Major Individual Tax Changes Under the One Big Beautiful Bill Act

The recent passage of HR 1 EAS, also known as the One Big Beautiful Bill, brings significant changes to individual tax provisions. The bill extends and expands several key tax benefits, delivering on former President Trump’s campaign promises to keep taxes low and to build upon the Tax Cuts and Jobs Act (TCJA) of 2017.

Here is a breakdown of the major individual tax changes that could affect your upcoming tax planning and filings.

1. Freezing of Individual Tax Rates

The TCJA of 2017 lowered individual income tax rates, setting the lowest bracket at 10% and the highest at 37%. Originally, these reduced rates were set to expire after 2025, which would have resulted in an average increase of about 2% per bracket, with some middle-income families seeing increases up to 3%.

The Big Beautiful Bill freezes these rates permanently, preventing those increases and locking in the current lower tax rates for individuals moving forward.

2. Increase in Standard Deduction

The standard deduction is increasing across filing statuses:

• Single Filers: $15,750

• Married Filing Jointly: $31,500

• Head of Household: $23,625

  
  

Additionally, the senior bonus deduction will increase to $6,000 per year. On average, taxpayers will see about a $1,000 increase in their standard deduction, leading to meaningful tax savings for those who do not itemize.

3. State and Local Tax (SALT) Deduction Cap Increased

Previously, the SALT deduction was capped at $10,000, significantly affecting taxpayers in high-tax states like New York, California, and Illinois. Under the Big Beautiful Bill, the SALT cap has been increased to $40,000 through 2030. After 2030, it will revert back to the $10,000 cap unless further legislation is passed.

This change benefits taxpayers who itemize and pay substantial state and local taxes, allowing them to reduce taxable income by a greater amount.

4. Increase to the Child Tax Credit

The Child Tax Credit (CTC) will see a modest increase:

• Maximum per qualifying child: $2,200

• Refundable portion: $1,700 for tax year 2025

  
  

The credit will adjust for inflation each year. However, this increase is temporary and set to expire in 2028 unless extended by Congress. Because the CTC reduces taxes dollar-for-dollar rather than simply reducing taxable income, it continues to provide significant relief to families.

5. Deductions for Tips, Overtime Compensation, and Auto Loan Interest

A core promise of Trump’s campaign was to remove taxes on tips and overtime. The Big Beautiful Bill provides significant new deductions:

• Tips: Deduction of up to $25,000

• Overtime Compensation: Deduction of up to $12,500 ($25,000 for joint filers). This deduction applies only to the additional half-time portion of overtime pay.

Both deductions phase out for incomes above $150,000 ($300,000 joint). Additionally, taxpayers who purchase new American-manufactured vehicles after December 31, 2024, can deduct up to $10,000 of interest paid on their car loan, with phaseouts starting at $100,000 ($200,000 joint). All these deductions are currently set to expire after 2028.

6. Charitable Deduction for Standard Deduction Filers

Starting in 2026, taxpayers who take the standard deduction can also deduct charitable cash contributions:

• Single Filers: Up to $1,000 per year

• Married Filing Jointly: Up to $2,000 per year

This provision permanently extends the temporary 2021 measure, allowing more taxpayers to benefit from charitable giving incentives.

Conclusion

The One Big Beautiful Bill introduces wide-reaching tax changes for individual taxpayers. While these provisions aim to reduce taxes and increase deductions, they also add complexity to tax reporting, especially regarding new overtime and tip deductions.

Stay informed with Pathfinder Accounting & Tax. Our team is here to help you navigate these changes to maximize your benefits and remain compliant. Contact us today to discuss how these new tax provisions affect your personal tax strategy for 2025 and beyond.