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The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, is the largest tax law since the 2017 Tax Cuts and Jobs Act, and most of its changes took effect January 1, 2026. It made the 2017 tax cuts and the seven tax brackets permanent, kept the higher standard deduction, and added new deductions for tips, overtime, seniors, and U.S.-assembled car loan interest, plus a bigger Child Tax Credit and SALT cap. This guide breaks down every individual provision by who you are, with figures verified against the IRS. Because tax situations vary, confirm anything that affects you with a qualified tax professional.
Key Takeaways
- The 2017 tax cuts are now permanent, so the seven brackets (10% to 37%) and the higher standard deduction stay rather than reverting to pre-2018 levels.
- New 2025 to 2028 deductions arrived for tips (up to $25,000), overtime (up to $12,500, or $25,000 joint), seniors (an extra $6,000), and U.S.-assembled car loan interest (up to $10,000).
- The Child Tax Credit rose to $2,200 per child and the SALT cap jumped from $10,000 to $40,000 through 2029.
- The QBI deduction stayed at 20% (a proposed 23% was dropped) and was made permanent.
- Student loans changed: the SAVE plan is gone, RAP replaces it, and the tax break on forgiven income-driven balances expired at the end of 2025.
READY TO FILE? USE THIS AS YOUR RULES REFERENCE
The 2027 filing season is the first time these deductions appear on a real return. For step-by-step claim instructions, see: How to File Your 2026 Taxes (2027 Season): Complete Guide to Claiming the New OBBBA Deductions.
What is the One Big Beautiful Bill Act?
The One Big Beautiful Bill Act (OBBBA) is the 2025 federal tax law that made most of the 2017 Tax Cuts and Jobs Act permanent and added a set of new individual deductions and credits. It was signed July 4, 2025, and most individual provisions apply starting with the 2026 tax year (the return you file in early 2027).
The law matters because, without it, the 2017 tax cuts were scheduled to expire at the end of 2025. The Tax Foundation estimates that roughly 62% of taxpayers would have faced a tax increase in 2026 if that had happened. Instead, the brackets and the larger standard deduction are locked in.
The OBBBA is also the same law behind two other big changes you may have heard about: Trump Accounts for children and the student loan overhaul. This guide focuses on the provisions that touch your personal income taxes.
Who does the OBBBA affect most?
Almost every taxpayer is touched in some way, because the permanent brackets and standard deduction apply to everyone who files. Beyond that baseline, the new deductions are narrow and target specific groups.
Hourly and service workers get the most attention-grabbing changes: the tips and overtime deductions are built for people who earn variable pay rather than a flat salary. Parents benefit from the larger Child Tax Credit and Dependent Care FSA. Homeowners in high-tax states gain the most from the bigger SALT cap. Seniors 65 and older get their own $6,000 deduction. The self-employed keep the 20% QBI deduction permanently. If you are a W-2 employee with no tips, overtime, or kids, your main change is simply that your 2026 brackets and standard deduction did not snap back to higher pre-2018 levels.
One theme runs through the new provisions: income phase-outs. Most of these deductions shrink or disappear as your income rises, so two people in the same job can get very different results. The sections below give the specific thresholds for each.
Are the 2026 tax brackets and standard deduction permanent now?
Yes. The seven tax brackets from the 2017 law (10% to 37%) were set to expire after 2025 and revert to higher pre-2017 rates, but the OBBBA made them permanent. The top rate stays at 37% instead of rising to 39.6%. Here are the 2026 brackets after the inflation adjustment, per IRS Revenue Procedure 2025-32:
| Rate | Single | Married filing jointly |
|---|---|---|
| 10% | Up to $12,400 | Up to $24,800 |
| 12% | $12,400 to $50,400 | $24,800 to $100,800 |
| 22% | $50,400 to $105,700 | $100,800 to $211,400 |
| 24% | $105,700 to $201,775 | $211,400 to $403,550 |
| 32% | $201,775 to $256,225 | $403,550 to $512,450 |
| 35% | $256,225 to $640,600 | $512,450 to $768,700 |
| 37% | Over $640,600 | Over $768,700 |
The standard deduction (the flat amount you subtract from income if you do not itemize) is also permanent and indexed for inflation. For tax year 2026 it is $16,100 for single filers and married filing separately, $32,200 for married filing jointly, and $24,150 for head of household, according to the IRS. For most people who do not itemize, this is the single most impactful change: a single filer earning $55,000 is taxed on $38,900 after the deduction. See our full guide to the 2026 tax brackets and standard deduction for every status and how marginal rates work.
What are the new deductions for workers?
