One Big Beautiful Bill: Tax Law Changes and How They Impact You
See how the “One Big Beautiful Bill” significantly changed the federal income tax landscape. The legislation extended many tax law provisions that were set to expire, added new tax breaks, increased tax credits for families, eliminated tax breaks for “green” energy, and much more.
The One Big Beautiful Bill that passed includes permanently extending tax cuts from the Tax Cuts and Jobs Act, including increasing the cap on the amount of state and local or sales tax and property tax (SALT) that you can deduct, makes cuts to energy credits passed under the Inflation Reduction Act, makes changes to taxes on tips and overtime for certain workers, reforms Medicaid, increases the Debt ceiling, and reforms Pell Grants and student loans. Updates to this article are in process. Check our One Big Beautiful Bill article for more information.
Key Takeaways
- The "One Big Beautiful Bill" (OBBB), also known as the Working Families Tax Cut, makes many of the 2017 Tax Cut and Jobs Act (TCJA) tax law changes permanent, while adding several other temporary and permanent changes to the tax code.
- Some of the OBBB tax law changes are effective for the 2025 tax year (that is, for tax returns filed in 2026), but most of the changes don't take effect until the 2026 tax year or later.
- The OBBB created temporary tax deductions for tip income, overtime pay, car loan interest, and people 65 and older (they only apply for the 2025 through 2028 tax years).
- Starting with the 2026 tax year, people who take the Standard Deduction can deduct up to $1,000 of cash contributions to charitable, religious, educational, scientific, literary, and certain other eligible organizations (up to $2,000 for joint filers).
What is the "One Big Beautiful Bill"?
The "One Big Beautiful Bill" (OBBB), also known as the Working Families Tax Cut, is a broad tax and spending bill that was signed into law on July 4, 2025.
The legislation impacted millions of Americans by permanently extending most of the changes for individual taxpayers from the Tax Cuts and Jobs Act (TCJA) of 2017, adding several new (but sometimes temporary) tax deductions, revising several existing tax breaks, creating a new tax-advantaged savings account for children, repealing several "green" energy tax credits, and making many other changes.
Let's take a look at the most important personal income tax law changes enacted by the OBBB.
What happened to the 2017 tax law changes that were set to expire?
The OBBB permanently extended nearly all of the TCJA revisions affecting individual taxpayers that were set to expire after 2025. The list of now-permanent personal income tax law changes is long and includes (among other things) TCJA provisions that:
- lowered federal income tax rates (10% through 37%)
- raised the Standard Deduction
- increased the Child Tax Credit
- eliminated personal and dependent exemptions
- raised the Alternative Minimum Tax (AMT) exemption amounts
- limited the mortgage interest deduction
- repealed most miscellaneous itemized deductions
- restricted the moving expense deduction to military personnel
- created the Qualified Business Income Deduction
- capped deductions for cash donations to charity
- limited personal casualty loss deductions
- allowed an exclusion for student loans paid by employers
"By extending the TCJA changes, the OBBB stopped many tax code provisions from automatically reverting back to pre-TCJA rules after 2025," says Tyler Courtright, a CPA and TurboTax expert in Frederick, Maryland.
How did the OBBB impact the income tax brackets and the Standard Deduction?
In addition to extending the TCJA lower income tax rates and higher Standard Deduction, the OBBB added additional inflation adjustments to the:
- 12% and 22% tax brackets for the 2025 tax year
- Standard Deduction for the 2026 tax year
This resulted in larger tax brackets and Standard Deduction amounts than would otherwise be available with the normal annual adjustments for inflation.
What new tax deductions and credits were created by the OBBB?
The OBBB created the following new tax deductions and credits:
Tip Deduction – If you qualify, you can deduct up to $25,000 of the qualified tips you receive at work. The deduction is temporary – it's only available for the 2025 through 2028 tax years.
Overtime Deduction – Eligible workers can deduct up to $12,500 of qualified overtime pay, or up to $25,000 for married people filing a joint return. This deduction is only available for the 2025 through 2028 tax years.
