Part 1: Tax Provision Details and Impact on Individuals

This article is an introduction to the One Big Beautiful Bill Act (OBBBA). This information will give you a better understanding of the key tax provisions affecting businesses and their owners and strategic actions to consider to help benefit your business.

The One Big Beautiful Bill Act¹ was signed into law Friday, July 4, 2025, by President Donald Trump. The bill extends many of the expiring provisions from the Tax Cuts and Jobs Act (TCJA) of 2017. It also addresses other tax priorities of the Trump administration, including providing deductions to eliminate income taxes on certain tips and overtime pay. Below are details of the various tax provisions in the Act, along with some planning opportunities that may be relevant.

Key parts affecting individuals

• Tax Rates: The individual tax rates enacted by the TCJA of 2017 were made permanent with some adjustments to inflation (10%, 12%, 22%, 24%, 32%, 35%, 37%).
• Standard Deduction: The TCJA’s increased standard deduction amounts are now permanent. The standard deduction increases to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married individuals filing jointly. The standard deduction will be adjusted for inflation after that. These changes have been made retroactive to include 2025.
• State and Local Tax Deduction Limitation: (Temporary) The bill temporarily increases the limit on the federal deduction for state and local taxes (the SALT cap) to $40,000 (from the current $10,000) and adjusts it for inflation. In 2026, the cap will be $40,400, and then it will increase by 1% annually through 2029. Starting in 2030, it will revert to the current $10,000.

The Act phases down the deduction for taxpayers with modified adjusted gross income (MAGI) over $500,000 (in 2025 adjusted for inflation through 2029). The phase down will reduce the taxpayer’s SALT deduction by 30% of the amount the taxpayer’s MAGI exceeded the threshold, but the limit on a taxpayer’s SALT deduction could never go below $10,000.

Example: Income above phase out: $600,000 income; itemized deductions of $80,000 (including $40,000 of SALT).

$100,000 AGI above threshold (30% phase out applies). SALT deduction allowed = $10,000 ($100,000 x 30% = $30,000); $40,000 - $30,000. Actual itemized deduction is $50,000 ($10,000 SALT); taxable income of $550,000 ($600,000 - $50,000).

• Child Tax Credit: The bill increases the amount of the nonrefundable child tax credit to $2,200 per child beginning in 2025, indexed for inflation. The bill also makes permanent the $1,400 refundable child tax credit, adjusted for inflation, and makes permanent increased income phase out threshold amounts of $200,000 ($400,000 MFJ), as well as the $500 nonrefundable credit for each dependent of the taxpayer other than a qualifying child.
• Estate and Gift Tax Exemption Amounts: This permanently increases the estate tax exemption and lifetime gift tax exemption amounts to $15 million for single filers ($30 million for married filing jointly) in 2026 and index the exemption amount for inflation after that.
• Alternative Minimum Tax (AMT): The AMT is a parallel tax system with tax rates of 26% and 28% designed to ensure a minimum amount of tax from higher-income individuals who exercise certain stock options (ISOs), have large capital gains, and tax-exempt income from private activity bonds.

The Act permanently extends higher exemption amounts for AMT, meaning more income is exempt from it. The Act also sets income where the AMT exemptions start to phase back out to 2018 levels ($1,000,000 MFJ), indexed for inflation, and increases the phase out rate to 50%. What this means to high-income taxpayers is that because the exemption is higher, fewer will be subject to it; however, for those above the threshold, the income above the phase out threshold is reduced more rapidly and results in those high earners losing the benefit of the exemption at a higher rate.

Example: Income of $1,100,000, which is $100,000 over the AMT exemption (MFJ); AMT exemption would be reduced by $50,000 under this new rule and could result in this taxpayer paying more in AMT.

• Mortgage Interest Deduction: The bill permanently extends the TCJA’s provision limiting the Sec. 163 qualified residence interest deduction to the first $750,000 in home mortgage acquisition debt. It also makes permanent the exclusion of interest on home equity indebtedness from the definition of qualified residence interest. The bill also treats certain mortgage insurance premiums on acquisition indebtedness as qualified residence interest.
• Itemized Deductions Limitation: (New) The bill permanently removes the overall limitation on itemized deductions known as the Pease limitation and replaces it with a new overall limitation on the tax benefit of itemized deductions. Itemized deductions are reduced by 2/37 of the lesser of 1) the amount of itemized deductions or 2) the amount of the taxpayer’s income that exceeds the start of the 37% tax bracket.

Example:

$800,000 of wage income (MFJ), $100,000 in deductions and 37% bracket threshold of $751,600 (this is the rate you pay for income more than this amount in 2025):

Excess income over threshold = $800,000 - $751,600 = $48,400

Lesser amount of $100,000 or $48,400 is $48,400

Reduction calculation: $48,400 x (2/37) = $2,616

Allowable itemized deduction = $100,000 - $2,616 = $97,384

• No Tax on Tips: The bill provides a temporary deduction of up to $25,000 for qualified tips received by an individual in an occupation that customarily and regularly receives tips.
• No Tax on Overtime: The bill provides a temporary above-the-line deduction of up to $12,500 ($25,000 MFJ) for qualified overtime compensation received by an individual during a given tax year. The deduction begins to phase out when the taxpayer’s MAGI exceeds $150,000 ($300,000 MFJ).
• Social Security Taxation: The OBBBA doesn’t change Social Security taxation directly and makes no changes to the Social Security program. Instead, the Act provides a temporary income-based deduction as described below.
• $6,000 Deduction for Seniors: (Temporary) provides a temporary $6,000 deduction under Sec. 151 for individual taxpayers who are age 65 or older. This senior deduction begins to phase out when a taxpayer’s MAGI exceeds $75,000 ($150,000 in the case of a joint return). It will be in effect for the years 2025 through 2028.
• Charitable Provisions: The Act enables more taxpayers to benefit from charitable deductions, even if they do not itemize. For those who do not itemize, it makes permanent and expands the partial deduction $1,000 (single), $2,000 (MFJ) for charitable contributions made by individuals (amounts may be subject to guidance by the IRS). The deduction is called “above-the-line” because it is subtracted from gross income to determine your adjusted gross income (AGI), regardless of whether you itemize.

Example: Assume AGI of $100,000; Assume $2,000 charitable donation (MFJ): Standard deduction 2025 ($31,500) = Total tax deductions of $33,500; Taxable income reduced to $66,500.

For taxpayers who do itemize, the Act provides a 0.5% floor on charitable contribution deductions. Only the amount of charitable contributions that exceeds 0.5% of the taxpayer’s AGI is deductible, thus negating the tax impact of smaller charitable contributions.

Example: $100,000 of AGI; charitable contributions of $3,000; other itemized deductions of $30,000

Allowed itemizations = $30,000 (other deductions) + ($3,000 - $500 AGI floor) = $32,500

The 60% AGI limit on cash contributions to qualifying charities established by TCJA remains unchanged and permanent.

(New) The Act enacts a credit of not to exceed $1,700 to any taxpayer for cash contributions to a qualifying charitable organization that provides elementary and secondary education scholarships. The amount allowed as a credit shall be reduced by the amount allowed as a credit on any state tax return. There is a prohibition on a double benefit, so a taxpayer can take either the deduction or the credit for the charitable contribution to the organization (generally, credits are preferable). There is also a five-year carry forward of unused credit.

Stay tuned for Part 2 of our in-depth analysis of the One Big Beautiful Bill Act.

Download the report

¹ H.R. 1, 119th Cong. (2025) (enacted), available at https://www.congress.gov/bill/119th-congress/house-bill/1/text/eas.

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