The standard deduction gets bigger

A cornerstone of the TCJA was raising the standard deduction while eliminating personal exemptions. OBBBA makes that structure permanent and increases the deduction. For 2025, the standard deduction rises to $31,500 for married couples filing jointly, $15,750 for single filers, and $23,625 for heads of household. From 2026 onward, these amounts will be indexed for inflation. Higher deductions generally mean lower taxable income, but they also make itemizing less beneficial unless your deductible expenses (mortgage interest, charitable gifts, etc.) exceed these thresholds.

OBBBA also extends the TCJA tax brackets, keeping rates at 10 %, 12 %, 22 %, 24 %, 32 %, 35 % and 37 % and adjusting bracket thresholds for inflation. This avoids the pre‑2017 system that had higher rates at lower income levels.

A new deduction for seniors

One of the few new deductions is aimed at older taxpayers. Individuals who are age 65 or older can claim an additional $6,000 deduction for each qualifying taxpayer from 2025 through 2028. If both spouses are over 65 and file jointly, they may deduct $12,000. This deduction phases out once modified adjusted gross income exceeds $75,000 ($150,000 for joint filers). It’s available whether you itemize or claim the standard deduction.

State and local tax (SALT) deduction cap relaxed

For taxpayers who itemize deductions, the cap on state and local tax (SALT) deductions often prevents them from fully deducting high property taxes or state income taxes. OBBBA temporarily raises the SALT cap from $10,000 under the TCJA to $40,000 (adjusted for inflation) for tax years 2026–2029. This change offers some relief to taxpayers in high‑tax states, although the benefit may be tempered by the larger standard deduction and higher income thresholds.

Child tax credit enhanced & Personal Exemptions Eliminated Forever

The TCJA doubled the child tax credit to $2,000 per qualifying child, with $1,700 refundable and raised income phase‑out thresholds. OBBBA makes those enhancements permanent and increases the credit to $2,200 per child beginning in 2025, indexed for inflation. It also locks in the higher phase‑out thresholds ($200,000 of modified AGI for single filers and $400,000 for joint filers). Because personal and dependent exemptions are permanently eliminated, families will rely more on credits like this one to reduce taxes.

Temporary deductions for certain workers

Although OBBBA is largely a continuation of TCJA rules, it introduces two temporary deductions for workers in specific circumstances:

• “No Tax on Tips” – Employees or self‑employed individuals who receive qualified tips in occupations that customarily receive gratuities can deduct up to $25,000 of those tips from income between 2025 and 2028. The deduction phases out for adjusted gross income above $150,000 ($300,000 for joint filers) and is unavailable to owners of specified service trades or businesses.
• “No Tax on Overtime” – Workers may deduct the premium portion of overtime pay (the extra “half” in time‑and‑a‑half) up to $12,500 ($25,000 for joint filers). Like the tips deduction, it applies from 2025–2028 and phases out at the same income thresholds. Both deductions require the pay to be properly reported on Forms W‑2 or 1099 and claimed on your return.

Planning Considerations

• Evaluate whether you should itemize – With a higher standard deduction, many taxpayers will find it less advantageous to itemize. However, if you have significant mortgage interest, charitable contributions or high SALT payments, the relaxed SALT cap beginning in 2026 may tip the balance.
• Seniors should coordinate deductions – If you’re 65 or older, claim the new $6,000 deduction on top of the standard deduction. Consider timing income and deductions to stay below the phase‑out thresholds and maximize your benefit.
• Plan around temporary provisions – The tips and overtime deductions are short‑term. Workers in hospitality and hourly trades should talk with payroll providers to ensure tip and overtime pay is properly reported so they can claim these deductions.
• Child tax credit and dependent planning – The enhanced child tax credit offers larger refunds for families. Ensure children have Social Security numbers and proper documentation to claim the credit.

Looking Ahead

Much of OBBBA’s focus is on making TCJA provisions permanent while offering targeted relief for certain groups. From a taxpayer’s perspective it offers stability and some new opportunities. Since individual circumstances vary widely, consulting with a tax professional is essential. Our team at Edgewater Accounting can help you understand how these changes affect your 2025 return and plan strategically for the future.

Note: The information provided here is for general education and should not be construed as individualized tax advice.