On July 4, 2025, President Trump signed into law the One Big Beautiful Bill (OBBB) Act, following its passage in both the House of Representatives and the Senate. This legislation makes many provisions of the 2017 Tax Cuts and Jobs Act (TCJA) permanent and introduces a host of new rules that affect individual taxpayers. Below is a breakdown of the most significant changes:
Tax Rates & Standard Deduction
- The TCJA tax rates (10%–37%) are made permanent.
- For 2025, standard deduction amounts are:
- $15,750 for single filers
- $23,625 for heads of household
- $31,500 for married filing jointly (MFJ)
- A temporary $6,000 personal exemption deduction is available for taxpayers age 65 and older through 2028, with a phaseout beginning at modified adjusted gross income (MAGI) of $75,000 ($150,000 for joint filers).
New Temporary Deductions
- Qualified Tips: Up to a $25,000 annual deduction for employees and independent contractors. Phaseout begins at $150,000 MAGI ($300,000 for joint filers). A list of eligible occupations is expected later this year.
- Overtime Compensation: Deduct up to $12,500 per taxpayer ($25,000 for joint filers). Phaseout begins at $150,000 MAGI ($300,000 joint).
- Vehicle Loan Interest: Deduction of up to $10,000 for interest on loans for new U.S.-assembled passenger vehicles, applicable to debt incurred after 12/31/2024. Phaseout begins at $100,000 MAGI ($200,000 joint).
- SALT Deduction: The State and Local Tax deduction cap increases from $10,000 to $40,000 for 2025–2029, with a phaseout beginning at $500,000 AGI. The cap and phaseout threshold will be adjusted annually by 1% starting in 2026.
Itemized Deductions
- Individuals who do not itemize deductions on Schedule A can deduct up to $1K ($2K jointly filed) for qualified charitable contributions beginning in 2026.
- For taxpayers who itemize deductions, charitable contributions for the tax year are reduced by .5% of adjusted gross income
- Permanently eliminated miscellaneous itemized deductions with an exception for unreimbursed employee expenses for qualified educators
Expanded Credits & Deductions
- Child Tax Credit: Made permanent and increased to $2,200 per child, with inflation adjustments starting in 2026.
- Child and Dependent Care Credit: Increased to 50% of qualifying expenses beginning in 2026, with a phaseout starting at $15,000 AGI.
- Pretax Care Contributions: The employee contribution limit for qualifying childcare and elder care expenses increases from $5,000 to $7,500 beginning in 2026.
- 529 Plan Expansion: Qualified uses now include homeschooling, post-secondary credentialing, and educational therapies for students with disabilities. The K–12 withdrawal limit increases from $10,000 to $20,000 starting in 2026
Clean Energy Credits
- Accelerated phaseouts of existing subsidies:
- Clean vehicle credits expire September 30, 2025
- Alternative fuel refueling property credit ends June 30, 2026
- Home energy and residential clean energy credits expire December 31, 2025
Trump Accounts
- New tax-favored accounts created to benefit young-adults for education, business investments and first home purchases.
- US Government will fund accounts with one-time $1,000 for all US Citizens born between 1/1/25-12/31/28.
- The account has an annual $5,000 contribution limit and must meet account criteria.
- Distributions will be allowed starting when beneficiary turns 18. At age 30, account holders have full access to the account. Distributions for qualified purposes to be taxed at capital gains rates.
Estate and Gift Tax
- The lifetime exclusion for estate, gift, and GST tax permanently rises from $13.99 M in 2025 to $15 M per individual, or $30 M per married couple in 2026. Future increases will be indexed to inflation (using 2025 as the base year)
- This change removes the scheduled “sunset” on the TCJA estate tax breaks at end of 2025, making the higher exemption permanent unless Congress acts again
These new tax laws will have wide ranging impact on all individual taxpayers. Practitioners continue to seek guidance and direction on these new rules, and your Perkins team will provide updates as they become available. Whether you are interested in modeling your tax bill for 2025, or you have specific questions about any of the new provisions, your tax advisor at Perkins is here to help. Contact us today!