OBBBA: Key Tax Changes for Individuals

The One Big Beautiful Bill Act” (OBBBA) brings a lot of changes, but for individual taxpayers, five areas stand out as particularly important for understanding their tax situation and planning for the future.

Here are the top 5 areas individual taxpayers need to pay attention to from the OBBBA:

1. Permanent Tax Rates and Standard Deductions:

What it is:

The OBBBA makes the individual income tax rates (10%, 12%, 22%, 24%, 32%, 35%, and 37%) from the 2017 Tax Cuts and Jobs Act (TCJA) permanent, preventing them from increasing as scheduled. Crucially, it also permanently increases the standard deduction amounts (e.g., to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married couples filing jointly starting in 2025), with inflation adjustments. Personal exemptions remain at zero.

Why it matters:

This provides long-term stability and generally lower tax burdens for most Americans. Taxpayers need to be aware of these permanent figures to accurately estimate their taxable income and determine if they should take the standard deduction or itemize. For many, the increased standard deduction will mean they no longer benefit from itemizing.

2. State and Local Tax (SALT) Deduction Cap Increase (Temporary):

What it is:

The cap on the SALT deduction is temporarily raised from $10,000 to $40,000 (increases through 2029) for most filers, with a phase-out for high-income taxpayers. This higher cap is effective through tax year 2029 and will revert to $10,000 in 2030.

Why it matters:

This is a huge win for taxpayers in high-tax states, potentially reducing their federal tax liability significantly. However, the temporary nature of this increase means taxpayers should plan for the reversion in 2030, as it will impact their future tax bills.

3. New Temporary Deductions (2025-2028):

What it is:

The OBBBA introduces several new, temporary deductions:

Tip Income Deduction: Up to $25,000 in qualified tip income is deductible. Subject to a phase out the taxpayer’s modified adjusted gross income exceeds $150,000 ($300,000 for MFJ) and expires in 2028.

Overtime Pay Deduction: Up to $12,500 ($25,000 for joint filers) of qualified overtime pay can be deducted.  Subject to the same phase out based on AGI as the TIP income deduction.

Car Loan Interest Deduction: Up to $10,000 of interest on loans for U.S.-assembled vehicles can be deducted, subject to AGI limits.

Senior Deduction: An additional $6,000 deduction ($12,000 for married couples) is available for taxpayers aged 65 and older, phased out at certain AGI thresholds.

Why it matters:

These deductions offer immediate tax savings for specific groups of taxpayers. However, their expiration after 2028 means taxpayers who benefit should factor this into their short-term financial planning and not rely on them for long-term tax reduction.

4. Child Tax Credit (CTC) and Other Family-Related Credits:

What it is:

The CTC is permanently increased to $2,200 starting in 2026, indexed for inflation. There are also changes to the refundable portion and a permanent $500 dependent credit per qualifying dependent who does not qualify for the CTC. Additionally, “Trump Accounts” are introduced, providing a $1,000 government-funded deposit for children born between 2025 and 2028, with parental contribution limits and tax-free withdrawals for specific uses (education, small business, first-time home purchase).

Why it matters:

These changes can significantly boost the disposable income of families with children and dependents. Families should review the new income thresholds and eligibility requirements for these credits and the “Trump Accounts” to maximize their benefits and plan for their children’s future.

5. Estate and Gift Tax Exemption:

What it is:

The federal estate and gift tax exemption is permanently increased to $15 million per individual ($30 million for married couples) starting in 2026, indexed for inflation.

Why it matters:

While this was set to sunset at the end of 2025, this is highly relevant for high-net-worth individuals and families. It substantially raises the amount of wealth that can be transferred free of federal estate and gift taxes, making estate planning considerably more flexible and potentially reducing future tax burdens for heirs.

Specific rules and limits are connected to many of the provisions in the OBBBA and several changes aren’t mentioned in this article. With proactive planning with your Brady Ware team your specific financial situation can be maximized to the new OBBBA for immediate and longer-term strategies.

There are also benefits and changes for individuals who are business owners that are discussed in our related article on the OBBBA “Business and Tax: The Impact of the One Big Beautiful Bill Act on Business and Business Owners.”

Disclaimer: This article provides general information and should not be considered professional financial or tax advice. Please consult with a qualified CPA or financial advisor for guidance specific to your individual business needs.