By Joseph Buckland
Senior Tax Manager, Sherbert CPA, PC
joseph.buckland@sherbertcpa.com
On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBB) into law that provides significant tax
reform for years 2025 and beyond. This legislation finalizes, extends and makes permanent multiple tax cuts and
changes. Included in these provisions of the OBBB are several items of note that impact individual taxpayers. Highlights
of these individual tax provisions include:
Income Tax Rate Brackets:
The income tax rate brackets that were decreased as part of the Tax Cuts and Jobs Act of 2017 (TCJA) were set to
expire for years beginning after December 31, 2025. As part of OBBB, the decreased income tax rate brackets have
been made permanent. These tax rate brackets are 10%, 12%, 22%, 24%, 32%, 35% and 37%. Maintaining these
reduced income tax rate brackets will provide substantial tax relief for American families.
Federal Tax Deductions:
Under the OBBB the Standard Deduction is permanently increased from $12,000 to $15,750 for a single taxpayer or
married taxpayers filing separately (MFS), from $24,000 to $31,500 for married taxpayers filing jointly (MFJ) and from
$18,000 to $23,625 for taxpayers filing as head of household. This provision applies to taxable years beginning after
December 31, 2025.
For taxable years beginning after December 31, 2024, the OBBB increases the State & Local Tax deduction limitation
from $10,000 to $40,000 for 2025 and $40,400 for 2026. For taxable years 2027 through 2029 the limitation will be
increased by 101% of the previous year’s limitation and will then revert to $10,000 for taxable years 2030 and beyond.
This is a huge step to provide benefits to individuals since the $10,000 limitation has been a part of much debate over
the last few years.
Internal Revenue Code Section 224 is added by the OBBB, which allows for a deduction from income up to $25,000 for
qualified tips received by a taxpayer. Qualified tips are defined as cash tips received by an individual in an occupation
that typically received tips on or before December 31, 2024. The deduction is phased out for taxpayers with Adjusted
Gross Income over $300,000 for MFJ and $150,000 for other taxpayers. Deductions under this code section are
available for taxable years beginning after December 31, 2024 and ending before January 1, 2029.
Internal Revenue Code Section 225 is added by the OBBB which allows for a deduction from income in an amount up to
$25,000 for taxpayers filing MFJ and $12,500 for all other taxpayers for qualified overtime compensation. The
deduction is phased out for taxpayers with Adjusted Gross Income over $300,000 for MFJ and $150,000 for other
taxpayers. Deductions under this code section are available for taxable years beginning after December 31, 2024 and
ending before January 1, 2029.
These new code sections can allow for significant tax savings for low to moderate income taxpayers through reduced
taxable income.
Child Tax Credit:
Under the TCJA, the Child Tax Credit was increased from $1,000 to $2,000 per qualifying child with up to $1,400 being
refundable. This increase was set to expire for tax years beginning after December 31, 2025. Under the OBBB, the child
tax credit is increased to $2,200 per qualifying child and makes the refundable portion permanent. With the increase in
the child tax credit there are increased tax savings available to families. The OBBB also includes a provision that for the
credit to be allowed, the taxpayer’s tax return must include both the social security number of the taxpayer and the
social security number of the qualifying child.
Trump Accounts:
A new savings account for children born between January 1, 2025, and December 31, 2028, allows contributions up to
$5,000 annually, treated like a nondeductible traditional IRA. The federal government provides $1,000 in seed money
for newborns in this period. Contributions can be made by parents, relatives, or other entities until the child turns 18,
when the account converts to a traditional IRA. Investment and distribution restrictions apply before age 18.
These are just some of the highlights from the OBBB impacting an individual taxpayer.
To discuss this, or any other upcoming tax law changes contact the Sherbert Group.