Signed into law on July 4, 2025, the One Big Beautiful Bill (OBBB) brought sweeping changes to the federal tax code, under Public Law 119-21. This act extended numerous provisions of the Tax Cuts and Jobs Act (TCJA) that were set to expire at the end of 2025, as anticipated by Jason Wiggam earlier this year. It also ushered in numerous populist policies, such as “no tax on tips and overtime” and a deduction for seniors.
The bill is over 1000 pages long and covers multiple aspects of federal policy. This post outlines some of the most significant changes to taxpayers – and if you need help with your individual or business taxes, we’re here for you. At Wiggam Law, we stay up to date on the latest legislation, ensuring we can provide our clients with the highest level of service at all times.
Key takeaways
- The OBBB made many TCJA provisions permanent, including higher standard deductions, higher estate tax exemptions, and updated tax brackets.
- The OBBB made 100% bonus depreciation permanent.
- The OBBB expanded capital gains exclusions and business eligibility for Qualified Small Business Stock (QSBS).
- The OBBB created a temporary deduction for income tax on tips and overtime – popularly (but incorrectly) referred to as “no tax on tips and overtime”. It also created a deduction for seniors.
- The OBBB also limits wagering deductions for gamblers.
TCJA Changes Made Permanent
The TCJA was signed into law in 2017, and many of its key provisions were set to expire at the end of 2025. The OBBB made the following changes permanent, with slight modifications:
- Standard deduction: The TCJA nearly doubled the standard deduction but only temporarily. The OBBB made those changes permanent, while also increasing the standard deduction to $15,750 for single filers and $31,500 for joint filers for tax year 2025, and indexing the deduction for future tax years to account for inflation.
- Tax brackets: The tax brackets associated with the TCJA were also set to expire. The OBBB made them permanent and tied them to inflation for future tax years.
- Child tax credit: The OBBB preserved the TCJA’s increased child tax credits, while also increasing the maximum credit amount to $2,200 for tax year 2025 and adding inflationary adjustments for future tax years. This credit was set to expire at the end of 2025. The OBBB also expanded the credits for child and adult care, as well as adoption expenses.
- Student loan repayments: Employers can give employees up to $5,250 tax-free for student loan repayments. The OBBB made this previous permanent and tied it to inflation for future tax years.
- Estate tax exemption: The TCJA nearly doubled the estate tax exemption, but it was set to go back to pre-TCJA levels at the end of 2025. The OBBB raised the exemption to $15 million for tax year 2026 and tied it to inflation for future tax years.
- Bonus depreciation: The OBBB made 100% bonus depreciation permanent for qualifying business assets, allowing more businesses to claim 100% of their investments in assets in the year of purchase, rather than delaying depreciation.
- Qualified Business Income (QBI) Deduction: The TCJA created a temporary deduction of 20% of QBI for qualifying small businesses. Also called a 199-A deduction, the QBI deduction was set to expire at the end of 2026, but the OBBB made it permanent.
- Opportunity Zones: The OBBB made capital gains deferrals and rate reductions for OZ investments created by the TCJA permanent. It also expanded the benefits for investments into rural areas and outlined that new OZs will be created every 10 years.
The OBBB also made Low Income Housing Tax Credits (LIHTC) and New Market Tax Credits permanent. LITHCs have been around since the 1980s, but have never been a permanent part of the tax code. New Market tax credits are designed to incentivize investments into certified Community Development Entity (CDE), and they were created by the Community Renewal Tax Relief Act of 2000.
Temporary Tax Code Changes With the OBBB
The OBBB also ushered in several compelling (but temporary) changes to the tax code.
Tax deductions for tip income – “no tax on tips”
Retroactive to the beginning of tax year 2025 and running through the end of tax year 2028, the OBBB offers up to a $25,000 deduction per return against tip income.
Employees and freelancers in professions that customarily receive tips may claim the deduction against tip income. The Treasury has released a long list of qualifying professions, ranging from servers to electricians to digital content creators. The tips must be noted on a W-2, 1099, or other specified statement. Self-employed contractors who are in a specified service that doesn’t qualify for the QBI deduction cannot claim the tip deduction.
