How Will the Big Beautiful Bill Affect My Taxes?
No taxes on tips or overtime? Learn how the One Big Beautiful Bill (OBBB) Act adds deductions for workers, permanently extends the Tax Cuts and Jobs Act (TCJA) and includes other changes for individual taxpayers and business owners.
Key Takeaways
On July 4, 2025, the president signed the OBBB into law. The wide-ranging act generally extends the 2017 income tax cuts permanently, though its impact depends on individual circumstances.
The tax act ushers in changes to deductions, exemptions and business tax rules while preserving most saving and investing incentives. It includes some policy changes investors and retirement savers may want to watch.
For many taxpayers, the act will prevent tax increases that would have occurred if the TCJA of 2017 had expired, originally scheduled for December 31, 2025.
Here we summarize select tax provisions of the OBBB Act, that are most applicable to clients and compare them to the prior law. Note that “permanent” refers to no sunset date, and the rules will apply until a future Congress proactively changes them.
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Changes for Individual Taxpayers in the One Big Beautiful Bill
Individual Income Tax Brackets
Before OBBB | With OBBB | |
Tax Rate | The following tax brackets for single filers were set to expire on December 31, 2025, reverting to higher rates in 2026. 10%: $0 to $11,925 | Current income tax brackets are now permanent. |
Inflation Rate | Inflation adjustments used the Chained Consumer Price Index for All Urban Consumers(C-CPI-U). | The inflation adjustment increases by an extra year for the 10% and 12% tax brackets and is considered a small inflation boost for those brackets. |
Effective date: Effective for tax years beginning January 1, 2026. Changes are permanent.
Expanded Standard Deduction
Before OBBB | With OBBB | |
Standard deduction | TCJA doubled the standard deduction as shown. It was set to be cut in half in 2026 by reverting to previous amounts. $15,000 for single taxpayers. $30,000 for married filing jointly. | Made permanent, adjusted for inflation after 2025: $15,750 for single taxpayers. $31,500 for married filing jointly. |
Enhanced deduction for seniors | The deduction of $1,950 for single individuals or $1,550 per qualifying person for married couples was set to phase out at a 20% rate for individuals with $100,000 in income and $200,000 for married filing jointly. | Each qualifying individual 65 years and older will get an additional deduction of $6,000 (for itemizers and non-itemizers), which phases out at $75,000 for single filers and $150,000 for married filing jointly. |
Personal deduction exemption | Eliminated; was set to be reinstated in 2026. | Permanently eliminated. |
Effective dates: For tax years beginning January 1, 2025. Standard deduction and personal exemption changes are permanent. Temporary enhanced senior deduction expires December 31, 2028.
State and Local Tax (SALT) Deductions
Before OBBB | With OBBB | |
State and local tax (SALT) deductions | Itemized deductions were permitted for state and local property taxes, income taxes, and/or sales taxes, limited to an aggregate of $10,000. The limit applied to individuals and married couples; the limit was $5,000 for married filing separately. | SALT deduction increases to an aggregate of $40,000 for five years starting in 2025 and increasing 1% each year through 2029. Phases out at a 30% rate and increases by 1% each year when income exceeds $500,000 to $600,000. The $40,000 limit applies to individuals and married couples; $20,000 limit applies to married filing separately. After 2029, the amount will revert to the TCJA level of $10,000. No impact on the pass-through entity tax (PTET) SALT deduction. |
Effective dates: Effective for tax years beginning January 1, 2025. Provision expires on December 31, 2029.
Mortgage Interest
Before OBBB | With OBBB | |
Mortgage interest deduction | Purchase mortgage maximum of $750,000 ($375,000 for married filing separately). | Maximum amounts are permanent. |
Effective dates: Effective for tax years beginning January 1, 2026. Changes are permanent.
