 for single filers over age 65 and $1,600 per qualifying spouse for married filers over 65. These amounts will continue to be adjusted annually for inflation. With these enhanced deductions now permanent, a larger share of taxpayers may find it more practical to take the standard deduction rather than trying to itemize their deductions.

Itemized Deductions

The OBBB makes most of the TCJA changes to itemized deductions permanent but made one significant update. Below is a breakdown of each category of itemized deductions and how it is affected under the new law:

SALT Deduction

A key provision of the OBBB is the temporary increase to the state and local tax (SALT) deduction cap, offering significant relief to taxpayers in states with high income and real estate taxes. Under the TCJA, the federal deduction for state and local taxes was limited to $10,000.

The OBBB raises this cap to $40,000 for tax year 2025. However, this increase is not permanent. The cap will grow by 1% annually through 2029 before reverting to $10,000 in 2030.

The expanded deduction begins to phase out for individuals with modified adjusted gross income (MAGI) over $500,000. Additionally, the final version of the OBBB allows specified service trades or businesses (SSTBs) to continue deducting state and local income taxes. This keeps alive the usefulness of state passthrough entity taxes (PTETs), which are a common workaround to the SALT limit for individuals who live in states with higher income taxes.

Medical Expenses

The OBBB makes permanent the 7.5% floor for taking a deduction for qualifying out-of-pocket medical expenses. Prior to the TCJA, this floor was 10%. This change makes the ability to claim a deduction for medical expenses more attainable.

Interest Deduction

The amount of mortgage interest that can be claimed as an itemized deduction will have its current lower coverage limit made permanent under the OBBB. This lower limit only allows mortgage interest to be claimed on the first $750,000 of mortgage debt. Also, the exclusion of a deduction for home-equity indebtedness on a qualified residence is permanently removed.

Miscellaneous Itemized Deductions

The OBBB permanently removes these types of deductions from the tax code. As a result, the ability to claim deductions for items such as investment, legal, and tax preparation fees; unreimbursed employee expenses; job-related education expenses; or hobby expenses is effectively eliminated for the foreseeable future.

Casualty Loss Deduction

The current TCJA rules for claiming a tax deduction on casualty losses have been made permanent under the OBBB. To qualify for a deduction due to manmade or natural disasters, the loss must occur in a federally declared disaster area. The legislation did not include an expansion of the definition of “Qualified Disaster Area,” which many taxpayers were hoping would be included to make it more accessible for local disasters and losses.

Itemized Deduction Limitation

The OBBB permanently ends the “Pease limitation,” which was previously used to restrict itemized deductions for higher-income earners. In its place, the OBBB enacts a two-step reduction aimed at limiting itemized deductions for taxpayers in the 37% tax bracket and above.

Charitable Contribution Deduction

A common itemized deduction is charitable contributions. Since the TCJA, many taxpayers were unable to claim a tax benefit for charitable giving due to the higher standard deduction. Under the OBBB, taxpayers who do not itemize are allowed to claim a deduction of up to $1,000 for single filers and $2,000 for joint filers. These deductions must meet a 0.5% AGI floor imposed by the act.

A notable change to deductions is the temporary increase in additional benefits for taxpayers over age 65 from 2025 to 2028. In addition to the existing bonus amounts of $2,000 (single) and $1,600 (per spouse for joint filers) for those claiming the standard deduction, the OBBB introduces a new $6,000 deduction for individuals over age 65 that can be claimed even when itemizing.

This deduction is phased out for individuals with AGI above $75,000 and joint filers with AGI above $150,000. While temporary, this provision is expected to result in a meaningful reduction in tax liability for many older taxpayers beginning with next year’s filings.

Qualified Business Income (QBI) Deduction

A much-loved small business deduction created under the TCJA was the Qualified Business Income (QBI) deduction. This provision allowed flow-through entities to take a 20% “below the line” tax deduction for qualified business income. The OBBB makes the QBI deduction permanent at 20%—despite the House version of the bill proposing an increase to 23%.

The legislation also expands the phase-in limits for specified service trades or businesses (SSTBs) and other entities. Additionally, the OBBB introduces a minimum deduction of $400 for each trade or business in which the taxpayer earns at least $1,000 in qualified income and materially participates.