TurboTax Tip:
"The tip and overtime deductions sound simple, but there are income phase-outs that can surprise you. I know people who picked up a lot of overtime in one year and didn't realize it pushed them past the threshold. So, run the numbers before you assume you'll get the full deduction." – Tyler Courtright, CPA, Frederick, Maryland
Senior Deduction – If you're at least 65 years old, you can claim a deduction of up to $6,000. If you're married and your spouse is also 65 or older, you can claim up to $12,000 if you file jointly. This deduction is also limited to the 2025 through 2028 tax years.
Charitable Deduction for Non-Itemizers – Beginning with the 2026 tax year, people who take the Standard Deduction can deduct up to $1,000 of cash contributions to charitable, religious, educational, scientific, literary, and certain other eligible organizations. Joint filers can deduct up to $2,000. (If you claim itemized deductions instead of the Standard Deduction, you can still claim the itemized deduction for charitable gifts.)
Car Loan Interest Deduction – If you took out a loan after 2024 to buy a new car, van, truck, or motorcycle, you may be able to deduct up to $10,000 of interest paid on the loan for the 2025 through 2028 tax years. The vehicle's final assembly point must be in the U.S. to qualify for the deduction.
Educator Expense Deduction for Itemizers – Starting with the 2026 tax year, teachers and other eligible educators can claim an itemized deduction for certain unreimbursed expenses, such as books, supplies, and equipment. The above-the-line deduction for educator expenses is still available.
Scholarship Granting Organizations Credit – Beginning with the 2027 tax year, a new tax credit is available for up to $1,700 of contributions to certain "scholarship granting organizations," which are nonprofits that use donations to fund scholarships for eligible in-state students.
| Quick Reference Guide to New OBBB Tax Breaks | ||
|---|---|---|
| Tax Break | Tax Years | Description |
| Tip Deduction | 2025 through 2028 | Workers in occupations that customarily and regularly receive tips can deduct up to $25,000 in qualified tip income. The deduction phases out if your modified adjusted gross income is above $150,000 ($300,000 for joint filers). |
| Overtime Deduction | 2025 through 2028 | Eligible workers can deduct up to $12,500 of the "half" portion of "time-and-a-half" overtime pay (up to $25,000 for joint filers). The deduction phases out if your modified adjusted gross income is above $150,000 ($300,000 for joint filers). |
| Car Loan Interest Deduction | 2025 through 2028 | People who take out a loan after 2024 to buy certain new vehicles with a final assembly point in the U.S. can deduct up to $10,000 per year of interest paid on the loan each year. The deduction phases out if your modified adjusted gross income is above $100,000 ($200,000 for joint filers). |
| Senior Deduction | 2025 through 2028 | People who are 65 or older can claim a $6,000 deduction ($12,000 for married couples if both spouses qualify). The deduction phases out if your modified adjusted gross income is above $75,000 ($150,000 for joint filers). |
| Charitable Deduction for Non-Itemizers | 2026 and beyond | People who claim the Standard Deduction can deduct up to $1,000 of cash donations to charitable, religious, educational, scientific, literary, and certain other eligible organizations ($2,000 for joint filers) without having to itemize. |
| Educator Expense Deduction for Itemizers | 2026 and beyond | Eligible educators who don't take the Standard Deduction can claim an itemized deduction for certain unreimbursed expenses. There is no dollar limit capping this deduction. |
| Credit for Contributions to SGOs | 2027 and beyond | A non-refundable tax credit is available for up to $1,700 of cash contributions to qualifying Scholarship Granting Organizations (SGOs), which are generally nonprofits that fund K-12 educational expenses for eligible students from low- and middle-income families. The program is only available in states that elect to participate and submit a list of approved SGOs to the IRS. |
What existing tax deductions were changed by the OBBB?
In addition to extending TCJA provisions and creating new tax deductions, the OBBB modified the following pre-existing deductions:
State and Local Tax (SALT) Deduction – The OBBB temporarily raised the SALT cap – which is a limit placed on the SALT deduction – from $10,000 ($5,000 for married people filing separately) to $40,000 ($20,000 for married people filing separate returns) for the 2025 tax year. The cap is then increased by 1% each year for the 2026 through 2029 tax years. After that, the cap will revert back to $10,000 for 2030 and thereafter.