Charitable Contribution Deductions
Before OBBB | With OBBB | |
Charitable contribution deduction for non-itemizers (cash only)** | None | Creates a permanent $1,000 deduction for charitable contributions for non-itemizer single filers; $2,000 for joint filers. |
Charitable contribution deduction for those who itemize (cash only) | Itemized deductions permitted for cash contributions to public charities and certain private foundations up to 60% of the taxpayer’s adjusted gross income (AGI) | Made permanent itemized deductions up to 60% of AGI to public charities and some private foundations. Adds 0.5% AGI floor on itemized deductions for charitable contributions |
Effective dates: Effective for tax years beginning January 1, 2026. Changes are permanent.
Repeal of Pease Limitations
Before OBBB | With OBBB | |
Pease limitations | None. Limitations were repealed and set to revert to apply a 3% reduction rate on itemized deductions in 2026. | Repealed permanently. |
Limit the value of itemized deductions | None | Value is limited to 35% for taxpayers in the top tax bracket, excluding section 199A pass-through deductions for eligible business owners. |
Effective dates: Effective for tax years beginning January 1, 2026. Changes are permanent.
Alternative Minimum Tax Exemption
Before OBBB | With OBBB | |
Alternative Minimum Tax (AMT) exemption | Exemption amounts for 2025 were: • $88,100 for single taxpayers | AMT tax relief extends permanently with exemption amounts adjusted for inflation. |
Reduction | Exemption was reduced (not below zero) to an amount equal to 25% of the amount that the alternative minimum tax income (AMTI) exceeds: • $626,350 for single taxpayers | Exemption reduction reverts to 2018 levels, steepening the claw back for higher-income filers, and increases to 50% of the amount that the AMTI exceeds: • $500,000 for single taxpayers |
Effective dates: Effective for tax years beginning January 1, 2026. Changes are permanent.
Expanded Child Tax Credit
Before OBBB | With OBBB | |
Child Tax Credit | Tax credit up to $2,000 per qualifying child (dependent under age 17) was set to revert to $1,000 in 2026. Phased out at $400,000 for married filing jointly; $200,000 for others. Thresholds were not indexed for inflation. | Tax credit raised to $2,200 per qualifying child (dependent under age 17). Phases out at $400,000 for married filing jointly; $200,000 for others. Thresholds are indexed for inflation. |
Effective dates: Effective for tax years beginning January 1, 2025. Changes are permanent.
**Deductions on tips, overtime, car loan interest, and charitable deductions for non-itemizers do not reduce AGI and do not require the taxpayer to itemize either.
Estates and Trusts
Estate, Gift and Generation-Skipping Transfer Taxes
Exemption | Before OBBB | With OBBB |
Estate and gift tax | $13,990,000 per person in 2025, indexed for inflation, sunsetting at $5 million in 2026. | $15 million per person in 2026, indexed for inflation using C-CPI-U. |
Generation-skipping tax | $13,990,000 per person in 2025, indexed for inflation and sunsetting to $5 million in 2026. | $15 million per person in 2026, indexed for inflation using C-CPI-U. |
Effective dates: Effective for estates of decedents dying or gifts being made after December 31, 2025. Changes are permanent.
New Tax Provisions
Trump Accounts
Before OBBB | With OBBB | |
Trump accounts | None | New tax-free savings accounts are available for children under 18. Children born between January 1, 2025, and December 31, 2028, receive $1,000 for the initial deposit. Parents or others contribute up to $5,000 after-tax dollars annually for children under 18; adjusted for inflation after 2027. Contributions must be invested in a diversified fund that tracks an established index. No distributions are allowed until the beneficiary reaches 18 years old. Between the ages of 18 and 25, up to 50% of the funds can be distributed for qualified education expenses, training programs, small business loans or first-time home purchases. At age 25, the beneficiary can access the entire balance for qualified expenses tax free. Non-qualified expenses will be taxed as ordinary income. At age 30, the beneficiary will have full access to the account with no taxes or penalties. |
Effective date: Effective 12 months after the date of the enactment. Provision is permanent.