Personal Exemptions

The OBBB sets the deduction for personal exemptions at $0, effectively removing them from the tax code. There appears to be little likelihood that personal exemptions will be reinstated in future legislation.

Moving Expenses

The TCJA removed the moving expense deduction from the tax code in 2018, and this elimination has been made permanent under the OBBB. Currently, and going forward, the deduction is only available to members of the armed services and certain individuals in the intelligence community.

Estate Taxes

Another significant win for taxpayers is the increase and permanent extension of the estate and gift tax exemption limits originally set under the TCJA. The current exemption is $13.99 million per individual ($27.98 million per couple). Under the OBBB, this limit will rise to $15 million per individual ($30 million per couple) and will be indexed for inflation annually beginning after 2025. This change will significantly influence estate planning strategies, especially given the prior concern that the exemption might be reduced by half in future legislation.

No tax on tips

A notable bipartisan provision included in the OBBB is the elimination of taxation on tips. This will be implemented through an offsetting deduction for reported tip income.

Tips received through W-2 wages, 1099-Ks, 1099-NECs, and Form 4137 will be eligible for a deduction of up to $25,000. This will be treated as an “above-the-line” deduction—applied before the calculation of adjusted gross income—and can be taken alongside the standard deduction. The provision applies to tax years after 2024 and is set to expire in 2028. An income phase-out applies for taxpayers with MAGI over $150,000 (single) or $300,000 (joint).

No tax on overtime

Another favorable and bipartisan tax change in the OBBB is the exclusion of overtime pay from taxation. Similar to the provision for tips, this is implemented through an “above-the-line” deduction available for qualified overtime compensation received during the year.

The deduction is capped at $12,500 for single filers and $25,000 for joint filers and is subject to a phase-out for individuals with MAGI over $150,000 (single) or $300,000 (joint). To support this change, employers will be required to report overtime pay as a separate line item on W-2 and 1099 forms.

Qualified overtime compensation is defined under Section 7 of the Fair Labor Standards Act and refers to the excess compensation paid above the standard hourly rate. This deduction may be claimed even when the standard deduction is taken.

However, highly compensated employees (HCEs) are excluded from eligibility. An HCE is defined as an individual who earned more than $160,000 in the preceding year, is among the top 20% of employees (under the compensation test), or owns at least 5% of the business (under the ownership test). As with the tip deduction, this provision is temporary and is set to expire after 2028.

Car Loan Interest

As an incentive to encourage the purchase of American-made vehicles, the OBBB introduces a tax deduction for car loan interest paid. The deduction is capped at $10,000 per year and does not require the taxpayer to itemize deductions. An income phase-out applies at $100,000 of adjusted gross income for single filers and $200,000 for joint filers.

To qualify, the car loan must originate after December 31, 2024, and the vehicle must be new with final assembly completed in the United States. This provision is temporary, taking effect in 2025 and set to expire after 2028.

Dependent Care Credit

The OBBB makes permanent the TCJA rules for claiming the dependent care credit. These rules allow a credit of up to 50% of qualifying dependent care expenses, with a phased reduction for higher-income taxpayers.

The credit begins to phase down by 1% for every $2,000 of adjusted gross income (AGI) above $15,000, but not below 35%. A second phase-out applies to individuals with AGI over $75,000 (single) or $150,000 (joint), reducing the credit by an additional 1% for every $2,000 (or $4,000 for joint filers) over the threshold, with a floor of 20%.

The OBBB also increases the maximum amount of excludable income under the Dependent Care Assistance Program, raising the limit from $5,000 to $7,000.

Adoption credit

A small change under the OBBB makes a portion of the current adoption credit refundable. The refundable amount is set at $5,000 and will be adjusted annually for inflation.

529 on elementary, secondary, and homeschool costs

In recent years, many taxpayers have sought ways to better utilize 529 accounts. These accounts are primarily used to fund higher education expenses, such as college or post-secondary training, and up to $10,000 per year for qualified K–12 education at accredited public, private, or religious schools.

The SECURE Act 2.0 expanded their use by allowing unused balances to be rolled into a beneficiary’s Roth IRA. The OBBB builds on this by further expanding qualified uses, including a broader range of K–12 institutions and expenses such as educational materials, tutoring, online learning tools, testing fees, and workforce education programs.