In addition, the OBBB imposed a phase-out structure on the increased SALT cap. So, the cap is gradually reduced if your modified adjusted gross income (MAGI) is above a certain amount. However, the cap won't drop below $10,000 ($5,000 for MFS filers).
"Don't just look at the current year's SALT cap in isolation," says Courtright. "Since the cap phases down as income rises and then drops back to $10,000 after 2029, it's a good idea to sit down with a planner and map out a multi-year strategy."
Itemized Deduction for Charitable Gifts – Starting with the 2026 tax year, the OBBB created a 0.5%-of-adjusted gross income (AGI) "floor" for the itemized deduction for charitable contributions. This means you can only deduct eligible donations that exceed 0.5% of your AGI.
The OBBB also increased the deduction for certain whaling captains.
Mortgage Insurance Premiums Deduction – The OBBB reinstates the deduction for mortgage insurance premiums starting with the 2026 tax year (it's treated as deductible mortgage interest). The deduction was previously disallowed for premiums paid or accrued after 2021.
Qualified Business Income (QBI) Deduction – Beginning with the 2026 tax year, the OBBB:
- created a $400 minimum deduction for qualified taxpayers with at least $1,000 of qualified business income
- expanded the deduction's "phase-in ranges"
After 2026, the $400 minimum QBI Deduction and related $1,000 threshold will be adjusted annually to account for inflation.
"The new $400 minimum QBI deduction is a nice floor for smaller business owners who felt like the old rules didn't do much for them," Courtright notes. "It's not a huge dollar amount, but when paired with other business provisions, it can add up."
Moving Expense Deduction – In addition to military personnel, the OBBB allows members of the intelligence community who relocate because of a change in assignment to deduct moving expenses for the 2026 tax year and thereafter.
Gambling Loss Deduction – Beginning with the 2026 tax year, you can only deduct gambling losses up to the lesser of:
- 90% of your gambling losses for the year
- your gambling winnings for the year
Before the OBBB, the deduction was only limited by your gambling winnings (that is, the 90% limit didn't exist).
Casualty Loss Deduction – The OBBB expanded the list of deductible losses to include those from state-declared disasters, in addition to federally-declared disasters. This change is for the 2026 tax year and beyond.
Did the OBBB limit itemized deductions?
For people in the highest (37%) tax bracket, the OBBB reduced the overall amount of itemized deductions allowed by 2/37 (which is slightly more than 5.4%) of whichever of the following amounts is smaller:
- your total itemized deductions
- your taxable income above the threshold for the 37% bracket, plus your total itemized deductions
This reduction is effective for the 2026 tax year and beyond.
What existing tax credits were changed by the OBBB?
In addition to making various TCJA tax credit provisions permanent, the OBBB further modified several federal income tax credits. For example, the OBBB made the following changes:
Adoption Credit – Starting with the 2025 tax year, up to $5,000 of the Adoption Credit is refundable (the $5,000 amount will be adjusted annually for inflation after 2025). Only the non-refundable portion of the credit can be carried forward.
The OBBB also gives Indian tribal governments the same ability as state governments to determine whether a child has special needs for the purposes of the credit.
Child Tax Credit – The OBBB raised the maximum Child Tax Credit from $2,000 to $2,200 per qualifying child for the 2025 tax year. Starting in 2026, the $2,200 amount will be adjusted annually for inflation.
In addition, beginning with the 2025 tax year, you must provide a Social Security number that's valid for employment to claim the credit (you previously only had to provide the qualifying child's Social Security number). If you're filing a joint return, only one spouse needs to provide a Social Security number.
Child and Dependent Care Credit – For the 2026 tax year and beyond, the OBBB increased the maximum percentage of eligible expenses you can claim from 35% to 50%. If your AGI from $15,001 to $75,000, the percentage is gradually reduced – but not lower than 35%. If your AGI exceeds $75,000 ($150,000 for joint filers), the percentage can be reduced to 20%.
Education Tax Credits – Starting with the 2026 tax year, a Social Security number that's valid for employment in the U.S. and issued before the due date of your return (including any extensions) is required to claim the American Opportunity Credit or Lifetime Learning Credit. If you claim either credit for the education expenses of someone other than you or your spouse (such as for your child), the other person's Social Security number is also required.
