What Individual Taxpayers Should Know About the One Big Beautiful Bill (OBBB)
Big tax changes don’t come around every year, but when they do, they can be confusing, controversial and have long-lasting implications.
That’s very much the case with the One Big Beautiful Bill (OBBB), which delivered a wide-ranging set of tax changes for individuals and businesses alike, while also making permanent numerous provisions of the Tax Cuts and Jobs Act of 2017 (TCJA).
But we’re here to help. We’ve previously looked at what the OBBB means for small businesses, and today, we’ll look at how this budget reconciliation bill affects individual taxpayers.
Income Tax Brackets
The seven tax brackets — 10%, 12%, 22%, 24%, 32%, 35% and 37% — were going to expire at the end of 2025 and revert to the rates in place prior to the TCJA. However, the OBBB makes these seven brackets permanent, while also making a slight tweak to how the 10% and 12% income brackets are calculated starting in 2026.
Standard Deduction
In 2025, the standard deduction was set at $15,000 for single and married couples filing separately, $22,500 for heads of household, and $30,000 for married couples filing jointly and surviving spouses. The standard deduction was going to revert to pre-TCJA amounts in 2026, but the OBBB made the TCJA change to higher standard deductions permanent.
It also boosted the standard deduction for 2025, to $15,750 for single and married couples filing separately, $23,625 for heads of household, and $31,500 for married couples filing jointly and surviving spouses. This boost will be further increased along with inflation for the next few years, but it’s set to expire after the 2028 tax year.
New Senior Deduction
The OBBB created a “senior deduction” of up to $6,000 per eligible senior — namely, you have to be 65 or older by the end of the tax year and provide a Social Security number on your tax return. Married couples, then, can deduct $12,000, but only if they file jointly.
This deduction has a “phase-out” that begins once your modified adjusted gross income (MAGI) exceeds $75,000 if you’re a single or head-of-household filer, or $150,000 if you’re a married couple filing jointly or surviving spouse. The deduction becomes fully phased out once your MAGI exceeds $175,000 if you’re a single or head-of-household filer, or $250,000 if you’re a married couple filing jointly or surviving spouse.
This deduction can be taken whether you itemize or take the standard deduction. However, it expires after the 2028 tax year.
Child Tax Credit
Another TCJA change made permanent is the Child Tax Credit (CTC), which for 2025 has also been increased to $2,200 per child under 17.
This credit phases out once your MAGI exceeds $200,000 if you’re an individual filer (including married couples filing separately), or $400,000 if you’re a joint filer. The phase-out is $50 for every $1,000 over your income cap.
If the CTC exceeds taxes owed, they may be partially refunded (the Additional Child Tax Credit), for up to $1,700 per child for the 2025 tax year.
Child and Dependent Care Credit
The Child and Dependent Care Credit (CDCC), meant to help with care expenses for children under 13, spouses or parents unable to care for themselves, or other dependents, was previously worth 20% to 35% of up to $3,000 in expenses for a qualifying dependent or $6,000 in expenses for two or more qualifying dependents. Starting with the 2026 tax year, the CDCC will now be worth up to 20% to 50% of those numbers. The adjusted gross income (AGI) phase-out thresholds are higher, too.
For single filers, the credit percentage is 50% for AGI of $0 and $15,000, phases down between 50% and 35% for AGI between $15,000 and $45,000, 35% for AGI of $45,000 to $75,000, phases down again between 35% and 20% for AGI of $75,000 to $105,000, and 20% for AGI over $105,000.
For married couples filing jointly, the credit percentage is 50% for AGI of $0 and $15,000, phases down between 50% and 35% for AGI between $15,000 and $45,000, 35% for AGI of $45,000 to $150,000, phases down again between 35% and 20% for AGI of $150,000 to $210,000, and 20% for AGI over $210,000.
Other Dependent Credit
The Other Dependent Credit (ODC) has also been made permanent. If a family with dependents doesn’t qualify for the Child Tax Credit, they still might qualify for the ODC, which is $500 for 2025.
New Tax Deduction for Tips
The OBBB now allows for a temporary “no tax on tips” deduction until the 2028 tax year. Filers can deduct up to $25,000 in cash tips, phasing out between MAGI of $150,000 for single filers and $300,000 for joint filers, and completely phased out at MAGI of $400,000 for single filers and $550,000 for joint filers. The deduction, which you can take regardless of whether you take the standard deduction or itemize, will apply to occupations to be released later this year.
One note: The OBBB text is unclear about whether it’s $25,000 for all filers, or just individual filers.
New Tax Deduction for Overtime Pay
The OBBB also created a similar temporary “no tax on overtime pay” deduction until the 2028 tax year. The deduction is for up to $12,500 in overtime pay for single filers, $25,000 for married couples filing jointly. The phase-out begins at a MAGI of $150,000 for single filers and $300,000 for married couples filing jointly, and the deduction is fully phased out at MAGI of $275,000 for single filers and $550,000 for joint filers. This also can be taken regardless of whether you itemize or take the standard deduction.
Need Help Navigating the OBBBA Tax Changes?
Tax reform doesn’t have to be stressful — especially when you’ve got experts on your side.
McManamon & Co. is an accounting, tax, fraud, forensic and consulting firm serving small to midsize businesses. Our experienced team can help business owners understand how the new OBBBA rules affect your taxes, and we’re here to assist with everything from planning strategies to filing assistance.
Call us at 440.892.8900 or contact us online today to start preparing for the next tax season with confidence.
Tags: IRS, McManamon, McManamon & Co., tax news, tax reform, taxes | Posted in McManamon & Co., taxes