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OBBBA Tax Changes

Individuals

Here is a comprehensive summary of the most important changes affecting individuals as of August 25, 2025.
Disclaimer: Some items are likely to change, so please reconfirm any provision you are relying upon.

1. Individual Income Tax Rates and Brackets

  • Permanency of Lower Rates: The lower individual income tax rates and wider brackets introduced by the Tax Cuts and Jobs Act (TCJA) are made permanent. The top marginal rate remains at 37%.

2. Child Tax Credit and Family Benefits (Starting 2025)

  • Expanded Child Tax Credit: The child tax credit is increased to $2,200 per qualifying child, with inflation adjustments for future years.  Stricter Social Security Number requirements apply for both the taxpayer and the child.
  • Dependent Care Credits:  Increases the maximum credit rate from 35% to 50%, while also restructuring the income phaseout table resulting in a more generous tax benefit.

3. Deductions for Working Americans (Temporary, 2025–2028)

  • No Tax on Tips: Up to $25,000 of qualified tips per year may be deducted, subject to income phaseouts of $150,000 single/$300,000 joint.  (Detailed discussion is at the bottom of this page).
  • No Tax on Overtime: Up to $12,500 ($25,000 joint) of qualified overtime pay may be deducted, subject to the same phaseouts. Only the "premium" portion of overtime is eligible.  For example, if an employee earns $22 per hour and earns $33 per hour in overtime, only the excess $11 per hour premium is considered qualified overtime compensation. Social Security and Medicare taxes still apply.
  • No Tax on Car Loan Interest: Up to $10,000 of interest paid on loans for new, U.S.-assembled vehicles may be deducted, with a phaseout starting at $100,000 single/$200,000 joint.

4. Standard Deduction

  • Increased Standard Deduction: The standard deduction is permanently increased:  For 2025, it is $15,750 for single filers, $23,625 for heads of household, and $31,500 for joint filers.   These amounts will be adjusted for inflation in future years.
  • Additional Deduction for Seniors:  A new temporary $6,000 deduction is available for seniors age 65 and older (per eligible individual) for 2025–2028, phased out at higher incomes (over $75,000 single/$150,000 joint).

5. Itemized Deductions

  • State Property, Income and Sales Tax Deduction:  The SALT deduction cap is temporarily increased from $10,000 to $40,000 ($20,000 if filing separately).  This is effective for 2025–2029, and will be indexed for inflation.   There is a phase-down for incomes above $500,000 (but not below $10,000).  
  • Mortgage Interest Cap:  The limitation of this deduction to the first $750,000 of mortgage indebtedness is made permanent.

6. Charitable Contribution Changes (Starting 2026)

  • Charitable Deductions without Itemizing.   A new above-the-line charitable deduction of up to $1,000 ($2,000 joint) is available starting in 2026. Previously, taxpayers could not deduct donations if they used the standard deduction
  • Charitable Deduction Limitations:  For those who itemize, only contributions exceeding 0.5% of AGI are deductible. For example, if your AGI is $100,000, and you are itemizing, the first $500 of donations is nondeductible.  Carryforward of excess rules apply.
  • New Limitation for High Earners:   For those taxpayers in the 37% bracket, itemized deductions are reduced by roughly 5% of the lesser of deductions or income above the 37% bracket threshold.

7. Estate and Gift Tax Exemption

  • Permanent Increase: The exemption is permanently increased to $15 million per individual, effective for estates of decedents dying and gifts made starting in 2026.  This will be indexed for inflation.

8. Other Notable Changes

  • Exclusion for Employer-Paid Student Loans: The exclusion is made permanent, with inflation adjustments.
  • Enhancements to Education-Related Accounts: 529 accounts are expanded to cover more K-12 and credentialing expenses.
  • Marketplace ACA Health Insurance:  Starting in 2025, the Premium Tax Credit income percentage table reverts to the original, less generous schedule, with higher required premium contributions and a hard cap at 400% above the federal poverty line. This means:
    • Taxpayers with income above 400% FPL will no longer be eligible for the Premium Tax Credit.
    • The required percentage of income that must be contributed toward premiums increases, reducing the credit amount for most taxpayers.
    • Starting in 2027, PTC eligibility is restricted to U.S. citizens, nationals, and only certain lawfully present aliens defined as "eligible aliens”.

