The One Big Beautiful Bill (OBBB) is one of the most sweeping tax packages passed in recent history. While it covers a wide range of provisions, many of the immediate changes apply to individual taxpayers. From expanded deductions to credit adjustments, the bill includes several updates that could affect how much you can deduct and how much you owe, starting in the 2025 tax year.
Understanding what’s changing and how long each provision will last is essential for planning ahead. Below, we examine key tax updates and what they mean for individual filers and families.
1. Individual Tax Rates Stay the Same
The income tax brackets introduced in 2018 are now permanent. That includes the top marginal rate of 37%, which will no longer expire or revert under sunset provisions. This creates more certainty for taxpayers who were previously planning around potential rate increases.
For most individual filers, this means no change to their income tax rates in 2025 and beyond. It also reinforces the current structure for long-term planning related to retirement withdrawals, capital gains, and charitable giving strategies.
2. SALT Cap Raised – But Not for Everyone
The cap on state and local tax (SALT) deductions has been raised from $10,000 to $40,000, starting in the 2025 tax year. This increase could significantly improve deductions for taxpayers in high-tax states.
However, there’s an income-based phase-out that starts at $500,000. For filers above that threshold, the benefit is reduced or eliminated entirely. This limits the impact for higher earners who were most affected by the original cap.
The change primarily benefits upper-middle-income households in states like New York, California, and Illinois—those with substantial state tax payments but income under the phase-out limit.
3. Standard Deduction & Itemized Deduction Limits Updated
The increased standard deduction amounts from the Tax Cuts and Jobs Act have now been made permanent. For tax years beginning after 2024, the standard deduction rises to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married couples filing jointly. These amounts will be indexed for inflation starting in 2026.
In addition, the bill eliminates the Pease limitation on itemized deductions and replaces it with a new cap. Under the new rule, itemized deductions will be reduced by 2/37 of the lesser of either the total deductions or the portion of taxable income plus total itemized deductions above the 37% tax bracket threshold.
This change primarily benefits taxpayers who take the standard deduction, while higher-income filers who itemize may face new limits, depending on their income level and deduction type.
4. New Senior Deduction Replaces Personal Exemption
Starting in 2025, taxpayers age 65 and older will be eligible for a $6,000 deduction. This new senior deduction is available through the 2028 tax year and serves as a replacement for the personal exemption, which has been effectively repealed.
For older adults on fixed incomes, this deduction helps reduce taxable income at a time when other deductions, like mortgage interest or dependent credits, may no longer apply. It’s a targeted benefit aimed at retirees and seniors with modest retirement income or limited tax-planning options.
5. New Deductions: Tip Income, Overtime Premiums, Auto Loan Interest
Several new deductions take effect in 2025 that may benefit individuals with hourly income, service-based earnings, or plans to purchase a car
- Tip income deduction: Workers who receive tips can now deduct up to $25,000 of reported tip income from their federal taxable income. This applies only to tips properly reported to the IRS and does not exempt the income from Social Security or Medicare taxes.
- Overtime premium deduction: Taxpayers can deduct the “premium” portion of overtime pay—meaning the extra pay above their standard hourly rate. The deduction is capped at $12,500 for individuals and $25,000 for joint filers, and only applies to income earned through qualifying overtime.
- Auto loan interest deduction: Interest on auto loans can be deducted up to $10,000, but only for personal use vehicles purchased between 2025 and 2028 that are assembled in the United States. Foreign-assembled vehicles are not eligible.
These deductions offer targeted relief but come with strict eligibility rules and caps.
6. Child Tax Credit Expanded and Indexed
The child tax credit has been permanently increased to $2,200 per qualifying child. Beginning in 2025, the credit will also be adjusted annually for inflation, allowing the value to keep pace with rising costs over time.
This provides modest but ongoing relief for families with dependents under age 17. While the increase is relatively small, it adds up for households with multiple children and offers more predictability when planning for future years.
7. 1099 Reporting Threshold Increased
The threshold for issuing Form 1099 has been increased from $600 to $2,000 per calendar year for certain payments to individuals and businesses. This applies to compensation for services and other reportable income. The new threshold takes effect for payments made after 2024 and will be adjusted annually for inflation starting in 2027.
This change reduces the volume of 1099 filings for small payments and lowers the administrative burden for businesses and contractors. Independent workers and service providers should still maintain accurate records for reporting income.
8. Energy-Efficient Tax Credits Are Going Away
Several residential clean energy tax credits are set to expire after 2025, including the energy-efficient home improvement credit and the residential clean energy credit for solar and other renewable systems. Homeowners planning upgrades like solar panels, heat pumps, or energy-efficient windows should consider moving quickly to take advantage of current incentives.
9. Estate Tax Exemption Amount Increased
Beginning in 2026, the federal estate and gift tax exemption will increase to $15 million per individual and $30 million for married couples filing jointly. After 2026, the exemption will be indexed annually for inflation.
This update prevents the exemption from dropping back to pre-2018 levels and provides long-term certainty for high-net-worth families planning to transfer wealth. It also simplifies estate planning by removing the urgency around prior sunset provisions.
10. Charitable Deduction Reinstated for Non-Itemizers
Beginning in 2026, taxpayers who don’t itemize will be able to deduct up to $1,000 in charitable contributions, or $2,000 for joint filers. The deduction applies only to cash gifts made to qualifying charities and excludes contributions to donor-advised funds. It is not indexed for inflation.
This provision restores a version of the above-the-line deduction that was temporarily available under the CARES Act. With the vast majority of taxpayers now taking the standard deduction, this change expands access to tax benefits for charitable giving.
What You Should Do Now
The changes covered here are not exhaustive. The OBBB is extensive and also includes updates to qualified business income (QBI) deductions, the alternative minimum tax (AMT) exemption, limits on wagering losses, charitable contribution rules, ABLE accounts, and more.
With so many changes taking effect in 2025, and some provisions phasing in or out over time, working with a knowledgeable tax professional is the best way to understand how these updates impact your individual situation.
The Hechtman Group can help you evaluate your eligibility, prepare for key deadlines, and build a plan that makes the most of the updated tax code.