On July 4, 2025 — America's 249th birthday — President Trump signed the One Big Beautiful Bill Act (OBBBA) into law as Public Law 119-21. The legislation is one of the most sweeping rewrites of the U.S. tax code in nearly a decade, making permanent the lower rates from the 2017 Tax Cuts and Jobs Act that were set to expire, while adding several brand-new deductions that could reduce tax bills for millions of workers, seniors, and families.
Here's a provision-by-provision breakdown of everything that changed and what it means for ordinary taxpayers.
Permanent: Lower Tax Rates and Larger Standard Deduction
Before the OBBBA, the seven tax rates introduced by the 2017 TCJA — 10%, 12%, 22%, 24%, 32%, 35%, and 37% — were scheduled to expire after 2025, reverting to higher pre-2017 levels. The OBBBA made all seven rates permanent. Without this legislation, a single filer earning $60,000 would have seen their marginal rate jump from 22% to 25% in 2026.
The larger standard deduction is also now permanent, with annual inflation adjustments. For 2025, the OBBBA additionally boosted the standard deduction mid-year: single filers can now claim $15,750 (up from $15,000 under prior law), and married couples can claim $31,500 (up from $30,000).
New: No Tax on Tips (2025–2028)
One of the most talked-about provisions of the OBBBA is the deduction for qualified tips. Starting with tax year 2025 — meaning you can claim it on the return you filed this spring — workers in eligible tip-receiving occupations can deduct up to $25,000 in tips per year from their federal taxable income.
Eligible occupations are those the IRS determined customarily and regularly received tips on or before December 31, 2024. The published list includes wait staff, bartenders, salon workers, hotel staff, delivery drivers, personal trainers, and many gig economy workers.
Important details to know:
- The deduction is available whether you take the standard deduction or itemize
- Tips must be reported on Form W-2, 1099-NEC, 1099-MISC, 1099-K, or Form 4137
- You must have a Social Security number to qualify
- The deduction phases out for earners with MAGI above $150,000 ($300,000 for married filing jointly)
- A new Schedule 1-A is used to claim this and the other new deductions
For a server who earns $20,000 in tips annually and is in the 22% tax bracket, this deduction could save approximately $4,400 in federal income taxes. Social Security and Medicare payroll taxes still apply to tip income.
New: No Tax on Overtime (2025–2028)
Workers who earn overtime pay — the extra half-pay required under the Fair Labor Standards Act for hours worked over 40 per week — can now deduct the "half" portion of time-and-a-half pay, up to $12,500 per year ($25,000 for married couples filing jointly).
For example, if your regular rate is $25/hour, your overtime rate is $37.50/hour. The deductible "half" portion is $12.50 per hour of overtime worked. For a worker who puts in significant overtime, this could add up to several thousand dollars of shielded income per year.
The overtime deduction phases out for earners with MAGI above $150,000 ($300,000 for married filing jointly) and is also claimable on the new Schedule 1-A.
New: $6,000 Senior Deduction (2025–2028)
Americans age 65 and older who meet income limits can claim an additional $6,000 deduction — on top of the regular standard deduction and the existing extra senior deduction that already existed. For a married couple where both spouses are 65 or older, that's $12,000 in additional deductions.
The senior deduction phases out for individuals with MAGI above $75,000 ($150,000 for married filing jointly). It's available regardless of whether you itemize or take the standard deduction, and it applies to tax years 2025 through 2028.
New: Car Loan Interest Deduction (2025–2028)
Buyers of new vehicles for personal use can now deduct up to $10,000 per year in car loan interest from their federal taxable income. Key qualifications:
- The vehicle must be new (original use starts with the taxpayer — used vehicles don't qualify)
- The loan must have originated after December 31, 2024
- The vehicle must be for personal, not business use
- Lease payments do not qualify
- The deduction phases out for MAGI above $100,000 ($200,000 for married filing jointly)
SALT Deduction Cap Raised to $40,000
The State and Local Tax (SALT) deduction cap — previously $10,000 under the TCJA — has been raised significantly. For 2025 through 2029, taxpayers can deduct up to $40,000 in combined state income tax, property tax, and sales tax (for single filers and married filing jointly with income under $500,000). The cap decreases for higher incomes and returns to $10,000 permanently starting in 2030.
This change is particularly significant for homeowners in high-tax states like California, New York, New Jersey, and Illinois who previously felt the full bite of the $10,000 cap.
New: Trump Accounts for Children (2026–2028)
A new type of tax-deferred savings account for children under 18 was created by the OBBBA. The federal government is making a one-time $1,000 deposit into Trump Accounts for eligible children born between 2025 and 2028. Contribution limits are $5,000 per year (adjusted for inflation). Employers may also contribute up to $2,500 per year tax-free. Funds cannot be withdrawn until the child turns 18.
Expanded Adoption Credit
The maximum adoption credit for 2026 is $17,670 — up from $17,280 in 2025 — and up to $5,120 of the credit is now refundable, meaning families who adopt can receive the benefit even if they owe no federal tax.
What Hasn't Changed
Personal exemptions remain at $0 — eliminated by the TCJA and now permanently eliminated by the OBBBA. If you're hoping for a return of the old per-person exemption system, that door is now formally closed.
Use our Tax Refund Calculator to see how the OBBBA's new deductions might affect your 2025 refund — including the new Schedule 1-A deductions for tips, overtime, seniors, and car loan interest.
What the OBBBA Means for Your 2026 Tax Return
The practical impact of the One Big Beautiful Bill Act varies significantly by taxpayer. For a worker who earns tips and overtime, the potential tax savings from the two new Schedule 1-A deductions alone could exceed $5,000 in a single year. For a retiree aged 65 or older at a 22% marginal rate, the $6,000 senior deduction saves $1,320 annually through 2028. For a homeowner in California or New York who previously hit the $10,000 SALT cap with property taxes alone, the expanded $40,000 cap may mean itemizing is worthwhile again for the first time since 2018 -- potentially worth thousands more in deductions.
For taxpayers in none of these categories -- a renter in a low-tax state without tips or overtime income, under age 65 -- the most significant OBBBA benefit is the permanence of the lower tax rates. Before the OBBBA, the TCJA's lower rates were scheduled to expire after 2025, which would have raised marginal rates for most filers starting in 2026. That expiration is now canceled. The rates you pay in 2026 are the same as 2025 -- a continuation, not the increase that many had been anticipating. Use our income tax calculator to model your full 2026 federal tax including any OBBBA deductions you qualify for.