Key Changes for Individuals and Businesses Under the OBBBA
By: Tax Hotline
Summer 2025 (Vol. 43, No. 2)
On July 4, President Trump signed into law the One, Big, Beautiful Bill Act (OBBBA). Here’s a rundown of some of the main tax law changes to be aware of as you plan for the 2025 tax year.
Tax Law Highlights for Individuals
Makes permanent the TCJA’s individual tax rates of 10%, 12%, 22%, 24%, 32%, 35% and 37%.
Makes permanent the near doubling of the standard deduction, plus for 2025 increases it to $15,750 for single filers, $23,625 for heads of households and $31,500 for joint filers, with annual inflation adjustments going forward.
Makes permanent the higher child tax credit, plus for 2025 increases it to $2,200, with annual inflation adjustments going forward.
Temporarily increases the limit on the deduction for state and local taxes (the SALT cap) to $40,000 for 2025, with a 1% increase each year through 2029, after which the $10,000 limit will return.
Expands the allowable education expenses that can be paid with tax-free Section 529 plan distributions, beginning July 5, 2025, or Jan. 1, 2026, depending on the type of expense.
Permanently increases the federal gift and estate tax exemption amount to $15 million for individuals and $30 million for married couples beginning in 2026, with annual inflation adjustments going forward.
For 2025–2028, creates a new deduction of up to $25,000 for tip income in certain industries, subject to income-based phase outs.
For 2025–2028, creates a new deduction of up to $12,500 for single filers or $25,000 for joint filers for qualified overtime pay, subject to income-based phase outs.
For 2025–2028, creates an above-the-line deduction of up to $10,000 for qualified passenger vehicle loan interest on the purchase of certain American-made vehicles, subject to income-based phase outs.
For 2025–2028, creates an additional deduction of up to $6,000 for taxpayers age 65 or older, subject to income-based phase outs.
Eliminates clean energy tax credits, generally after 2025, such as the energy-efficient home improvement and residential clean energy credits — but eliminates the clean vehicle credits for both new and used vehicles after Sept. 30, 2025.
Tax Highlights for Businesses
Makes permanent and expands the 20% Sec. 199A qualified business income (QBI) deduction for owners of pass-through entities (such as partnerships, limited liability companies and S corporations) and sole proprietorships.
Makes bonus depreciation permanent and increases it to 100% for qualified new and used assets acquired after January 19, 2025.
Increases the Sec. 179 expensing limit to $2.5 million and the expensing phaseout threshold to $4 million for 2025, with annual inflation adjustments going forward.
Permanently allows the immediate deduction of domestic research and experimentation expenses (retroactive to 2022 for eligible small businesses).
Eliminates clean energy tax incentives, such as the alternative fuel vehicle refueling property credit and the Sec. 179D deduction for energy-efficient commercial buildings after June 30, 2026 — but eliminates the qualified commercial clean vehicle credit after Sept. 30, 2025.
The Bill wasn’t just about taxes, some other notable changes include:
Medicaid & SNAP Overhaul
- Work requirements: Able-bodied adults must work 80 hours/month to qualify for Medicaid starting Jan 2027.
- Eligibility checks: States must verify Medicaid eligibility twice a year.
- SNAP restrictions: Work requirements extended to ages 55–64, and benefits limited to legal residents.
Education & Student Loans
- Federal school voucher program: Tax credits for donations to scholarship organizations; available to families earning up to 300% of area median income.
- Cuts to Department of Education: Staff reduced by half; $7 billion in grants withheld pending review.
- Student loan reforms: Pell Grants and loan forgiveness programs restructured.
Housing Market Boosts
- Mortgage insurance deduction: Restored for qualifying homeowners.
- Low-income housing tax credit: Expanded to support affordable rental development.
- Opportunity Zones: Made permanent to encourage investment in underserved areas.
Defense & Border Security
- $153 billion increase in defense spending, including funding for the Golden Dome missile defense system.
- $150 billion for border security, including wall completion, detention centers, and deportation efforts.
Q: With the new law, how will overtime be taxed?
A: Under OBBBA, individuals who work hours exceeding the standard 40 hours per week will not pay federal income tax on the additional earning from overtime. If you get paid time and a half for extra hours, the “half” is exempt. For example, let’s say your base pay is $20 per hour and you get $30 per hour for overtime. The extra $10 is exempt. The tax break phases out for income over $150,000 for individuals and $300,000 for couples. You won’t see an immediate change in your take home pay; this is a deduction that will reduce your tax liability when you file your return (or increase your refund).
Q: How will tips be taxed?
A: Like the overtime scenario, employers will still withhold the tax and include tips on W-2 forms and non-employee 1099 forms. They will also continue to withhold Social Security and Medicare taxes as usual. You will claim the new deduction at tax time to reduce your tax bill or increase your refund. For example, a single bartender earning $18,000 in wages and $22,000 in tips would not owe federal tax on the $22,000 which equals a savings of $2,400 in federal income taxes.
Q: I am 65 but I am not drawing Social Security. Will I still get a $6,000 additional tax deduction in 2026?
A: Yes, the deduction is based on age. Until 2029, there will be a deduction of $6,000 for each individual who is age 65 or older, effective 2025. The $6,000 will be reduced by 6% of the amount by which your adjusted gross income exceeds $75,000 ($150,000 for those filing jointly).
Q: I am a team Mom for my son’s baseball team and in 2024, I received PayPal payments from parents for events or gifts I organized for the players. I received a 1099-K and had to explain that on my tax return. How can I avoid this going forward?
A: You received a 1099-K in 2024 because the IRS lowered the reporting threshold for payments received through third party settlement organizations like PayPal, Venmo, eBay, and Etsy. The OBBBA raises the 1099-K form limit from $600 threshold to $20,000 and 200 transactions. This should help alleviate your problem.
In addition, for Forms 1099-MISC and 1099-NEC (Miscellaneous Information and Nonemployee Compensation), the reporting threshold has been raised to $2,000 for tax year 2026 and will be adjusted annually for inflation starting in 2027.