One Big Beautiful Bill Act: An Overview

Jeremy Springer
Oct 1
5 min read

We know there are tons of questions on how the One Big Beautiful Bill Act (OBBBA) will impact your personal taxes. We have a few of the more impactful changes to personal tax law gathered for you here. We will also be writing other helpful info articles on more specific sections of the OBBBA as well as the impact to businesses. Check back regularly or follow on Facebook to see when those articles are published. Now, let's jump into some of the OBBBA tax law changes.

2025 Key Personal Provisions

Tax-Free Overtime (OT)

Employers must track, then separately report, federally required OT on the W-2 in a special box to be identified by the IRS in future guidance. OT pay continues to be subject to FITW and FICA and may also be subject to SITW (check state laws). From 2025-2028, new code section 225 allows an above-the-line deduction for federally required OT

pay as reported on the W-2, to a maximum of $12,500 for singles and $25,000 for marrieds filing jointly; phasing out at $150,000 AGI for singles and $300,000 for marrieds filing jointly.

Pro Tip: To help employees claim correct OT and tip wage deductions on the 2025 1040, employers should consider voluntarily providing them with their 2025 qualified OT and tips.

Tax-Free Tip Income

Tips are still subject to current employer withholding and reporting, but the following changes may require adjustments to some payroll systems:

From 2025-2028, tips reported on W-2s are an above-the-line deduction of up to $25,000 for employees, regardless of filing status. For 2025, employees with income over $160,000 in the prior year do not get the deduction. Tips must be cash received in an occupation that customarily and regularly receives tips, be voluntary, not be subject to negotiation, and be determined by the payor. Credit card tips and employee tip-sharing arrangements qualify.
Eligible workers can accelerate the benefit by changing their FITW via the W-4.
The IRS will issue a list of tip-earning workers who are eligible for the deduction.
The law lists businesses not eligible for the deduction, such as health, law, accounting and others. The rules are in new code section 224. Section 179. Effective for tax year 2025, the §179 ceiling is $2.5 million (up from $1 million), with phaseouts when qualifying property placed in service during the year exceeds $4 million (was $2.5 million), indexed annually for inflation starting in 2026.

Editor's Note: Both of the above changes impact payroll processing in a significant way. As of the time of publication, there will be no updates on 2025 information returns and withholding tables. This includes forms such as 1099s, 941s and other payroll tax forms and IRS withholding tables. What should your employees do for now? Employees who want to receive OBBBA’s tax-free benefits faster can file updated W-4s to reduce their federal withholding for the rest of 2025. There is a downside though. The risk of miscalculating the amount of their tax-free benefit may result in interest and penalties for under withholding.

Car Loan Interest Tax Deduction

Eligible taxpayers can deduct up to $10,000 in car loan interest on their federal tax return for vehicles purchased between 2025 and 2025. To qualify, the vehicle must be new, assembled in the U.S., and include the VIN on your tax return. There is a phase-out on the deduction based on filing status. Your lending agent will send you a Form 1098 showing the interest paid on the qualifying vehicle.

SALT Deduction Cap Increase

Beginning with tax year 2025 and ending in tax year 2029, the SALT (state and local tax) deduction cap increases to $40,000 ($20,000 for married individuals filing separately). There is a phaseout on the deduction increase when modified adjusted gross income (MAGI) exceeds $500,000 ($250,000 for married individuals filing separately). Beginning in 2026, the deduction cap and MAGI limit is indexed with inflation.

Senior Taxpayer Deduction

Beginning with tax year 2025 and ending with tax year 2028, taxpayers who are 65 years of age or older receive an additional $6,000 deduction. The deduction does phaseout when modified adjusted gross income (MAGI) exceeds $75,000 ($150,000 for married filing joint filers).

Standard Deduction Increase

Beginning with tax year 2025, the standard deduction will increase to $15,750 for single filers, $23,625 for head of household filers, and $31,500 for married filing joint filers. The standard deduction is also set to be indexed with inflation for a more accurate increase each tax year.

Adoption Tax Credit

Taxpayers can now claim a partially refundable tax credit of up to $5,000 for a qualified adoption. This partially refundable credit is also indexed for future inflation.

Bonus Depreciation (for those with a Sch. C)

100% bonus depreciation is permanently reinstated for property acquired after Jan. 19, 2025, and covers most machinery and equipment, computer software and interior improvements to nonresidential buildings and, for certain equipment for agricultural businesses. CPAs handle the other details. Section 179 +bonus depreciation. Businesses can take both §179 and bonus depreciation on the same property. `§179 is applied first, then bonus depreciation on any remaining basis. AIPB note: Check your state law to see if it conforms with federal law on §179 + bonus.

2026 Key Personal Provisions -- What Is on the Horizon

1099 Threshold

The trigger for issuing 2026 1099s is $2,000 in total annual payments to an IC, which will be adjusted for inflation annually starting in 2027.

Qualified Transportation Fringes

As of 2026, the bicycle commuting benefit has been eliminated. Unchanged: transit passes, commuter transportation and qualified parking are still tax-free to employees, but not deductible for employers. Indexing for inflation begins in 2026.

Paid Family and Medical Leave Tax Credit

As of 2026, the tax credit for providing PFML to employees is permanent and enhanced and can be taken for PFML premiums. For benefits to be available the employee must have at least 6 months of tenure (formerly, 1 year) and a part-timer must be employed over 20 hours a week.

Employer-Provided Child Care Tax Credit

As of 2026, the credit is 50% of the cost for small firms. to a maximum of $600,000 (40% for other firms, to a maximum of $500,000). Small firms can pool resources to provide child care collectively. Regardless of whether resources are pooled, third-party contractor costs qualify for the credit.

Mortgage Interest Limit

The limit on mortgage interest deductions is permanent.

Moving Expense Deduction

Made permanent: Elimination of the moving expenses deduction for everyone except members of the military.

Legal Disclaimer: This post contains general information for taxpayers and should not be relied upon as the only source of authority. Taxpayers should seek professional tax advice for more information. This information was current at time of posting; we are not responsible for updating this or any blog post/article for subsequent changes in the law or its interpretation.

A portion of this article originally appearing in The General Ledger Vol. 42, No. 8.

A portion of this article originally appearing in The General Ledger Vol. 42, No. 10.