Key Changes to Individual Taxes

The One Big Beautiful Bill Act makes several major updates to individual tax rules. These provisions are intended to:

  • Lock in the TCJA of 2017 lower marginal tax rates
  • Prevent automatic rate hikes in 2026
  • Continue tax relief to individuals and families
  • Adjust how bracket thresholds grow with inflation to better target rate brackets

  • Makes the TCJA standard deduction permanent.

  • Personal exemption termination is permanent.
  • New $6,000 senior deduction available for tax years 2025–2028.

Who qualifies?

  • Taxpayers age 65 or older by the end of the tax year.
  • On joint returns, each spouse may qualify separately if both are age 65+

What’s the benefit?

  • $6,000 deduction per eligible senior (2025 through 2028).

Income-based phaseout

The $6,000 deduction phases out at 6% of modified gross income over:

  • $75,000 (single)
  • $150,000 (married filing jointly)

SSN requirement

  • The senior must have a valid Social Security number to claim the deduction.

Joint filing requirement

  • Married individuals must file jointly to claim the senior deduction.

  • TCJA’s increase from $1,000 to $2,000 per child was scheduled to expire after 2025.
  • OBBBA makes the higher credit permanent starting after Dec. 31, 2024.
  • Increases CTC from $2,000 to $2,200 starting in 2025.
  • The $2,200 amount will receive annual inflation adjustments starting in 2026.
  • The refundable portion remains $1,400.
  • Requires the child’s SSN at the time of initial filing.

Effective for tax years beginning after Dec. 31, 2025:

  • Maximum credit rate increases from 35% to 50% for lower-income taxpayers.
  • The applicable percentage decreases based on AGI.
  • Minimum credit rate stays at 20% regardless of AGI.
  • Qualifying expenses still capped at:
    • $3,000 for one qualifying dependent
    • $6,000 for two or more dependents

  • TCJA capped SALT at $10,000 for tax years 2018–2025.
  • OBBBA increases the SALT limit to:
    • $40,000 for 2025
    • $40,400 for 2026
  • SALT cap returns to $10,000 after 2029.
  • Subject to MAGI thresholds for 2025–2029:
    • $500,000 ($250,000 MFS) for 2025
    • $505,000 ($252,500 MFS) for 2026

Allows taxpayers to deduct certain cash tips from taxable income for tax years 2025–2028.

Important: This is an individual income-tax deduction, not a payroll or employer deduction.

Eligibility

  • Individuals who receive cash tips in occupations that customarily and regularly received tips on or before Dec. 31, 2024.
  • Applies to employees and self-employed individuals, but self-employed deduction may be limited if business expenses exceed income.
  • Married taxpayers must file jointly to claim the deduction.

Deduction requirements

  • Tips must be reported on IRS-approved forms.
  • Deduction capped at $25,000 per year.
  • Phases out if modified gross income exceeds:
    • $150,000 (single)
    • $300,000 (joint)
  • Valid SSN required on the return.

Tips must be:

  • Voluntary
  • Not subject to negotiation
  • Determined solely by the customer

Needs clarification: How self-employed taxpayers should separate and report tips vs. business receipts for this deduction. IRS guidance indicates taxpayers must track amounts independently for 2025 filing.

AM I ELIGIBLE FOR THE TAX DEDUCTION FOR TIPS?

Step 1. Did you receive cash tips during 2025–2028?

  • NO → Not eligible.
  • YES → Go to Step 2.

Step 2. Were those tips earned in an occupation that customarily and regularly received tips on or before December 31, 2024? Examples: restaurant servers, bartenders, salon/spa workers, delivery drivers, valets, bellhops, etc.

  • NO → Not eligible.
  • YES → Go to Step 3.

Step 3. Are you married?

  • NO → Go to Step 4.
  • YES → You must file a joint return to claim the deduction. Then go to Step 4.

Step 4. Is your Modified AGI over the phaseout threshold?

  • Single: over $150,000
  • Married filing jointly: over $300,000
  • NO → Eligible for the deduction (up to $25,000 of qualified tips).
  • YES → Deduction is reduced/phaseout applies. You may still get a partial deduction.

