Learn how the 2025 OBBBA tax law affects income brackets, deductions, credits, seniors, and families. Get clear guidance to plan smarter for 2026 and beyond.
The One Big Beautiful Bill Act, or OBBBA, became law on July 4, 2025. It builds on the 2017 Tax Cuts and Jobs Act (TCJA) while introducing several new provisions that affect individuals and business owners. For anyone planning taxes in 2026, understanding these changes is crucial.
Here’s a detailed breakdown of what matters.
Permanent Lower Tax Rates
OBBBA keeps the TCJA’s lower individual income tax rates permanently. Here’s what that looks like:
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10%, 12%, 22%, 24%, 32%, 35%, 37%
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The old top rate of 39.6% is gone
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Brackets will continue to adjust for inflation
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Marriage penalty relief stays
These rates are the foundation for tax planning. Knowing where your income lands helps you time deductions, retirement contributions, or other strategies — something many households evaluate with support from experienced advisors such as a Houston CPA.
Capital Gains and Dividends
Long-term capital gains and qualified dividends keep the TCJA rates permanently:
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0%, 15%, 20% based on income brackets
Example: If you sell stock and realize a $50,000 long-term gain, you might pay 15% if your total income falls in the middle bracket. Planning when to sell or harvest gains is easier with certainty about these rates.
Standard Deduction
OBBBA makes the standard deduction permanent and increases it starting in 2025:
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$15,750 for single filers
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$23,625 for heads of household
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$31,500 for married filing jointly
These amounts will adjust yearly for inflation.
Itemized Deductions
Several changes affect itemized deductions:
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Pease Limitation Repealed: Previously, high earners had reductions to itemized deductions. Now it’s gone.
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New Cap for High Earners: Instead of Pease, there’s a new formula that limits deductions above the top tax bracket.
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Miscellaneous Deductions: Unreimbursed employee expenses and investment fees remain suspended. Educators can still deduct certain classroom costs.
Personal Exemptions
Personal exemptions remain at zero permanently. These won’t return.
Implication: You can’t reduce taxable income using personal exemptions, so focus on other deductions and credits.
Senior Deduction
OBBBA adds a temporary senior deduction from 2025 to 2028:
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$6,000 for singles over 65
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$12,000 for married couples over 65
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Phaseouts apply based on income
Example: A retired couple over 65 with $120,000 of taxable income could subtract $12,000, reducing their effective tax rate.
This deduction gives seniors a small but meaningful break and can influence retirement planning.
State and Local Tax (SALT) Deduction
The SALT cap rises temporarily:
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$40,000 for most taxpayers ($20,000 if married filing separately) from 2025–2029
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Phases out for high earners
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Reverts in 2030
Example: If you pay $30,000 in state and local taxes in 2026, you can deduct the full amount instead of being capped at $10,000 under old rules.
This temporarily reduces the tax burden for those in high-tax states.
Child Tax Credit (CTC)
The child tax credit sees several important updates:
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Nonrefundable portion rises $200 to $2,200 per child starting 2025
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Refundable portion becomes permanent and inflation-adjusted from 2026
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Phaseout thresholds: $200,000 for singles, $400,000 for joint filers
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SSN rules for claimants are stricter
Example: A couple with two kids under 17 could claim $4,400 in nonrefundable credits in 2025, reducing their tax directly.
Child and Dependent Care Credit
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Credit rate rises permanently from 35% to 50%
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Maximums: $3,000 for one child, $6,000 for two or more
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Employer-provided dependent care assistance rises to $7,500 ($3,750 if married filing separately)
Example: Spending $4,000 on daycare for two children could yield a $2,000 tax credit.
Charitable Contributions
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Itemizers face a 0.5% AGI floor
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Non-itemizers can deduct up to $1,000 ($2,000 joint) for cash donations starting 2026
This encourages charitable giving while providing clarity on what can be deducted for those who don’t itemize.
Other New Deductions and Policy Changes
OBBBA includes a few new deductions that affect everyday taxpayers. Some are small, but they can still help certain groups.
Tip Income Deduction
Workers who earn tips can deduct part of that income.
Example:
A server who reports $8,000 in tips may be able to deduct a portion of that amount, lowering their taxable income for the year.
Overtime Pay Deduction
Employees who earn overtime can deduct part of it.
Example:
If you earn an extra $12,000 in overtime for the year, a portion of that overtime may qualify for a deduction, reducing the tax hit.
Car Loan Interest Deduction
OBBBA also lets individuals deduct interest on personal car loans.
Example:
If your car loan interest for the year is $1,500, you may be able to deduct some or all of that amount.
“Trump Accounts” for Children
OBBBA creates new tax-deferred savings accounts for children.
These accounts allow parents to save money with tax advantages, similar to a retirement or education account, but they expire in 2028 unless extended.
Example:
A parent can deposit money into a Trump Account for their child, let it grow tax-deferred, and later use it for approved expenses.
Toward the end of OBBBA planning, many families and business owners begin evaluating how these provisions fit into their long-term strategy. This is especially true in Texas, where local professionals such as CPA Pasadena TX and CPA firms in Houston are already helping clients test scenarios for 2026 and beyond based on the new rules.
Bottom Line
OBBBA makes many TCJA tax benefits permanent and adds targeted new provisions for seniors, families, and educators. For individuals and business owners, the key takeaways are:
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Lower tax rates are permanent, making planning more predictable
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Deductions and credits are mostly permanent but have new rules for high earners
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Certain temporary benefits (senior deduction, SALT cap increase) are time-limited
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Planning for 2026 and beyond will need to account for these changes to maximize savings
Understanding these provisions now allows you to plan income, retirement contributions, and expenses in a way that reduces your 2026 tax liability.
