What does the One Big Beautiful Bill Act mean for my 2025 taxes?

The One Big Beautiful Bill Act (OBBBA), signed into law in 2025, is the most significant piece of tax legislation since the Tax Cuts and Jobs Act of 2017. Here's what it means for your 2025 federal tax return (filed by April 15, 2026).

Key changes that affect 2025 returns:

1. Tip income exclusion. If you received tips as an employee (e.g., restaurant server, hair stylist, rideshare driver), the OBBBA excludes up to a certain amount of tip income from federal income tax for tax years starting in 2025. Note: tips are still subject to FICA taxes (Social Security and Medicare), and not all tip income may qualify.

2. Overtime pay exclusion. Overtime wages paid for hours beyond the standard 40-hour workweek are partially excluded from federal income tax under the OBBBA for 2025. There are income phase-out limits.

3. SALT deduction cap raised to $40,000. The State and Local Tax (SALT) deduction cap, which was $10,000 since 2018, was raised to $40,000 for tax years 2025–2029. This primarily benefits taxpayers in high-tax states (California, New York, New Jersey, Illinois) who itemize deductions. The cap phases down for taxpayers earning above $500,000.

4. Senior bonus deduction. Taxpayers age 65 and older can deduct an additional $6,000 from their taxable income for tax years 2025–2028. This is on top of the regular standard deduction or itemized deductions.

5. Child Tax Credit increased. The maximum CTC was raised to $2,200 per qualifying child for 2025 (up from $2,000), with future years indexed for inflation.

6. Clean vehicle credit ended. The New Clean Vehicle Credit (IRC §30D) was eliminated for vehicles acquired after September 30, 2025. If you bought an EV before that date, you may still be eligible.

What was NOT changed for 2025:

The TCJA income tax brackets, capital gains rates, and most other provisions were made permanent by the OBBBA. Tax rates did not go up for most filers.

Bottom line: Most Americans will see some benefit from the OBBBA, whether through higher SALT deductions, a larger CTC, or tip/overtime exclusions. Review your withholding and work with a tax professional if you have complex changes.