In July 2025, Congress passed the "One Big Beautiful Bill", which changed some key tax code items. These changes affect both individuals and businesses. Below is a breakdown of what's changed!
Please note this is for educational informational use only and is not, in any way, any sort of tax advice or guidance. I am just sharing knowledge!
Increased standard deduction rates - $15,750 for single (vs $15,000 prior) and $31,500 for married filing joint (vs $30,000 prior).
Increased Child Tax Credit from $2,000 per qualifying child to $2,200 per qualifying child.
The Adoption Credit is now refundable, meaning that a portion of it can be included in a taxpayer's refund if it outweighs their tax liability.
Native Tribal governments can now determine if a child has special needs for the Adoption Credit.
Enhancement of the Child and Dependent Care Credit to provide more credit for lower-earning taxpayers.
Enhancement of the Dependent Care Assistance Programs to provide higher limits for employers to contribute to dependent care expenses.
PMI - mortgage insurance premiums - are now deductible for taxpayers who itemize.
Charitable contributions now will only count as a deduction if they exceed 0.5% of a taxpayers income. Taxpayers who take the standard deduction and do not itemize are now eligible for a deduction of up to $1,000 (single) or $2,000 (married filing joint) for charitable contributions.
Itemized deductions for high-income taxpayers (estimated at $600,000 or more in income) now have a percentage cap.
Section 529 plans, which are tax-favored accounts meant for education expenses, have more expenses that qualify, including non-college higher education paths such as training programs. Distributions for K-12 tuition has been increased from a $10,000 limit per student to a $20,000 limit per student.
The Estate and Gift Tax exemption has been increased to $15 million from $5 million.
Casualty losses can now be applied for both federally declared disasters AND state declared disasters if the state determines the damage is severe and widespread enough.
Education credits (American Opportunity, Lifetime Learning Credit) require valid social security numbers. Individual taxpayer identification numbers (ITINs) are no longer accepted for these credits. We are now also required to provide the EIN of the educational institution.
Gambling losses have been limited to 90% of the total losses and cannot exceed winnings. Related gambling expenses, such as travel or lodging, can now count as a ‘loss’
The Premium Tax Credit, which offsets eligible health insurance costs (through the healthcare dot gov marketplace), has been adjusted. Special enrollment periods are now triggered only be life events, not income projections.
The repayment cap on Advance Premium Tax Credit has been removed. Taxpayers are required to repay any and all excess advance tax credits relating to the healthcare Premium Tax Credit.
Bronze and Catastrophic level health insurance plans now qualify as high-deductible health plans and are now eligible for health savings accounts (HSAs).
1. No tax for some qualified tips:
This provision allows up to $25,000 per year in tip income to be deducted from taxable income for qualifying occupations. The IRS is expected to publish a list of which occupations qualify by the end of 2025.
This is a deduction, not an exemption, which means you still have to REPORT the tips as income, but then can subtract them before your tax owed is calculated.
Social Security and Medicare taxes still apply.
This does not apply to required charges (such as automatic service charges) - only to voluntary tips.
There is a phase out for taxpayers whose income exceeds $150,000.
This provision should not require or trigger any withholding changes to paychecks.
This deduction is not available for those who file as Married Filing Separate.
2. No tax on some overtime:
Taxpayers are allowed to deduct up to $12,500 ($25,000 if filing joint with a spouse) of qualified overtime pay from taxable income for years 2025, 2026, 2027, and 2028.
As with tip income, this is not an exemption, it is a deduction. All pay still needs to be reported, but will be adjusted on the tax return before tax owed is calculated.
Social Security and Medicare taxes still apply.
The W-2, which lists your wages and withholdings for each year, will be updated to have a dedicated box for qualified overtime pay.
There is a phase out for taxpayers whose income exceeds $150,000 ($300,000 if filing joint with a spouse).
3. New senior deduction:
For years 2025, 2026, 2027, and 2028, seniors over 65 years of age may claim a $6,000 deduction per qualifying individual.
This amount is reduced for taxpayers whose income exceeds $75,000 ($150,000 if filing joint with a spouse).
Note: There has been some MAJOR confusion regarding this in addition to social security benefits being "not taxable". There are no provisions in the new bill that exempts social security benefits from tax; however, the increased senior deduction may lower your taxable income, which can in turn lower your total tax owed even if your social security benefits are taxable.
4. No tax on some car loan interest:
This provision allows a deduction of interest on new car loans for personal vehicles, up to a $10,000 maximum.
Vehicles MUST be assembled in the United States to qualify.
The loan must be new - issued after Dec 31, 2024 - and for a new, non-preowned vehicle. Refinance loans may qualify as well.
The loan cannot be from a related party (family member).
This amount is reduced for taxpayers whose income exceeds $100,000 ($200,000 if filing joint with a spouse).
The vehicle VIN must be reported on the tax return to qualify.
5. New Trump Account:
This bill creates a new tax-favored savings account for children under 18 called the Trump Account.
These accounts will be similar to individual retirement accounts to encourage long-term savings and distributions are not allowed until after the child turns 18.
There is a $5,000 yearly limit on contributions per child.
Only one Trump account can be opened per child.
Contributions cannot be contributed until after July 4, 2026 due to a one-year provision in the bill.
There are restrictions on which investments qualify to be used with Trump account funds.
Employers can contribute up to $2,500 per year to an employee's child's Trump account, tax-free to the employee.
$1,000 may be provided by the government as a refundable tax credit to 'seed' new Trump accounts for eligible newborns born between Jan 1, 2025 and Jan 1, 2029.
6. "SALT" - State and Local Income Tax - Limits:
The SALT deduction cap, which was originally $10,000, has been increased to $40,000. This means eligible taxpayers who pay state and local income taxes and itemize on their federal tax return may see their itemized deductions outweigh the standard deduction.
There are income restrictions. Taxpayers with income exceeding $500,000 are ineligible for the increased cap.
7. Removal of energy credits:
Credits for electric vehicles and residential clean energy systems are being phased out in late 2025.
The Clean Vehicle Credit, Previously Owned Clean Vehicle Credit, and Qualified Commercial Vehicles Credit are repealed as of Sept 30, 2025.
The Energy-efficient Home Improvement Credit and Residential Clean Energy Credit are repealed as of Dec 31, 2025.
The Alternative Fuel Vehicle Refueling Property Credit, Energy-efficient Commercial Buildings Deduction, and New Energy-efficient Home Credits are repealed as of June 30, 2026.