Effective Starting: January 1, 2026 (unless otherwise noted)
President Trump signed the much-anticipated One Big Beautiful Bill Act (OBBBA) into law—a sweeping tax reform package aimed at simplifying the tax code, supporting American families, and encouraging investment. This legislation brings several key changes to individual income taxes, with adjustments that impact everyone from working professionals to retirees and high-net-worth households.
Below is a breakdown of the major individual tax changes included in the bill:
- Standard Deduction Increased
The standard deduction has been significantly increased, making it more beneficial for most taxpayers to skip itemizing for tax years beginning in 2024:
- Single filers: $15,750 (up from $13,850)
- Married filing jointly: $31,500 (up from $27,700)
- Senior Tax Deduction
Taxpayers who are 65 years or older will receive a $6,000 deduction per individual person. This deduction begins phasing out at modified adjusted gross income of $75,000 for single filers and $150,000 married filing jointly.
- State and Local Tax (SALT) Deduction Cap Raised
The bill increases the SALT deduction cap from $10,000 to $40,000 for joint filers, addressing one of the most debated limitations from the 2017 tax reform. This is especially favorable to taxpayers in high-tax states like California, New York, and Illinois.
In 2026, the cap will increase to $40,400 and then will increase by 1% annually through 2029. The amount of the deduction available to a taxpayer phases down for taxpayers with MAGI over $500,000 (in 2025). The MAGI threshold will be adjusted for inflation through 2029.
- No Tax on Tips
Taxpayers can receive up to a $25,000 temporary tax deduction on qualified tips received by an individual in an occupation that customarily and regularly receives tips. Qualified tips must be voluntarily given by the payee, not required as a condition of receiving service, nor negotiated by the recipient, nor imposed as a specific payment.
The deduction begins to phase out when the taxpayer’s MAGI exceeds $150,000 ($300,000 for joint filers).
- No Tax on Overtime
There will be a temporary tax deduction of up to $12,500 ($25,000 for joint filers) from the bill for qualified overtime compensation received by an individual taxpayer.
- Capital Gains & Dividend Taxes Unchanged
- Long-term capital gains tax rates remain at 0%, 15%, or 20%, depending on income level.
- The 3.8% Net Investment Income Tax (NIIT) still applies to higher earners ($200,000+ single / $250,000+ joint).
There were no increases in capital gains or dividend tax rates, which is a win for investors.
- Expanded Child Tax Credit
To provide additional relief for families, the Child Tax Credit has been temporarily enhanced:
- $2,200 per qualifying child (up from $2,000)
- Deduction begins phasing out at $200,000 for individuals ($400,000 for joint)
- Expanded refundability and eligibility phase-outs adjusted for inflation
This change is effective through 2028.
- Estate & Gift Tax Exemption Increased
- The federal lifetime exemption was raised to $15 million per person (or $30 million per couple)
- This increase is set to sunset in 2030 unless extended
This adjustment offers a valuable opportunity for high-net-worth individuals to pass on more wealth tax-free.
- Adoption Tax Credit
The bill makes a portion (up to $5,000) of the adoption credit refundable. That amount will be adjusted for inflation.
- Increased Dependent Care Assistance Programs Credit
The maximum annual amount excludable from income under a dependent care assistance program increases from $5,000 to $7,500 under the bill.
- Auto Loan Interest Deduction
Taxpayers can receive a tax deduction on vehicle loan interest up to $10,000 for qualified U.S. vehicles. It’s capped at $10,000 and will phase out for taxpayers with MAGI over $100,000 ($200,000 for joint returns). Loans must have originated after December 31, 2024 to qualify.
- Increased Child and Dependent Care Credit
The bill permanently increases amount of the child and dependent care tax credit from 35% to 50% for qualified expenses.
It phases down for taxpayers with AGI over $15,000 and reduced by 1 percentage point (but not below 35%) for each $2,000 that the taxpayer’s AGI exceeds $15,000. It will then be further reduced by (but not below 20%) 1 percentage point for each $2,000 ($4,000 for joint returns) that their AGI exceeds $75,000 ($150,000 for joint returns).
In addition, there will be a $1,000 tax credit for opening a Trump account for a child born between Jan. 1, 2025, and Dec. 31, 2028. The bill appropriates $410 million, to remain available through Sept. 30, 2034, to fund Trump accounts.
- Charitable Contribution Deduction
The bill introduces a charitable contribution deduction for taxpayers who do not elect to itemize, allowing nonitemizers to claim a deduction of up to $1,000 for single filers ($2,000 joint returns) for certain charitable contributions.
- EV Tax Credit Ending
The bill will permanently remove the federal electric vehicle tax credit as of September 30, 2025. This will remove the $7,500 new vehicle tax credit and $4,000 used vehicle tax credit.
Final Thoughts
The OBBBA provides continued tax relief for individuals while expanding some deductions and credits. While it doesn’t overhaul the system, it reinforces many provisions from the 2017 tax reform, with added benefits for families, retirees, and high earners.
If you have further questions about OBBBA and how it may affect you, Wright Ford Young & Co. is here to guide you. Click here to contact us now. You can sign-up for our newsletter here to receive more updates.
- https://www.journalofaccountancy.com/news/2025/jun/tax-changes-in-senate-budget-reconciliation-bill/
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