In early July, the federal government passed a sweeping piece of legislation known as the One Big Beautiful Bill Act (OBBBA), introducing a wide range of tax changes that could affect millions of Americans—especially wage earners, retirees, and small business owners. At JHA, our goal is to help you understand how these changes might impact your tax situation.
Standard Deduction and Personal Exemptions
One of the more straightforward changes is the continuation of the higher standard deduction, which was originally expanded under the 2017 Tax Cuts and Jobs Act. For 2025, the deduction has been adjusted for inflation, with amounts ranging from approximately $15,750 for single filers to $31,500 for joint filers. Personal exemptions remain eliminated.
A new, temporary deduction has also been introduced for seniors: taxpayers aged 65 and older may now claim an additional $6,000 deduction through 2028. This could slightly reduce taxable income for retirees, though it may not significantly change overall tax liability for many.
Qualified Business Income
For taxpayers with income from pass-through businesses—such as sole proprietorships, partnerships, and S corporations, the bill includes a few notable updates to the Qualified Business Income (QBI) deduction.
Originally set to expire after 2025, the QBI deduction has now been made permanent. This change may offer more predictability for business owners who rely on this deduction as part of their long-term tax planning strategy.
In addition, starting in 2026, the law introduces a $400 minimum deduction for businesses with at least $1,000 in QBI. The phase-in range for the deduction has also been expanded: for joint filers, it increases from $100,000 to $150,000, and for other filers, from $50,000 to $75,000. These adjustments could modestly broaden eligibility for the deduction, though the overall impact will vary depending on income levels and business structure.
New Deductions for Workers
Two new deductions target specific types of income: tips and overtime. Under the new rules, workers can deduct up to $25,000 in tip income and up to $12,500 in overtime pay (or $25,000 for joint filers). These deductions are subject to income phaseouts and are available even to those who don’t itemize.
While these provisions may reduce taxable income for some, they also introduce new layers of complexity. Taxpayers will need to track and report these income types more carefully, and the IRS may issue additional guidance on how to substantiate these deductions.
Vehicle Loan Interest and SALT Deduction Changes
The bill also introduces a temporary deduction for interest paid on car loans—up to $10,000 annually—if the vehicle is new and assembled in the U.S. This provision is set to expire in 2028 and phases out for higher-income earners.
Meanwhile, the cap on state and local tax (SALT) deductions has been raised to $40,000 for those earning under $500,000. This change may make itemizing more attractive for some taxpayers, particularly in high-tax states, but it’s still a temporary adjustment and could revert in future legislation.
Child and Adoption Tax Credits
The Child Tax Credit has modestly increased to $2,200 per child, with inflation adjustments beginning in 2026. The Adoption Credit has also been expanded, with up to $5,000 now refundable, meaning eligible families could receive that amount even if they owe no taxes.
These changes may offer some relief to families, but they also come with eligibility rules and income thresholds that could limit their impact.
Changes for Gig Workers and Small Businesses
For those earning income through platforms like Venmo, Etsy, or Uber, the bill rolls back the 1099-K reporting threshold to $20,000 and 200 transactions. This change, effective in 2026, may reduce the number of tax forms issued for small-scale sellers and gig workers, but it doesn’t eliminate the requirement to report income.
Looking Ahead
While the One Big Beautiful Bill introduces several tax breaks and adjustments, many of its provisions are temporary and subject to income limits. It also adds new layers of complexity to the tax code, which may increase the need for professional guidance.
As always, we recommend reviewing your individual situation with a tax professional to determine how these changes may affect your filing strategy. If you have questions or want to plan for the 2025 tax season, our team is here to help.