Energy-Related Tax Credits – The OBBB repealed the following "green" tax credits (repeal effective dates in parentheses):
- Clean Vehicle Credit (vehicles acquired after September 30, 2025)
- Previously-Owned Clean Vehicle Credit (vehicles acquired after September 30, 2025)
- Energy Efficient Home Improvement Credit (property placed in service after December 31, 2025)
- Residential Clean Energy Credit (expenditures made after December 31, 2025)
- Alternative Fuel Vehicle Refueling Property Credit (property placed in service after June 30, 2026)
Premium Tax Credit – The OBBB revised the Premium Tax Credit, and it didn't extend certain credit-related TCJA provisions – but changes to the credit don't all take effect at the same time. Starting with the 2026 tax year:
- The credit isn't available if your income is over 400% of the federal poverty level for a household of your size (the temporary suspension of the 400% cap wasn't extended).
- Advance credit payments that were more than the credit amount allowed must be repaid in full (the amount you had to pay back was previously capped).
- Immigrants who are lawfully in the U.S. can no longer claim the credit if they're not eligible for Medicaid and their household income is below 100% of the federal poverty level (a special provision that allowed them to claim the credit was repealed).
- The credit is not available for people who enroll in a health plan during an income-based special enrollment period that isn't connected to a change in other circumstances beyond just a change in income.
Beginning with the 2027 tax year, immigrants who are lawfully present in the U.S. can't claim the credit unless they're an "eligible alien." Generally, an eligible alien is someone who either:
- has a green card
- is a Cuban and Haitian entrant
- resides in the U.S. under a Compact of Free Association
Finally, starting with the 2028 tax year, certain information – including household income, immigration status, residence, and family size – must be verified before you enroll in a health insurance plan in order to claim the credit. Verification can be waived for someone who enrolls in a health plan during a special enrollment period because of a change in family size.
How did the OBBB impact the Alternative Minimum Tax?
In addition to extending the TCJA's higher exemption amounts, the OBBB makes two additional changes to the Alternative Minimum Tax beginning with the 2026 tax year.
First, the exemption phaseout thresholds are reduced from $1,252,700 (2025 amount) to $1 million for joint filers and surviving spouses, and from $626,350 (2025 amount) to $500,000 for all other taxpayers. The $1 million and $500,000 thresholds will then be adjusted annually for inflation starting with the 2027 tax year.
The OBBB also increased the rate at which AMT exemptions phase out from 25% to 50%.
What type of savings account did the OBBB create for kids?
The OBBB created Trump Accounts, which are a type of tax-advantage savings account that can only be opened for children who are 17 years old or younger. Form 4547 can be used to open an account.
Contributions to a Trump Account are generally limited to $5,000 per year before the year the child turns 18 (the $5,000 amount will be adjusted for inflation each year starting in 2028). You can't deduct contributions to a Trump Account, but funds in an account grow on a tax-deferred basis. As a result, there's no tax on money in the account until it's withdrawn.
In addition, the U.S. government will deposit $1,000 into a Trump Account for eligible U.S. citizens born from 2025 through 2028. Parents and others (including employers) can also contribute to a child's Trump Account up until, but not including, the year the child turns 18. After that point, the child takes control of the account and can put money in it if they have earned income.
You generally can't take money out of a Trump Account until the child is in control of the account. Once that happens, most of the rules governing withdrawals from traditional IRAs apply.
Parents often ask whether a Trump Account or a 529 plan is the better move. "My answer is usually that they're not competing with each other," says Courtright. "If your child qualifies for the government's initial deposit, treat it as a bonus and keep funding the 529 for education costs the way you always have."
What other OBBB changes could affect your taxes?
