The One Big Beautiful Bill Act - Personal Income Tax Changes

 

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) which includes several provisions that impact taxes and spending.  

Whenever I tell people I'm a CPA, I get a lot of questions about taxes and usually push back that tax is not my area of expertise. This is true - I've never done anyone's taxes other than my own and am not a tax expert. I do, however, have a basic understanding of our tax code and a natural curiosity when there are significant changes in tax legislation.  I've also seen a lot of mis-information being shared online - which is likely in part due to the fact that our US tax code is unnecessarily complicated.  Here's my summary of the most prominent personal income tax provisions of the OBBBA. These are largely sourced through Google Gemini AI , do not cover non-tax spending provisions of the bill and do not include my own personal opinions on the bill (maybe I'll do a separate post on that).

1. Makes Tax Cuts and Jobs Act (TCJA) provisions more permanent - nothing is truly "permanent" in our tax code - it's all subject to future legislation - but most of the first term Trump tax bill (TCJA) provisions were set to expire after this year.  The OBBBA extends these provisions indefinitely - such as the increased standard deduction, elimination of personal exemptions, and lower overall tax brackets.

2. Child tax credit - increased from $2,000 per child under 17 to $2,200 per child for tax year 2025 and will now be indexed to inflation.

3. Charitable contributions - charitable contributions are normally only deductible if you itemize deductions and with the increased standard deductions from the Tax Cuts and Jobs Act (and now OBBBA) it's estimated that only 10% or so of tax payers itemize deductions.  This means that most people see no tax benefit from their charitable contributions. The OBBBA, however, also allows for non-itemizers to reduce their taxable income by their amount of charitable contributions up to $1,000 (single filers) or $2,000 (married filing jointly). So a married filing jointly tax return with $2,000 or more of charitable contributions could see a tax benefit of $440 if they are in the 22% marginal tax bracket.

4. Standard deductions - the standard deduction for married filing jointly is increased for 2025 from $30,000 previously expected to $31,500.

5. Taxes on Tips - The bill allows for a deduction of $12,500 (single) or $25,000 (married filing jointly) on tip income.  This deduction is available to those who those who take the standard deduction as well as itemizers.  It phases out for income above $75,000 (single) or $150,000 (MFJ) and there are provisions to prevent abuse of the deduction such as that the tip cannot be negotiated as part of employment agreement, must be voluntary (i.e. excludes service charges or automatic gratuities), and has to be in an industry where tipping is customary.  Tip income is still required to be reported to employers and is still taxed at a federal level through Social Security/Medicare taxes as well as taxed at a state and local level, as applicable.

6. Taxes on overtime - Overtime is still subject to federal tax, payroll taxes, state taxes.  However, the OBBBA allows for a deduction of up to $12,500 (single) or $25,000 (MJF) for the premium portion of overtime pay. So if someone earning hourly wages works 50 hours in a week, the last 10 hours will typically be paid at time and a half.  The normal wage amount is taxed as normal and the "and a half" portion may be deducted from taxable income assuming your income is below $150,000 (single) or $300,000 (MFJ).

7. Tax on Social Security Income - There is no change to how social security income is taxed.  However, the OBBBA adds a $6,000 additional deduction per taxpayer over the age of 65. So a couple both age 70 filing a joint return would have $12,000 less in taxable income. This deduction starts to phase out for income above $75,000 (individual) or $150,000 (MFJ).

8. SALT tax deduction - SALT stands for State and Local Taxes.  The tax code allows for an itemized deduction of up to $10,000 of state and local taxes, which is increased temporarily to $40,000 from 2025 to 2028 under the OBBBA. This may result in more people itemizing deductions and may benefit those with higher incomes or who live in higher tax state.