This is an above-the-line deduction, meaning that the tips aren’t subject to income tax, but are subject to Social Security and Medicare taxes. The deduction starts to phase out at $150,000 modified adjusted gross income (MAGI) for single filers and $300,000 for joint filers.
Overtime tax deduction – “no tax on overtime”
The OBBB lets individuals claim up to a $12,500 deduction against overtime pay ($25,000 for joint filers). The deduction may only be claimed against the overtime portion of the pay rate (sometimes referred to as the premium portion). For instance, if your hourly rate is $20 and your overtime rate is $30, you can claim a deduction against the $10 of extra pay you get while working overtime.
Like the no tax on tips deduction, the overtime rules apply from tax years 2025 to 2028, and this deduction starts to phase out at $150,000 MAGI for single filers and $300,000 for married couples filing jointly. Married filers may claim up to the $25,000 deduction, even if only one spouse had overtime income.
New senior tax deduction
Under the OBBB, taxpayers age 65 and older qualify for up to a $6000 deduction, available from tax years 2025 to 2028. Colloquially referred to as “no tax on Social Security”, this deduction does not eliminate taxes on Social Security, but it does give all qualifying seniors a break on income taxes.
It’s available to all taxpayers who meet the age requirements, whether they have Social Security income or not. Analysts anticipate that it will allow about 85% of Social Security retirees to avoid paying tax on Social Security income.
The deduction phases out at $75,000 MAGI for single filers and $150,000 MAGI for joint filers.
No tax on car loan interest
The OBBB also offers a temporary tax deduction against car loan interest. Available in tax years 2025 to 2028, the above-the-line deduction is worth up to $10,000 on interest paid on new car loans, and it phases out at $100,000 MAGI for single filers ($200,000 for joint filers).
Expensing for structures.
The OBBB creates a temporary 100% deduction for certain structures associated with the tangible production of goods, beginning construction after January 19, 2025, and before January 1, 2028, and placed into service before January 1, 2031.
Permanent Tax Code Changes Under the OBBB
Like most tax legislation, the OBBB also created many permanent changes to the tax code. Here are just a few of the most significant updates.
New tax ID number requirements to claim tax credits
As of tax year 2025, taxpayers must have a valid Social Security number to claim Child Tax Credits (CTC) or the American Opportunity Tax Credit (AOTC). Prior to the OBBB, taxpayers with Individual Taxpayer Identification Numbers (ITIN) could claim these credits if their dependent had a Social Security number. If filing as married filing jointly, only one spouse needs a valid Social Security number.
1% remittance tax
Effective January 1, 2026, there is a 1% tax on international money transfers initiated with cash, money orders, or cashier’s checks. For example, a $1000 remittance sent through Western Union would be subject to a $10 tax paid by the sender and remitted by the transfer service.
Gambling loss limitations
The OBBB created a 90% limitation on deductions for wagers against gambling income for both professional and casual gamblers. For instance, if a gambler wagered $1 million, they can only claim a deduction of up to $900,000, and in all cases, their deductions cannot exceed their winnings.
This new rule risks creating phantom income for gamblers who break even and increasing taxable income for gamblers with overall wins for the year. The day after the OBBB was passed, lawmakers proposed a bipartisan bill to override this provision.
R&D expensing
The OBBB reversed a provision of the TCJA that required research and development (R&D) investments to be amortized over 15 years. The new law allows businesses to expense 100% of domestic R&D costs in the year they incur the expense – but businesses still must amortize foreign R&D expenses over 15 years.
The change is retroactive to tax year 2022 for qualifying small business taxpayers (defined as businesses with an average annual receipt of less than $31 million), who can opt to amend returns from tax years 2022 to 2024 to expense R&D costs instead of amortizing them.
Otherwise, businesses that amortized R&D costs from 2022 to 2025 may continue to depreciate these costs over five years, claim all of the remaining amortization on their 2025 returns, or split the remaining deduction between their 2025 and 2026 tax returns.
