Breaking Down the One Big Beautiful Bill Act
The “One Big Beautiful Bill Act” (OBBBA), often called the “Big Beautiful Bill,” is a sweeping piece of legislation that touches nearly every aspect of American life. Spanning over 800 pages, it introduces changes across the tax code, retirement savings, estate planning, border security, ICE, and government operations. The IRS is expected to issue further clarifications on many provisions, but what’s clear is that this bill brings a wide range of reforms that can impact nearly every household.
Here are just a few of the biggest changes as we understand them:
1. Lower Tax Rates Made Permanent and a Higher Standard Deduction
The bill makes permanent the individual tax rate percentages first introduced by the 2017 Tax Cuts and Jobs Act (TCJA) for the tax year 2025 and beyond; thereafter income brackets will be indexed for inflation annually. The tax rates, as well as brackets for 2025, are as follows:
The top tax rate remains 37% for individual single taxpayers with incomes greater than $626,350 ($751,600 for married couples filing jointly).
35% for incomes over $250,525 ($501,050 for married couples filing jointly).
32% for incomes over $197,300 ($394,600 for married couples filing jointly).
24% for incomes over $103,350 ($206,700 for married couples filing jointly).
22% for incomes over $48,475 ($96,950 for married couples filing jointly).
12% for incomes over $11,925 ($23,850 for married couples filing jointly).
10% for incomes $11,925 or less ($23,850 or less for married couples filing jointly).
Along with this, the standard deduction has been increased slightly to $31,500 for joint filers, $23,625 for heads of household, and $15,750 for single filers for 2025—adjusted annually for inflation going forward.
2. Temporary Deductions (For Tax Years 2025–2028 Only)
Up to $25,000 of tips may be deducted from federal taxable income for those who work in industries where tips are customary. The deduction amount phases out by $100 for each $1000 when adjusted gross income exceeds $150,000 for single filers and $300,000 for joint filers. While the deduction applies to “cash” tips only, the OBBBA broadly defines “cash” tips to include tips paid in cash or charged.
Overtime Pay Deduction: Up to $25,000 of overtime compensation for married filers and $12,500 for single filers may be deducted from federal taxable income. The deduction phases out when adjusted gross income exceeds $150,000 for single filers and $300,000 for joint filers.
Senior Deduction: Mistakenly referred to as a Social Security tax cut, the OBBBA established a temporary income tax deduction of $6,000 per eligible filer for people age 65 or older—provided their modified adjusted gross income does not exceed $75,000 for single filers, or $150,000 for those married filing jointly.
Auto Loan Interest: Auto loan interest is made income tax deductible for new autos with final assembly in the United States. The deduction is limited to $10,000 and phases out when income exceeds $100,000 for single filers and $200,000 for joint filers.
These deductions can help reduce taxable income to support some middle-income earners but will sunset after 2028 unless renewed.
3. Child and Family Benefits
The child tax credit was permanently raised by another $200 to $2,200 per qualifying child for 2025. Beginning in 2026, this will be indexed for inflation. (Earned income must be at least $2,500 in order to claim any child credit.) The OBBBA also makes permanent the $500 nonrefundable credit for other dependents who do not qualify for the child tax credit, including those over the age of 16, and makes permanent a requirement that the child and at least one parent have a Social Security number.
New Trump Accounts: A tax-deferred savings account is meant for American children born between 2025 and 2028. There is a one-time government deposit of $1,000 and families can contribute up to $5,000 per year with investment growth tax-deferred. Employers can also contribute $2,500 to the employee’s eligible dependent child.
4. Permanently Higher Estate and Lifetime Gift Tax Exemption Amounts
The higher federal Estate and Lifetime Gift Tax exemption amounts will no longer sunset in 2026. Instead of reverting to pre-TCJA levels, the OBBB permanently increases the exemption to $15 million per person, or $30 million for joint filers starting in 2026, with the new exemption amount indexed for inflation going forward. The Generation-Skipping Transfer (GST) exemption will match this amount. (For the 2025 tax year, the exemption amount is $13.99 million or $28.98 million per couple.)
5. SALT Deduction Expands Until 2030 and Current Mortgage Interest Deduction Amount Made Permanent
· The deduction cap for State and Local Taxes (SALT) has been increased to $40,000 starting in 2025 and will then climb by 1% annually through 2029 before reverting back to $10,000 in 2030 (phases out for taxpayers with an income over $500,000).
· Qualified residence interest deduction: Originally set to increase to $1 million, the OBBBA modified the limit on the deduction for qualified residence interest to a maximum of $750,000 of home acquisition debt permanently. The disallowance of interest on home equity loans has been made permanent unless loan proceeds are used to buy, build, or substantially improve the home securing the loan.
6. Charitable Deduction Increase for Nonitemizers
The OBBB expands the ability of nonitemizers to take a bigger charitable deduction permanently. The preexisting limit of $300 ($600 for married individuals filing jointly) is increased to $1,000 ($2,000 for joint returns). This above-the-line deduction is available only for cash gifts made to public charities.
7. What’s Ending
While some incentives were expanded or made permanent, others are being phased out. For instance, tax credits for electric vehicles (EVs) end September 30, 2025. Other homeowner tax credits for home energy improvements, such as solar panels, doors and windows, and heat pumps, will end December 31, 2025.
While we’ve only highlighted a few key changes, this bill spans over 800 pages, making it important to stay informed and regularly review your plan. Planning ahead remains foundational, as future shifts or challenges could bring additional changes. More guidance is expected from the IRS in the months ahead.
At Five Pathways Financial, we are here to support you with comprehensive financial services, including tax planning. Please reach out to us at service@fivepathways.com or call us at (480) 933-8300. You can also schedule your own meeting with us here: https://fivepathways.com/virtual-office
This overview is compiled from information believed to be true. This article should not be relied upon for tax or financial advice. Please check with your tax and financial professionals before making any changes to your plan.
Sources:
https://www.fedsmith.com/2025/07/10/what-the-one-big-beautiful-bill-act-means-for-federal-employees/
https://www.whitehouse.gov/articles/2025/07/president-trumps-one-big-beautiful-bill-is-now-the-law/
https://www.cnbc.com/2025/07/11/when-provisions-from-trumps-big-beautiful-bill-go-into-effect.html
https://www.npr.org/2025/07/11/nx-s1-5459955/social-security-megabill-trump-tax-cuts
https://www.calt.iastate.edu/blogpost/one-big-beautiful-bill-act-implements-significant-tax-package
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