Small Business

This is a summary of the most relevant modifications made by the OBBBA to deductions, credits, reporting requirements, and other provisions impacting the self-employed for tax years beginning in 2025.

1. Qualified Business Income Deduction (Section 199A)

  • Permanency and Enhancement: The 20% deduction for qualified business income (QBI) is made permanent for non-corporate taxpayers, including sole proprietors.   Previous limitations have been increased making this more valuable for moderate income business owners.
  • Minimum Deduction: A new minimum deduction of $400 is established for taxpayers with at least $1,000 in QBI from businesses in which they materially participate. This minimum is indexed for inflation after 2026.
  • Exclusion of Tip Income in QBI: Amounts deducted for the new tip deduction  (see below) are now excluded from QBI.   This means that sales income will need to be reported separately from tip income.

2. Expensing and Depreciation

  • Bonus Depreciation and Section 179 Expensing: 100% bonus depreciation is made permanent for qualified property. This, plus increased limits of Section 179 allows full expensing of most tangible business assets in the year placed in service, rather than depreciating over several years.
  • Research and Development Expensing: Immediate expensing of domestic research and experimental expenditures is restored and made permanent. Small businesses can deduct these costs in the year incurred, rather than amortizing over five years. 
  • Section 168(n) Expensing for Production Property: A new provision allows 100% expensing for certain nonresidential real property used in qualified production activities (primarily manufacturing facilities), with recapture rules if the property use changes.
  • Paid Family and Medical Leave Credit: The credit is made permanent and expanded to include insurance premiums and state/local paid leave programs.

5. 1099 Reporting Changes

  • 1099 reporting increased from $600 to $2,000:  Starting in 2026, The Form 1099-MISC/NEC reporting threshold is increased to $2,000, indexed for inflation, for payments made after December 31, 2025. This reduces the reporting burden for small businesses making payments to independent contractors and vendors.
  • Third-Party Network Transactions: The de minimus threshold for Form 1099-K reporting is restored to $20,000 and 200 transactions, reducing reporting for small businesses using payment platforms.
  • Tip and Overtime Reporting: New requirements for reporting tips and overtime compensation on IRS forms (including W-2, 1099, and related statements) are established. Businesses must separately account for and report these amounts. The next section goes over the details.

Deduction of Tips

This is a detailed discussion of the tips deduction as it applies to both employees and self-employed individuals (including sole proprietors filing Schedule C).

1. Tip Deduction Overview and Applicable Tax Years

  • The deduction for qualified tips is available for tax years 2025-2028.
  • The maximum deduction per taxpayer per year is $25,000. 
  • The deduction phases out for taxpayers with modified adjusted gross income (MAGI) over $150,000 ($300,000 for joint filers).
  • The deduction is not available for tips that are not properly reported on required forms/statements such as W-2, 1099, or, for self-employed, Form 4137.
  • The IRS makes a distinction between voluntary tips and mandatory service charges in the OBBBA.   For example, an automatic 20% tip charged to a large group would not qualify for this deduction. This will greatly complicate bookkeeping for restaurants.
  • If married, the deduction can only be claimed if the taxpayer and spouse file a joint return.
  • The deduction is available to both employees and self-employed individuals (including sole proprietors).
  • For the self-employed, the deduction is limited to the net income (before this deduction) from the trade or business in which the tips were earned.

2. Eligibility Requirements

  • Must receive cash tips in an occupation that the IRS determines "customarily and regularly received tips".
  • The occupation must be included on a list to be published by the IRS by October 2, 2025. 
  • Social Security and Medicare taxes will still apply.
  • Owners and employees of a Specified Service Trade or Business (SSTB) are not eligible.   This is a trade or business where the principal asset is the reputation or skill of the employee or owner.   Examples are attorneys, accountants, actors, doctors.