Taxpayer’s Guide to the “One Big Beautiful Bill”

Time is funny. It feels like just yesterday that I was a year and a half into my career at Bedel Financial, diving into the freshly signed Tax Cuts and Jobs Act of 2017 (TCJA) to figure out what it meant for our clients. Fast forward seven years, and history has a way of repeating itself. Now, I find myself creating a breakdown of the "One Big Beautiful Bill" (OBBB).

The New

Let's start with the new provisions that have been making the headlines. These provisions apply to the 2025 tax year and expire after 2028.

• No Tax on Tips. The OBBB creates a deduction of up to $25,000 for cash tips. This deduction applies to workers in tip-reliant roles such as servers, bartenders, hairdressers, barbers, and nail technicians.
  
  However, the benefit phases out once adjusted gross income (AGI) exceeds $150,000 for single filers or $300,000 for married taxpayers. It's essential to note that this deduction applies only to federal income tax. State income tax will continue to be paid on tips as well as payroll taxes (Medicare and Social Security).

• No Tax on Overtime. Another popular provision is the partial exemption for overtime pay. Single filers can deduct up to $12,500 of the premium portion of their overtime pay and married taxpayers can deduct up to $25,000.
  
  For example, if your base pay is $20 per hour and your overtime rate is $30, the $10 premium is eligible for deduction. This benefit follows the same income phaseout rules as the tip deduction and, like the tip provision, does not apply to payroll or state taxes.

• No Tax on Social Security via Increased Deduction. Beginning this year, single taxpayers aged 65 and older with a Modified Adjusted Gross Income (MAGI) up to $75,000 can claim an additional $6,000 deduction. Married couples can claim the deduction for each qualifying spouse, with a MAGI threshold of $150,000. The deduction phases out as income exceeds those limits. This deduction is available whether you take the standard deduction or itemize. It is also available to those who qualify over age 65 whether you receive Social Security benefits or not.

The Improved

Several OBBB provisions enhance or modernize earlier tax laws.

• SALT Limitations. Before the TCJA, 100% of state and local taxes (SALT) paid could be deducted. The TCJA capped SALT deductions at $10,000, which disproportionately impacted taxpayers in high-tax states, such as New York and California.
  
  The OBBB introduces temporary relief: taxpayers can now deduct up to $40,000, but the benefit phases out by 30% for married filers with a MAGI above $500,000, eventually reverting to the $10,000 limit. In 2029, the $10,000 cap returns.
  
  
• Increased and Inflated Child Tax Credit. The Child Tax Credit has seen a permanent boost. Originally capped at $1,000 (pre-TCJA) and temporarily increased to $2,000, the OBBB raises it to $2,200 per qualifying child and permanently ties it to inflation, making it more responsive to economic realities.

• Increased Dependent Care Flexible Spending Account Contribution Limit. Dependent Care FSAs (DCFSA) allow for childcare to be paid with pre-tax dollars. The maximum contribution amount has remained mostly unchanged for over four decades, except for a brief increase in 2021. The OBBB raises the contribution limit to $7,500 starting in 2026 and indexes it for inflation. This long-overdue update reflects the rising costs of childcare and provides working parents with more flexibility.

• Return of the Above-the-Line Charitable Deduction. Previously limited to itemizers, charitable deductions get a notable expansion. The OBBB introduces a permanent above-the-line deduction of up to $1,000 per person ($2,000 for married filing joint) for cash donations, allowing non-itemizers to benefit from charitable giving.

The Same?

As mentioned throughout, many TCJA provisions were temporary and set to expire. The OBBB makes several of them permanent.

• Tax Brackets Stay. Lawmakers retained the TCJA's lower marginal tax rates. The brackets remain at 10%, 12%, 22%, 24%, 32%, 35%, and 37%, instead of reverting to their pre-TCJA levels of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.

• Long Live the Lifetime Exemption. Before 2017, estates valued at less than $5.49 million were exempt from estate taxes. The TCJA doubled that exemption, increasing it to $11.18 million (adjusted for inflation). For 2025, it's valued at $13.99 million per person.
  
  The OBBB increases the exemption even higher to $15 million per person, starting in 2026, and continues to provide estate planning flexibility for individuals and families.

• Increased Standard Deduction. Another TCJA provision that is here to stay is the increased standard deductions.
  
  Before the TCJA, the standard deduction was $6,350 for single filers and $12,700 for married couples filing jointly. The TCJA nearly doubled deductions from 2018 to 2025, increasing to $12,000 for single filers and $24,000 for married taxpayers.
  
  With the OBBB, the standard deduction will permanently increase to $15,750 for single filers and $31,500 for married couples filing jointly. Expect those numbers to increase annually as they are also subject to inflation.
  

Conclusion

The One Big Beautiful Bill is more than just a catchy name — it brings significant tax changes that will affect a wide range of taxpayers, from tip workers and overtime earners to high-net-worth individuals and retirees.

As always, the real value lies in how these provisions are applied to your unique financial situation. If you are unsure how the OBBB impacts your taxes or planning strategies, reach out to your financial advisor and accountant/tax professional to map out the best course forward.

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