Congress recently passed the One Big Beautiful Bill Act. While the name may be whimsical, the legislation includes significant tax changes that could impact your financial planning starting in 2025. Below is a summary of key updates for individual taxpayers.
Individual Tax Rates Made Permanent
The reduced income tax rates originally introduced by the 2017 Tax Cuts and Jobs Act—previously set to expire after 2025—are now permanent. Additionally, income thresholds for each bracket have been adjusted upward, allowing you to earn more before moving into a higher bracket.
Higher Standard Deduction
Beginning in 2025, the standard deduction increases to $31,500 for joint filers and $15,750 for single or married filing separately taxpayers.
Expanded SALT Deduction
The cap on the state and local tax (SALT) deduction rises from $10,000 to $40,000 for itemizers, with income-based phaseouts. These income-based phaseouts begin for those with a modified adjusted gross income (MAGI) starting at $250,000 for single filers and $500,000 for joint filers. This expanded deduction is available through 2029.
Tip Income Deduction for Service Workers
Starting in 2025, taxpayers in tipped occupations may deduct up to $25,000 of tip income annually. This provision phases out for those with MAGI over $150,000 for single filers and $300,000 for joint filers and is available through 2028.
Overtime Pay Deduction
A new deduction of up to $12,500 is available for qualifying overtime income, effective from 2025 through 2028. Phaseouts apply for taxpayers with MAGI of $150,000 for single filers and $300,000 for joint filers.
Auto Loan Interest Deduction for U.S.-Assembled Vehicles
Interest on loans for eligible U.S.-assembled vehicles may now be deducted up to $10,000 annually for new vehicles purchased between 2025 and 2028. Phaseouts apply for taxpayers with MAGI over $100,000 for single filers and $200,000 for joint filers.
Additional Deduction for Seniors
Taxpayers age 65 and older may claim an additional $6,000 deduction on top of the standard deduction from 2025 through 2028. This additional deduction begins to phase out for those whose MAGI exceeds $75,000 for single filers and $150,000 for joint filers.
Child Tax Credit Increased
The Child Tax Credit increases by $200 (from $2,000 to $2,200) per qualifying child beginning in 2025, with annual inflation adjustments. The refundable portion of the credit remains unchanged. This credit is also subject to income phaseouts and begins at a MAGI of $200,000 for single, head of household, and married filing separate filers, and $400,000 for married filing jointly.
Expiring Credits for Electric Vehicles and Home Energy Improvements
The Clean Vehicle Credit of up to $7,500 for new electric vehicle purchases will expire after September 30, 2025. This credit is subject to income limitation phase out and begins at a MAGI of $150,000 for single filers and $300,000 for joint filers. Credits for energy-efficient home improvements— including insulation, storm windows and doors, furnaces, water heaters, solar panels, geothermal, and wind energy systems—will expire after December 31, 2025. This credit is not subject to income-based phaseouts.
This summary highlights many of the notable provisions, but it’s not a complete list. If you have questions about how any of these changes may affect your tax situation, please reach out to your contact at Donovan CPAs.
