The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, represents a significant change in U.S. tax policy. This legislation introduces new tax benefits and adjustments that impact individuals, families, and businesses. This article dives deeper into the OBBBA’s key provisions:
- Permanent TCJA individual tax rates,
- Increased standard deductions,
- Expanded SALT deduction cap,
- Temporary deductions for tips and overtime income
At Archer Lewis, we understand how overwhelming major tax changes can be. That’s why we’re breaking down what you need to know about the OBBBA so you can focus on what really matters to you.
Permanent Extension of TCJA Individual Tax Rates
The OBBBA solidifies the TCJA’s individual income tax rates—10%, 12%, 22%, 24%, 32%, 35%, and 37%—preventing their scheduled expiration at the end of 2025.
What It Means for You
This permanence provides long-term certainty for taxpayers across income brackets, ensuring continued tax relief. According to Deloitte’s tax policy analysis, this move stabilizes financial planning for individuals and families, as the lower rates encourage consumer spending and investment, potentially boosting economic growth
For businesses, the permanence of these rates indirectly supports pass-through entities (e.g., S corporations, partnerships), as owners benefit from lower individual tax rates on business income. Taxpayers should work with advisors to optimize their tax strategies, especially for those with complex income sources.
Note: We recommend that individuals review their income projections for 2025 and beyond to leverage these stable rates. For example, accelerating income into lower-tax years or deferring deductions could maximize savings. Businesses structured as pass-through entities should consult with their CPAs to align their income allocation strategies with the permanent rates.
Increased Standard Deduction
The TCJA nearly doubled the standard deduction, and the OBBBA makes this increase permanent while further raising it to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married couples filing jointly, with annual inflation adjustments starting in 2026. Additionally, a temporary $6,000 “senior bonus” deduction for taxpayers aged 65 and older is available through 2028, phasing out for single filers with modified adjusted gross income (MAGI) over $75,000 or joint filers over $150,000.
What It Means for You
The increased standard deduction simplifies tax filing for millions, as fewer taxpayers need to itemize—only about 9% did so in 2018 compared to 30% pre-TCJA. The bonus deduction offers significant relief for retirees, particularly those reliant on fixed incomes like Social Security, but its temporary nature requires proactive planning before 2028. Seniors with MAGI near the phase-out thresholds should consider bunching charitable contributions or other deductions into years where their income is lower to maximize this benefit.
Note: We are advising taxpayers to compare the standard deduction against potential itemized deductions annually, especially with the new SALT cap changes (discussed below). Seniors should work with advisors to strategize income timing, such as deferring IRA distributions, to stay below the phase-out thresholds for the $6,000 deduction.
Individual State and Local Tax (SALT) Deduction
The OBBBA temporarily raises the SALT deduction cap from $10,000 to $40,000 for taxpayers with MAGI below $500,000 ($250,000 for married filing separately), with a 1% annual increase through 2029, after which it reverts to $10,000. For taxpayers with MAGI above $500,000, the deduction phases down by 30% of the excess income, but never below $10,000. This change, effective for 2025–2028, addresses concerns from high-tax state residents, particularly in states like New York and California.
What It Means for You
This increase provides substantial relief for homeowners and high earners in high-tax jurisdictions, potentially saving them thousands annually. Taking the time to model your SALT deductions under various income scenarios can help optimize your tax positions.
Note: We recommend that taxpayers in high-tax states consult with a CPA to evaluate whether itemizing deductions with the higher SALT cap outweighs the
standard deduction. Businesses using PTET workarounds should confirm state-specific compliance with advisors to ensure continued SALT benefits.
No Tax on Tips and Overtime
The OBBBA introduces temporary deductions for 2025–2028, allowing workers in tipped occupations to deduct up to $25,000 in tip income and overtime workers to deduct up to $12,500 ($25,000 for joint filers), subject to phase-outs for MAGI above $150,000 (single) or $300,000 (joint). These provisions, reported separately on W-2 or 1099 forms, aim to support service and labor-intensive industries.
What It Means for You
These deductions significantly reduce tax burdens for workers in hospitality, retail, and manufacturing, but the phase-out limits mean high earners may see reduced benefits. The administrative burden of tracking and reporting qualified tips and overtime can be a challenge for smaller businesses, requiring robust payroll systems.
Note: We are suggesting that tipped workers and overtime earners maintain detailed income records and CPA to ensure proper reporting. Employers should partner with payroll specialists to comply with IRS guidance, which may expand to hundreds of pages given the complexity of these provisions, as noted by the Tax Foundation.
Conclusion
The One Big Beautiful Bill Act reshapes the tax landscape by cementing TCJA provisions, enhancing deductions, and introducing targeted relief for tipped and overtime workers. While these changes offer opportunities for tax savings, their temporary elements and income phase-outs require careful planning. At Archer Lewis, we encourage taxpayers and businesses to collaborate with trusted advisors to tailor strategies to their unique financial situations. By staying informed and proactive, you can navigate the OBBBA’s complexities and maximize its benefits.
Reach out to Archer Lewis to discover how your business can leverage these new changes and develop a customized plan to optimize your tax benefits. Even if you’re partnered with another accounting firm, we can collaborate with you and your current firm to adapt to the new tax landscape.
For personalized advice, contact our team to discuss how the 2025 Reconciliation Bill can impact your business’s financial strategy.