Tax Deduction on Tips
Before OBBB | With OBBB | |
Tax deduction on tips** | Tips were taxable income. | Maximum deduction up to $25,000 of qualified tips applies to all filers except married filing separately. Deduction phases out at 10% as income exceeds $300,000 for married filing jointly and $150,000 for others. |
Effective date: Effective for tax years beginning January 1, 2025. The provision expires on December 31, 2028.
Tax Deduction on Overtime
Before OBBB | With OBBB | |
Tax deduction on overtime** | Overtime pay was taxable income. | Maximum deduction up to $25,000 of qualified overtime for married filing jointly; $12,500 applies to all other filers except married filing separately. The deduction is subject to income limitations. |
Effective date: Effective for tax years beginning January 1, 2025. Provision expires on December 31, 2028.
Tax Deduction on Car Loan Interest
Before OBBB | With OBBB | |
Tax deduction on car loan interest** | Personal interest was not deductible. | Maximum deduction up to $10,000 annually on new cars assembled in the U.S. The deduction is subject to income limitations. |
Effective date: Effective for tax years beginning January 1, 2025. Provision expires on December 31, 2028.
**Deductions on tips, overtime, car loan interest, and charitable deductions for non-itemizers do not reduce AGI and do not require the taxpayer to itemize either.
Business Tax Changes in the One Big Beautiful Bill
Before OBBB | With OBBB | |
Section 179 small business expensing | Businesses expensed up to $1.1 million of qualifying property, with a phase-out starting at $2,890,000 (both indexed for inflation). | Permanently increases the maximum to $2.5 million with the phase-out starting at $4 million. The deduction is effective in 2025. |
Bonus depreciation | A 40% deduction in 2025, phasing down to 20% in 2026 and 0% in 2027 until sunset after 2026. | Permanently restores 100% bonus depreciation deduction on qualified assets placed after January 19, 2025. |
Qualified business income section 199A (QBI) | Non-corporate taxpayers (including trust or estate) deducted from taxable income up to 20% of “qualified business income”. Sunset in 2026. Deduction phased out for taxable income between $315,000 and $415,000 married filing jointly ($157,500/$207,500 otherwise). | QBI deduction is permanently extended. $400 minimum QBI deduction if the income is at least $1,000 of business income. Expanded phaseout range is $150,000 income for married filing jointly and $75,000 otherwise. |
Effective dates: Effective for tax years beginning January 1, 2026.
Additional Points of Interest for Small Businesses
Opportunity zones (OZ): The bill establishes a permanent OZ policy, creating a 10-year OZ designation starting in 2027.
Qualified small business stock (QSBS) section 1202: The bill modifies the QSBS exclusion to provide a tiered exclusion determined by the number of years the QSBS stock is held. It also increases the eligibility limits.
Financial Planning and the Big Beautiful Bill
While the OBBB Act does not directly include investing changes, there may be ripple effects that investment professionals will be watching, such as increases in the federal deficit. Individuals may also want to evaluate their tax strategies and estate plans.
Government Policies and Financial Market Activity Can Be Intertwined
Get insights on the intersection of today’s U.S. government policies and the financial markets from our investment professionals.
Definitions
Chained Consumer Price Index for All Urban Consumers (C-CPI-U) supplements existing U.S. Bureau of Labor Statistics inflation indices and reflects the effect of substitutions consumers make in response to rising prices.
Pease limitations, which were permanently repealed in the OBBB Act, reduced itemized deductions for higher-income taxpayers based on their AGI using a reduction formula: the lesser of 3% of the taxpayer's AGI above the threshold or 80% of itemized deductions.
Pass-through entity tax is a state-level tax that certain businesses can choose to pay at the business level instead of having their state and local tax deduction limited at the personal levels.
Section 199A pass-through deductions allow deductions for households with income from sole proprietorships, partnerships and S corporations to exclude up to 20% of their “pass-through business” income from federal income tax. A “pass-through” business is one that is not subject to corporate income taxes.
IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.
This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.