On July 4, 2025, the One Big Beautiful Bill Act (Public Law 119-21) was signed into law. It represents one of the biggest changes to the tax code in years and has been driving a lot of our recent client conversations. A few provisions long set to expire have been extended or made permanent, while new deductions, credits, and limits have been introduced as part of the law. For individuals, the changes affect everything from how tips and overtime are taxed, to the treatment of state and local tax (SALT) deductions, standard deductions, senior deductions, and more. We’ll discuss the major tax changes that matter to individuals and cover how the law impacts entities in an upcoming post.
Permanent Extensions & Rate Certainty
The law permanently extends many of the individual income tax rate brackets instituted under the Tax Cuts and Jobs Act (TCJA) of 2017, which had been originally scheduled to expire at the end of 2025. It also makes the larger standard deduction (as expanded under the TCJA) permanent.
Expanded SALT Deduction Cap
Perhaps the most widely discussed (and extensively debated in congress) part of the bill are the changes to the State and Local Income Tax deduction Previously, the deduction for state and local taxes (income, property, sales) was capped at US$10,000 (or US$5,000 for married filing separately). The new law increases the cap to US$40,000 for most taxpayers for tax years 2025 through 2029.
The cap will increase slightly each year (about 1% increases), before reverting down in 2030 unless changed. Note that there is a phase-out: taxpayers with modified adjusted gross income (MAGI) above certain thresholds ($500,000 for single filers; $600,000+ for married) will see the higher deduction reduced. Taxpayers also must continue to itemize their returns to get this benefit.
New Deductions for Tips, Overtime & Auto Loan Interest
“No Tax on Tips” was discussed extensively in the last election campaign and this bill sought to codify it. Regarding Tips, for tax years 2025 through 2028, individuals in occupations that “customarily and regularly receive tips” may deduct qualified tip income. There is a cap, and income thresholds phase out eligibility. The IRS has recently issued further guidance on defining tips and the professions that qualify.
On overtime pay, the bill allows a deduction for the portion of overtime compensation above the regular rate (the “half-time” portion of “time-and-a-half”) for employees required under the Fair Labor Standards Act. Up to $12,500 annually for individuals, $25,000 for joint filers. Phase-outs apply above certain income levels.
Another new feature of the bill is that individuals may deduct interest on a loan used to purchase a qualified personal vehicle (not used vehicles; must be assembled in the U.S.; secured by lien) up to US$10,000/year. Again, this runs 2025-2028 and phases out for higher income taxpayers.
New Senior “Bonus” Deduction
Taxpayers aged 65 and older are granted an additional deduction: US$6,000 per eligible individual (US$12,000 for married couples where both qualify). The deduction phases out for individuals with MAGI above approximately US$75,000 (US$150,000 for joint filers). This deduction is available regardless of whether the taxpayer itemizes or uses the standard deduction.
Changes to Child Tax Credit & Dependent-Related Credits
The maximum Child Tax Credit was increased from US$2,000 per child to US$2,200, indexed for inflation beginning in 2026. Other eligibility/refundable portions are subject to inflation indexing; some stricter rules (e.g. Social Security number requirements) have been reinforced as part of the bill.
Estate, Gift, and Other Individual-Tax Provisions
Estate and gift tax exemption amounts were raised and made permanent, and are now indexed for inflation. Some itemized deductions remain limited for high-income individuals (particularly those in the highest brackets).
Phaseouts, Sunset Dates, and Key Limits
The picture isn’t entirely rosy however. Many of the new deductions (tips, overtime, auto interest, senior deduction) are temporary, and only valid for tax years 2025 through 2028. After that many will expire or require reauthorization. The SALT increase is also temporary, with the higher cap (US$40,000) applying through 2029 then adjusting gradually before reverting. Income thresholds (MAGI) play a major role, as many deductions phase out above certain income levels. As a result, the benefits of the bill are much more significant for lower- and middle-income taxpayers.
What This Means for Tax Planning
Timing matters! For people expecting to utilize deductions like SALT, car purchases, or qualifying overtime/tips, planning to do these in earlier years (2025-2028) could maximize benefit. Be sure to watch income thresholds, and if you expect your MAGI to increase note that you may lose eligibility or see deduction phases.
Interestingly, some of the new deductions are available even if you take the standard deduction, but others (e.g. SALT) require itemizing. We can help advise on which approach makes more sense based on your individual circumstances.
Conclusion
The One Big Beautiful Bill Act reflects a major shift in U.S. tax policy for individuals. Many of the TCJA provisions that were scheduled to end are now secured, while a suite of new deductions and credits targets overtime workers, seniors, and others. Because much of the relief is temporary and subject to phase-outs, careful tax planning is more important than ever. If you believe one or more of these changes could affect your filing situation, now is the time to consult Advington Stone to help support your current return and help to map out a strategy for the next few years.