Two flagship OBBBA provisions cut taxes for hourly and tipped workers from 2025 through 2028. Both are deductions, not full exemptions, and both are available whether or not you itemize. Payroll taxes (FICA) still apply to this income.
How does the no tax on tips deduction work?
Workers in occupations that customarily receive tips can deduct up to $25,000 of qualified tip income per return. The IRS published the list of qualifying occupations in 2026. Mandatory service charges (an automatic 18% added to a large party, for example) do not count, and the deduction phases out above $150,000 of modified adjusted gross income, or $300,000 for joint filers. Employers report qualified tips on the W-2 starting with 2026. See our full guide to the no tax on tips deduction.
How does the no tax on overtime deduction work?
Non-exempt employees can deduct the premium portion of their overtime pay, the extra “half” in time-and-a-half required under the Fair Labor Standards Act (FLSA), up to $12,500 single or $25,000 married filing jointly. Only the FLSA premium qualifies, not your regular hourly rate, and the deduction phases out above $150,000 MAGI ($300,000 joint). See our guide to the no tax on overtime deduction.
If you earn tips or overtime, this calculator converts an hourly rate to annual pay so you can estimate where you land against the phase-outs:
Hourly to Salary Calculator
What changed for families?
The Child Tax Credit is now $2,200 per qualifying child under 17, up from $2,000, and the OBBBA indexes it for inflation going forward. The refundable portion is $1,700 for 2026, and the full credit is available up to $200,000 of income ($400,000 for joint filers) before it phases out. See our full Child Tax Credit guide for who qualifies and how to claim it.
The Dependent Care FSA limit rose from $5,000 to $7,500 for married filing jointly starting in 2026, the first increase in decades. At the 22% bracket, sheltering an extra $2,500 is worth up to about $550 in federal tax savings.
The law also created Trump Accounts, tax-deferred investment accounts for children with a $5,000 annual contribution limit and a $1,000 government seed for children born 2025 through 2028.
For education savings, the OBBBA also expanded 529 plans: the annual K-12 withdrawal limit doubled to $20,000 starting in 2026, more K-12 expenses now qualify, and 529 funds can pay for trade-school credentials and professional licenses. See our guide to the 2026 529 plan changes.
What is the new $6,000 senior deduction?
Taxpayers age 65 and older can claim an extra $6,000 deduction for 2025 through 2028, on top of the standard deduction and separate from the existing age-65 add-on. A married couple where both spouses are 65 or older can claim $12,000. It phases out starting at $75,000 of MAGI (single) or $150,000 (joint) and disappears entirely above $175,000 ($250,000 joint). It requires a work-eligible Social Security number and is not available to married-filing-separately filers.
For a single 65-year-old earning $70,000, the standard deduction ($16,100) plus this $6,000 shelters $22,100 before any other deductions. The senior deduction effectively lowers taxable income for many older households, which can reduce tax on Social Security benefits, although the underlying rules for taxing those benefits still apply. See our full senior deduction guide for the phase-out details and why it is not the same as “no tax on Social Security.”
What changed for homeowners and car buyers?
The state and local tax (SALT) deduction cap jumped from $10,000 to $40,000 starting in 2025, rising slightly with inflation (about $40,400 for 2026) through 2029, then reverting to $10,000 in 2030. The higher cap phases down for incomes above $500,000 of MAGI. This helps itemizers in high-tax states but does not affect the roughly 90% of filers who take the standard deduction. In high-tax states, the bigger cap plus mortgage interest and charitable gifts can make itemizing worthwhile again for some middle-income homeowners. See our full SALT cap guide for the income phase-out and whether itemizing now makes sense.
Mortgage interest stays deductible on up to $750,000 of acquisition debt, now permanent rather than reverting to the old $1 million limit. For most homeowners, nothing changes here.
The OBBBA also added a new deduction of up to $10,000 a year for interest on a loan used to buy a new, U.S.-assembled passenger vehicle, available 2025 through 2028 with income phase-outs. The vehicle must be assembled in the United States and the loan must be for a new purchase, not a lease or used car. The deduction begins to phase out above $100,000 of MAGI for single filers and $200,000 for joint filers, and you report the vehicle identification number (VIN) on your return. Because final assembly location varies even within the same model, the assembly point, not the brand, is what determines eligibility. See our full guide to the car loan interest deduction for the vehicle and loan rules.
What changed for the self-employed and small businesses?
The qualified business income (QBI) deduction was made permanent at 20%. A proposed increase to 23% was dropped from the final law. Sole proprietors, S-corporation owners, and partners can deduct 20% of qualifying net business income, subject to the usual income and business-type limits. See our guides to freelancer and self-employed taxes and side hustle taxes.