Additional federal tax changes made by the OBBB that could affect the taxes paid by ordinary Americans include:
- increasing the annual limit on the use of 529 plan funds for elementary, middle, or high school expenses from $10,000 to $20,000 (starting with the 2026 tax year)
- raising the contribution limit for dependent care flexible spending accounts (FSAs) from $5,000 to $7,500 for most people, or from $2,500 to $3,750 for married people filing separate tax returns (starting with the 2026 tax year)
- limiting the exclusion for student loan forgiveness to debt that's forgiven because of the student's death or total disability and requiring a Social Security number to claim the exclusion (starting with the 2026 tax year)
- adjusting the $5,250 annual cap on the exclusion for employer-provided educational assistance each year to account for inflation (starting with the 2026 tax year)
- increasing the amount of ABLE Account contributions eligible for the Saver's Credit from $2,000 to $2,100 (starting with the 2027 tax year)
- expanding the list of "qualified hazardous duty areas" treated as a combat zone for purposes of the exclusion for combat zone pay to include Kenya, Mali, Burkina Faso, and Chad (starting with the 2026 tax year)
- introducing a graduated approach to the exclusion of gain on the sale of qualified small business stock (QSBS) (applicable to QSBS acquired after July 4, 2025)
- raising the reporting threshold for both Form 1099-NEC and Form 1099-MISC from $600 to $2,000 (starting with the 2026 tax year, although the threshold will be adjusted annually for inflation starting in 2027)
- restoring the $20,000 in payments plus more than 200 transactions threshold for issuing Form 1099-K (starting with the 2025 tax year and retroactive to the 2022 through 2024 tax years)
- eliminating the exclusion for qualified bicycle commuting reimbursements from an employee's income (the TCJA temporarily suspended this exclusion for the 2018 to 2025 tax years)
- adding an additional year of inflation adjustments in 2026 for remaining transportation fringe benefit exclusions for rides in a commuter vehicle between a worker's home and work, transit passes, and parking
- allowing farmers to pay the federal income tax on gains from the sale or exchange of certain farmland in equal installments over a four-year period (applicable to sales or exchanges of farmland in tax years beginning after July 4, 2025)
- creating a 1% excise tax on certain money transfers from the U.S. to another country if the sender pays for the transfer by cash, money order, cashier's check, or traveler's check (starting in 2026)
Related questions about OBBB tax law changes
Q1: Did the OBBB eliminate taxes on Social Security benefits?
The OBBB does not eliminate taxes on Social Security benefits. However, the Senior Deduction will reduce the federal income tax bill – potentially to $0 – for many people who receive Social Security. But remember that the Senior Deduction only applies to the 2025 through 2028 tax years, and you can claim it even if you aren't receiving Social Security benefits.
Discover more about the taxation of Social Security benefits.
Q2: How were small businesses impacted by the OBBB?
The OBBB made several changes that could impact taxes for small businesses, including revisions listed in the following table:
| OBBB Change | Tax Year When Effective |
|---|---|
| 100% bonus depreciation restored | 2025 |
| Section 179 limits increased | 2025 |
| Expensing of certain R&D costs allowed | 2025 |
| Business Interest Deduction moved back to the EBITBA standard | 2025 |
| Paid Family and Medical Leave Credit permanently extended and enhanced | 2026 |
| Exceptions to the non-deductibility of certain on-premises meals provided to employees added | 2026 |
| Advanced Manufacturing Investment Credit increased | 2026 |
| Employer-Provided Child Care Credit enhanced | 2026 |
| 1%-of-taxable-income "floor" for a corporation's deduction for charitable contributions established | 2026 |
See how small business owners can reduce their tax bill.
Q3: How will the OBBB affect my taxes?
The OBBB will impact almost every individual taxpayer, but its real-world effect on any one person is based on that person's unique set of facts and circumstances.
Whether you come out ahead, and by how much, depends on many factors, such as your income level, filing status, whether you receive tips or overtime pay, age, whether you itemize or take the Standard Deduction, and more.
Since the OBBB provisions interact differently depending on your specific situation, and several of the new benefits are only temporary, you might want to consult a qualified tax professional to understand how the law affects your own return.
Use the TurboTax Tax Reform Calculator to see how the OBBB changes might affect your tax return.
Q4: Did the OBBB increase the federal estate tax exemption?
The OBBB raised the federal estate tax exemption from $13.99 million for 2025 to $15 million for 2026. As before, the exemption amount will be adjusted annually for inflation.
In addition, since the lifetime gift tax exemption is the same amount as the estate tax exemption, the gift tax exemption is raised, too.
Check out the federal estate tax exemption amounts for previous years.
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