In July, the 2025 Reconciliation Legislation known as the One Big Beautiful Bill Act (OBBBA) was signed into law. According to the IRS, “One Big Beautiful Bill Act of 2025 has a significant effect on federal taxes, credits and deduction.”
But what does this new bill mean for your personal income tax? To spare you from reading all 869 pages of the bill yourself, we’ve put together a list of key changes to be aware of for the 2025 tax year and beyond.
Increased Standard Deduction
According to Fidelity, a standard deduction is “a flat amount that reduces your taxable income and potentially your tax bill.” The OBBBA increased these deductions for taxpayers.
- Single or married filing separately – $15,750
- Head of household – $23,625
- Married filing jointly – $31,500
Personal Exemptions are Eliminated
OBBA permanently removes exemptions for individuals, spouses, and dependents. A personal exemption was a fixed dollar amount that taxpayers could deduct from their total income. Investopedia explains, “The taxpayer could claim the personal exemption for themselves, their spouse, and qualifying dependents.” Due to the Tax Cuts and Jobs Act, there were no personal exemptions for tax years 2018-2025.
No Tax on Overtime
According to the Tax Foundation, “Up to $12,500 in overtime compensation is deductible when calculating taxable income under the OBBBA temporarily from 2025 through 2028.”
- This new rule will allow certain workers to claim dollar-for-dollar deductions on overtime pay.
- The deduction is only calculated on the premium. For example, if you are paid OT at a 1.5x regular hourly rate, only the 0.5 hourly rate can be deducted.
No Tax on Tips
This allows for dollar-for-dollar deductions on a set amount of tips earned by workers where tipping is normal. A full list of eligible industries will be issued in the next 90 days. The Tax Foundation explains that the deduction is in effect from 2025 through 2028.
529 plan extension
Typically thought of as college savings accounts, 529 can also be used to cover education-related costs for K-12 too. Under OBBBA, families can withdraw up to $20,000 to pay for K-12 expenses (increased from the previous $10,000).
Trump Accounts
New individual retirement accounts called “Trump Accounts” aim to encourage saving for a child’s future. These accounts are similar to a Roth IRA. Children born between 2025 through 2028 will receive a one-time $1,000 deposit from the federal government.
- Accounts can be claimed at a bank or qualified financial institution.
- $5,000 maximum annual after-tax contribution.
Deduction for Auto Loan Interest
Between 2025 through 2028, Individuals with modified adjusted gross income under $100K can deduct $10,000 of interest paid on loan for NEW (created after Dec. 31, 2024) vehicles assembled in USA.
Additional Deduction for Seniors
Taxpayers aged 65+ can deduct an extra $6,000 in addition to standard deduction plus additional senior deductions or itemized deductions.
- Effective from 2025 to 2028.
- Taxpayers must reach 65 years of age on or before the last day of tax year.
- Taxpayers must have a modified adjusted gross income at or below $75,000 or $150,000 for joint filers.
- Deduction is per eligible individual. Married filing jointly receives $12,000.
Contact Neely’s for Expert Tax Guidance
If you’d like to learn more about the One Big Beautiful Bill and how it may affect you come tax season, Neely’s can help! We have been helping Roanoke citizens, businesses, and non-profits with their tax questions since 2007. Get in touch with our team and we’ll be happy to walk you through what these changes mean for you.