Qualified Small Business Stock (QSBS)
The OBBB expanded the asset cap for C-corporations eligible to issue Qualified Small Business Stock (QSBS) to $75 million, up from $50 million. It also increased the capital gains exclusion for the disposition of QSBS to the greater of $15 million or 10 times the adjusted stock basis and created partial exclusions for investors who sell after three years.
The law maintained the full exclusion for QSBS sold after five years. Previously, the exclusion was worth up to $10 million (or 10 times basis), and there was no exclusion for dispositions that didn’t meet the five-year holding period.
OBBB Implications for 2025 Tax Returns
Many of the OBBB’s changes applied retroactively to the beginning of tax year 2025, potentially creating confusion for individual taxpayers, employers, business owners, and investors. The IRS is offering temporary penalty relief to taxpayers, but the changes will undoubtedly lead to some errors on tax returns.
Consider the following:
- Tips and overtime on income reporting forms – at the time of writing, there has been no IRS guidance on where to report tips and overtime on W-2 or 1099 forms for 2025. However, the IRS has indicated that payers should provide payees with a statement outlining which of their pay relates to tips or overtime. Forms should be updated for future tax years.
- Amending returns to expense R&D amortization – typically, businesses cannot change how they depreciate or amortize assets without IRS approval, because doing so constitutes a change to accounting methods. The OBBB allows qualifying small businesses to amend returns from tax years 2022 to 2025 to expense R&D costs that were amortized on these returns, potentially leading to confusion with tax preparers who are not up-to-date on OBBB provisions.
- Phantom income for gamblers – both professional and amateur gamblers may incur phantom income, which may lead to unaffordable tax liabilities.
- Credit denials – the new rules about which taxpayers may claim child tax credits or education credits may lead to credit denials, especially among taxpayers with ITINs who were eligible to claim these credits in previous years and aren’t aware of the new rules.
- Increased audit confusion for businesses – new rules around bonus depreciation, R&D expensing, QBI deductions, and other business changes may lead to mistakes or confusion on business income tax returns. New rules about tax on tips and overtime may lead to mistakes on payroll returns.
FAQs on the OBBB
When does “no tax on tips and overtime” take effect?
The rules regarding “no tax on tips and overtime” take effect on January 1, 2025, and are currently scheduled to remain in place through tax year 2028. However, these income sources are still subject to some taxes – the verbiage “no tax on tips and overtime” really refers to a tax deduction against tips and overtime for qualifying taxpayers.
Both tips and overtime are subject to FICA taxes and to income tax. But taxpayers may claim a deduction of up to $25,000 per return against tip income. They may also claim a deduction against the premium portion of overtime pay, worth up to $12,500 for single filers and $25,000 for married filing jointly filers against the premium portion of overtime pay. Both of these deductions phase out at $150,000 MAGI for single filers and $300,000 for joint filers.
How will employers handle payroll reporting under the new law?
For tax year 2025, employers should provide employees with a statement that outlines how much overtime and tip income was included in their income, along with their W-2 forms. W-2 forms are likely to be adjusted to account for the tax updates for tax years 2026 through 2028.
Are any energy tax credits still available for 2025 returns?
The Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit are still available for tax year 2025. However, neither of these credits is available for expenditures made after December 31, 2025.
Are Electric vehicle tax credits available in 2025?
Clean vehicle tax credits may be available for certain 2025 vehicle purchases, but they are not available on any vehicles purchased after September 30, 2025.
Get Help Dealing With the IRS
If you are facing an audit or penalties due to confusion about the OBBB, reach out to a qualified tax attorney to help you deal with the IRS. At Wiggam Law, our experienced attorneys stay informed about tax code changes, enabling us to provide the highest level of service to our clients. Get started by calling (404) 233-9800 or using our online contact form.
Sources:
https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors
https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions
https://taxfoundation.org/blog/gambling-losses-tax-big-beautiful-bill/
https://taxfoundation.org/research/all/federal/one-big-beautiful-bill-act-tax-changes/
https://www.irs.gov/newsroom/treasury-irs-provide-penalty-relief-for-tax-year-2025-for-information-reporting-on-tips-and-overtime-under-the-one-big-beautiful-bill