Alternative Minimum Tax (AMT)

The OBBB makes permanent several Alternative Minimum Tax (AMT) provisions from the TCJA while modifying others. It extends the increased individual exemption amount, currently set at $88,100, but allows the exemption phase-out range to revert to its lower 2018 levels (adjusted for inflation). In contrast to the original House version of the bill, which proposed a 25% phase-out rate, the OBBB increases the phase-out reduction to 50% of the amount by which a taxpayer’s AMT income exceeds the threshold.

Discharge of Student Loan Debt

Under the OBBB, student loan debt discharged due to death or disability will continue to be excluded from gross income. This provision extends the current policy established under the TCJA.

ABLE Accounts

The current TCJA updates to ABLE account contributions and limitations have been made permanent under the OBBB. This includes the continued ability for certain taxpayers to claim the saver’s tax credit for ABLE account contributions. Beginning in 2026, the maximum credit amount will increase to $2,100.

Gambling Losses

Under the TCJA, gambling losses are deductible to the extent of gambling income. The OBBB modifies this provision, allowing only 90% of gambling losses to be claimed against gambling winnings. As a result, a greater portion of gambling winnings will be taxable for individuals engaged in recreational gambling in the coming years.

Scholarship-granting Organization Tax Credit

The OBBB creates a new Section 25F credit, defined as the greater of $5,000 or 10% of a taxpayer’s adjusted gross income (AGI), for donations made to scholarship-granting organizations. Eligible scholarships include those awarded for qualified elementary and secondary education expenses.

Clean Energy Credits

A large majority of clean-energy tax credits will be phased out or eliminated under the OBBB. Key incentives that many taxpayers have relied on—such as the Clean Vehicle Credit, Residential Clean Energy Credit, and the Energy Efficient Home Improvement Credit—are scheduled to be eliminated by the end of 2025.

The bill also removes the Clean Electricity Production Credit for expenditures related to wind and solar leasing arrangements. However, the legislation includes provisions to begin offering tax credits and expansion support for nuclear energy facilities by the end of 2027.

Trump Accounts

One of the more unique provisions in the OBBB is the creation of a new type of tax-advantaged investment account. Initially introduced as the “Money Account for Growth and Advancement” (MAGA) account, the final legislation designates these as “Trump Accounts.” These tax-deferred accounts are intended to benefit individuals under the age of 18 and must be formally designated as Trump Accounts at the time of establishment. These accounts will be classified as a type of Individual Retirement Account (IRA).

Each child born between January 1, 2025, and December 31, 2028, will receive a $1,000 prefunded contribution into a Trump Account. Additional contributions may be made until the beneficiary turns 18, after which the beneficiary is permitted to make distributions up to age 25. Aggregate distributions are limited to 50% of the account value as of the beneficiary’s 18th birthday. If used for qualified expenses, growth on distributions will be taxed at long-term capital gains rates.

Qualified expenses include higher education costs, postsecondary credentialing, small business expenses funded by small business or farm loans, and first-time home purchases for a principal residence. Contributions are capped at $5,000 per year, indexed annually for inflation. Charitable organizations may also contribute to Trump Accounts without being subject to the same limits as parents, and employer contributions are excluded from the employee’s taxable income.

While the $1,000 seed funding offers an immediate benefit to qualifying newborns, the long-term value of these accounts compared to existing options—such as 529 plans—remains uncertain. For college savings, 529 plans still offer more favorable tax treatment due to tax-free qualified withdrawals.

However, Trump Accounts introduce flexibility by supporting entrepreneurial or homeownership goals in lieu of traditional education pathways. Certain administrative and operational details remain pending, as the Treasury Department is tasked with finalizing the rules prior to the accounts taking effect, which is scheduled for 12 months following the OBBB’s enactment.

Impacts to Businesses

Bonus Depreciation

A major win for small businesses under the OBBB is the reinstatement of full 100% bonus depreciation. Beginning after January 19, 2025, any qualifying property placed in service will be eligible for a 100% deduction in the year of purchase. This provision reverses the phase-out schedule that began in 2023 and was originally set to eliminate the deduction entirely after 2026.

Section 179 Deduction

The OBBB also increases the maximum allowable Section 179 depreciation deduction to $2.5 million, with the phase-out threshold at $4 million.

Third Party Transactions

In an era of increasing government oversight of third-party transactions, the OBBB rolls back the current reporting requirement for Form 1099-K. The threshold, currently set at $600, will revert to the previous $20,000 threshold. A 1099-K will also be required if the aggregate number of transactions exceeds 200 in a calendar year.