Step 5. Do you have a valid Social Security number on the return?

  • NO → Not eligible.
  • YES → Eligible if all prior steps are met.

Reporting note:

  • Employees: report tips to employer; unreported employee tips may require Form 4137 for FICA only.
  • Self-employed: tips are part of Schedule C income and SE tax; you just need to separately track qualified tips for this deduction.

Applies for tax years 2025–2028.

Qualified compensation

“Qualified overtime compensation” means overtime compensation paid to an individual, excluding qualified tips.

Employee deduction on personal return

  • Claimed as an above-the-line individual deduction (not itemized).

Limits

  • Deduction capped at:
    • $12,500 (single)
    • $25,000 (joint)

AGI phaseout

Deduction reduced by $100 for each $1,000 MAGI exceeds:

  • $150,000 (single)
  • $300,000 (joint)

Additional rules

  • SSN required to claim the deduction.
  • Married individuals must file jointly.

Needs clarification: The deduction is intended to apply only to the overtime premium portion (the amount above regular pay).

AM I ELIGIBLE FOR THE OVERTIME DEDUCTION?

Step 1. Did you receive overtime pay during 2025–2028?

  • NO → Not eligible.
  • YES → Go to Step 2.

Step 2. Was the overtime paid as an employee (W-2 wages), not self-employment income?

  • NO → Not eligible for the overtime deduction.
  • YES → Go to Step 3.

Step 3. Are you married?

  • NO → Go to Step 4.
  • YES → You must file a joint return to claim the deduction. Then go to Step 4.

Step 4. Is your Modified AGI over the phaseout threshold?

  • Single: over $150,000
  • Married filing jointly: over $300,000
  • NO → Eligible for the deduction (up to $12,500 single / $25,000 joint).
  • YES → Deduction is reduced/phaseout applies. You may still get a partial deduction.

Step 5. Do you have a valid Social Security number on the return?

  • NO → Not eligible.
  • YES → Eligible if all prior steps are met.

Important note: Only the overtime premium portion (the amount above regular hourly pay) is intended to be deductible.

For tax years 2025–2028.

Interest on a loan used to buy a qualifying passenger vehicle for personal use may be deductible.

To qualify

  • Loan incurred after Dec. 31, 2024
  • Loan secured by a first lien on the vehicle
  • Must include the VIN on the return

Refinancing is eligible only to the extent the refinanced principal does not exceed the original principal.

Limits & phaseout

  • Deduction capped at $10,000 of interest per year
  • Phaseout begins when MAGI exceeds:
    • $100,000 (single)
    • $200,000 (joint)

Qualified vehicle definition

  • Original use by taxpayer
  • Manufactured primarily for use on public roads
  • Treated as a motor vehicle under the Clean Air Act
  • Finally assembled in the U.S. Available to itemizers and non-itemizers.

Available to itemizers and non-itemizers.

Current law

  • Mortgages on/before Dec. 15, 2017: $1,000,000 cap
  • Mortgages after Dec. 15, 2017: $750,000 cap ($375,000 MFS)

NEW law

  • TCJA mortgage interest limits are permanent
  • Mortgage insurance premiums are again treated as deductible interest
  • Changes begin 2026

  • Miscellaneous itemized deductions permanently repealed.
  • New permanent educator expense deduction begins 2026.

Educator expense expansion

  • No dollar cap (formerly $300)
  • Covers coaches and interscholastic sports administrators
  • Includes non-athletic supplies used in instruction
  • Allows costs incurred outside traditional classroom settings

Effect: K-12 teachers, coaches, and administrators may deduct all qualified out-of-pocket instructional costs.

Needs clarification: Interaction between expanded educator deduction and prior misc. itemized educator amounts.

  • $1,000 deposited for a qualifying child born after Dec. 31, 2024 and before Jan. 1, 2029.
  • For beneficiaries under age 18 only
  • Contributions only allowed before beneficiary turns 18
  • Withdrawals begin the year beneficiary turns 18
  • Account must be designated as a Trump Account at setup
  • No contributions allowed for 12 months after enactment (delayed implementation)

Not in effect until July 2026.

Contribution limits & tax treatment

  • Annual contributions capped at $5,000 per beneficiary (inflation-adjusted starting 2028)
  • Contributions may come from parents, employers, charities, and government entities
  • Employer/charitable contributions are non-taxable
  • No tax on earnings or qualified distributions
  • Strict trustee reporting/compliance rules
  • Anti-fraud penalties apply

  • Qualified expense cap expands from $10,000 to $20,000 per student.
  • Adds more K-12, homeschool, and postsecondary credentialing expenses.

Includes

  • Tuition at public, private, or religious schools
  • Curriculum, books, and online materials
  • Tutoring or external classes
  • Standardized testing fees
  • Dual-enrollment college course fees
  • Educational therapies for students with disabilities

Effective for tax years after Dec. 31, 2025.

  • Adoption credit becomes partially refundable.
  • For tax years after Dec. 31, 2024:
    • Up to $5,000 refundable
    • Amount above $5,000 remains nonrefundable and eligible for carryforward (up to 5 years)

  • Clean vehicle credit ends after Sept. 30, 2025
  • Energy-efficient home improvement credit ends after Dec. 31, 2025
  • Alternative fuel refueling property credit ends
  • Energy-efficient commercial buildings deduction ends
  • No new energy-efficient home credit after June 20, 2026

New law starting 2026:

  • Gambling loss deduction limited to 90% of gambling losses
  • Loss deduction still capped at gambling winnings

What You Need to Know and How to Plan Ahead

A new law (H.R. 1, also called the One Big Beautiful Bill Act) changes how charitable donations will be deducted on tax returns. Some changes make giving easier, and others reduce the tax benefit for certain people. Here’s a simple breakdown of how it may affect you.

1. A New Deduction for People Who Don’t Itemize

Starts January 1, 2026

If you don’t itemize your deductions, you will be able to deduct:

    • Up to $1,000 in cash donations, or
    • Up to $2,000 if married filing jointly

This is a brand-new benefit for millions of people who never received a tax break for giving before.

Tip: Start keeping records of your small donations now so you can take the deduction in 2026.

2. A New Minimum Giving Requirement for Itemizers

Starts January 1, 2026

If you do itemize deductions, you won’t be allowed to deduct the first 0.5% of your income donated to charity.

It works like this:

    • Before: Every dollar donated was deductible (within limits).
    • Starting in 2026: A small portion will no longer be deductible. This will affect people differently, but higher-income taxpayers may notice the biggest impact.

Tip: If you plan to give a large amount, consider donating in 2025 to avoid this new rule.

3. A New Limit for High-Income Taxpayers

Starts January 1, 2026

If you are in the highest federal tax bracket (37%), the tax savings from your deductions will be limited to 35%.

This means high-income earners will get a little less tax benefit from the same donation starting in 2026.

Tip: High-income households may want to move 2026 donations into 2025 to get a larger deduction.

4. Helpful Ways to Plan Your Giving

Donor-Advised Funds (DAFs)

A DAF lets you donate money or stock now and decide later which charities get the funds.

    • You get the tax deduction right away.
    • The money can grow over time.
    • You can give to charities whenever you want.

This is a good option if you want to donate in 2025 but spread out your gifts later.

Charitable “Bunching”

This means giving several years’ worth of donations all at once.

    • Can help you get a bigger deduction
    • Helps avoid the new limits in 2026

Example: Give two years of donations in 2025, then skip 2026.

Qualified Charitable Distributions (QCDs)

If you are 70½ or older, you can donate directly from your IRA to a charity.

    • The donation doesn’t count as income
    • It can count toward your required minimum distributions (RMDs)
    • It avoids the new 2026 limits

QCDs are one of the most tax-friendly ways to give for older taxpayers.

The Bottom Line

Most people will still benefit from giving to charity.

  • Nonitemizers get a new deduction starting in 2026.
  • Itemizers may lose a small portion of their deduction in 2026.
  • High-income taxpayers may want to give more in 2025.
  • Tools like DAFs, bunching, and QCDs can help you get the best tax benefit.

Disclaimer

Tax laws are complex and your eligibility depends on your full tax situation. This summary is for informational purposes only and does not replace personalized tax advice