1099 Reporting

The OBBB also modifies the 1099 filing requirement for contract workers. Under current law, businesses must issue a 1099 to any contractor earning more than $600 in a year. The OBBB raises this threshold to $2,000, with annual inflation adjustments beginning in 2026.

Employee Education Assistance

For businesses supporting employee education, the OBBB makes permanent the exclusion for employer-provided educational assistance. Originally set to expire in 2026, this provision is now permanent and will be adjusted annually for inflation. The current exclusion allows up to $5,250 in employer-paid education expenses.

Employer-Provided Dependent Care Credit

The TCJA included incentives for businesses to assist employees with dependent care costs, and the OBBB enhances those provisions. The percentage of qualified dependent care expenses eligible for the credit increases from 25% to 40%. Additionally, the maximum allowable credit is raised from $150,000 to $500,000, with future increases indexed for inflation.

Other Business Items

The OBBB includes several provisions that will impact how large businesses, particularly those operating internationally, manage taxation and deductions. The bill introduces changes related to international tax rules and the treatment of Net Operating Losses (NOLs), along with clarifications to the use of the percentage-of-completion method for accounting on construction contracts.

Opportunity Zones, originally created under the TCJA, are made permanent under the OBBB; however, the definition of “low income communities” will be narrowed beginning in 2027. The bill also modifies the treatment of research and development expenses, making it more favorable for companies that conduct R&D activities within the United States.

To further support domestic manufacturing, the OBBB creates a 100 percent deduction for “qualified production property” related to real property used in manufacturing. This deduction complements the Advanced Manufacturing Investment Credit, which is increased from 25 percent to 35 percent starting in 2026.

Finally, the bill permanently extends and enhances the gain exclusion for qualified small business stock under Section 1202. The exclusion increases from 50 percent to 75 percent, and for investments held longer than five years, the exclusion rises to 100 percent.

Things we did not get in the OBBB

Health Savings Accounts (HSAs)

Most of the HSA-related provisions included in the originally passed House version of the bill were ultimately removed from the final legislation. Among the discarded proposals were increases to HSA contribution limits, permission for individuals over Medicare eligibility age to continue contributing, the ability for non-working spouses to open their own HSA under the working spouse’s plan, and the expansion of what qualifies as a reimbursable medical expense.

Health Reimbursement Arrangements (HRAs)

Another provision that did not make it into the final version of the OBBB was the inclusion of the Individual Coverage HRA. This provision would have addressed outstanding issues related to these relatively new employer-sponsored accounts, which are funded solely by the employer, offer tax-deductible contributions, and allow funds to be invested and used for out-of-pocket medical expenses. The exclusion of this clarification is a setback for these new accounts, which continue to navigate compliance with the Public Health Services Act.

Social Security Taxation

For many Social Security recipients, the OBBB falls short of the widely discussed goal of eliminating taxation on Social Security benefits. While the bill does reduce taxes for some retirees through other provisions, such as temporary senior deductions and extended rate cuts, it does not eliminate the taxation of Social Security income. Up to 85 percent of Social Security benefits may still be included in taxable income. This provision remains unchanged in the OBBB, and there appears to be little momentum toward its removal in future legislation.

Expanded Use of Tax Professional Contingent Fees

A provision originally included in the House version of the bill was removed from the final OBBB. The proposed language would have allowed tax professionals to collect contingent fees, stating that governing bodies “may not regulate, prohibit, or restrict the use of a contingent fee in connection with tax returns, claims for refund, or documents in connection with tax returns or claims for refund prepared on behalf of a taxpayer.”

Its removal was a welcome revision, as the loosening of such restrictions could have opened the door to professional abuse, fraud, and a decline in public trust in the tax preparation industry.

Conclusion

While this article covers the majority of the key provisions included in the OBBB, there are several highly specific measures related to international taxation, transfer taxes, and administrative requirements that are not addressed here, as they are unlikely to affect typical individual or small business taxpayers.

It is important to note that not every adjustment, extension, or change outlined above will apply universally. We encourage you to contact our team at Rhame & Gorrell Wealth Management to review how these updates may impact your personal or business tax situation and to explore opportunities to fully benefit from the new tax code.