Two more business provisions became permanent. Employers can provide up to $5,250 a year in tax-free student loan repayment under Section 127, now a permanent benefit. And 100% bonus depreciation was restored permanently, letting businesses immediately expense qualifying equipment, machinery, and vehicles rather than depreciating them over years.
One reporting change matters for gig workers: the 1099-NEC reporting threshold rose from $600 to $2,000 starting in 2026, and the separate 1099-K threshold for payment apps reverted to $20,000 and 200 transactions. Income is still taxable even if no form is issued, so keep your own records. See our guide to the 2026 1099-K threshold.
What changed for savers and investors?
Health Savings Accounts (HSAs) expanded. Direct primary care fees, certain fitness expenses with a doctor’s recommendation, and telehealth before you meet your deductible are now HSA-eligible. The 2026 HSA contribution limits are $4,400 for individual coverage and $8,750 for family coverage, and account holders 55 and older can add a $1,000 catch-up contribution on top.
Long-term capital gains rates did not change. They remain 0%, 15%, and 20% depending on your income, and the OBBBA left the brackets for those rates intact. If you sell investments at a loss, our guide to tax-loss harvesting explains how those losses can offset gains.
What changed for student loan borrowers?
The SAVE repayment plan was eliminated and replaced by the Repayment Assistance Plan (RAP), with payments based on 1% to 10% of adjusted gross income and forgiveness after 30 years.
The temporary exemption that made income-driven repayment forgiveness tax-free expired December 31, 2025. Balances forgiven from January 1, 2026 onward are generally treated as taxable income again, which our student loan forgiveness tax bomb guide covers in detail. Public Service Loan Forgiveness (PSLF) remains tax-free.
What did the OBBBA not change?
- Roth IRA income limits and contribution rules.
- 401(k) contribution limits (still inflation-indexed).
- Long-term capital gains rates.
- The home office deduction (still unavailable to W-2 employees).
- Credit card interest (still not deductible).
- Home equity loan interest (still deductible only when used to buy or improve the home).
The estate tax exemption was increased and made permanent, rising to $15 million per person for 2026.
Which OBBBA tax breaks are temporary?
Several of the most talked-about deductions are scheduled to expire after 2028 unless Congress extends them: the tips deduction, the overtime deduction, the $6,000 senior deduction, and the car loan interest deduction. The $40,000 SALT cap runs through 2029, then reverts to $10,000 in 2030. By contrast, the brackets, standard deduction, QBI deduction, Child Tax Credit increase, and estate tax exemption are permanent.
What should you keep in mind for the 2026 tax year?
Most OBBBA deductions phase out by income and several carry strict eligibility rules, so the details matter more than the headlines. If you earn tips or overtime, your employer reports the qualifying amounts on your W-2 starting in 2026, and you can adjust your W-4 withholding to reflect the deduction instead of waiting for a refund. If you live in a high-tax state, the $40,000 SALT cap may make itemizing worth rechecking. If you have kids under 17, the $2,200 Child Tax Credit applies automatically. A CPA or tax professional can confirm how the phase-outs apply to your specific situation. For software options, you can compare filing tools below.
Summary of key changes
| Change | Who benefits | Approximate value (at 22% bracket) |
|---|---|---|
| Tip deduction (up to $25,000) | Tipped workers under income limit | Up to about $5,500/year |
| Overtime deduction (up to $12,500 / $25,000) | Non-exempt workers under income limit | Up to about $2,750/year |
| Senior deduction ($6,000) | Age 65+ under income limit | Up to about $1,320/year |
| Child Tax Credit increase | Parents with kids under 17 | $200 more per child |
| Dependent Care FSA ($7,500) | Working parents | Up to about $550/year |
| Car loan interest (up to $10,000) | Buyers of new U.S.-assembled vehicles | Varies by interest paid |
| SALT cap ($40,000) | Itemizers in high-tax states | Up to about $6,600/year |
| QBI deduction (20%, permanent) | Self-employed and small business | Varies by income |
FAQ
Did the OBBBA raise the QBI deduction to 23%?
No. The proposed 23% was dropped from the final law. The qualified business income deduction stayed at 20% and was made permanent.
Are tips and overtime really tax-free now?
Partly. They are deductions, not full exemptions. You can deduct up to $25,000 of qualified tips and up to $12,500 of overtime premium pay ($25,000 joint) for 2025 through 2028, with income phase-outs above $150,000 single or $300,000 joint, and FICA payroll taxes still apply.
What is the standard deduction for 2026?
For 2026 it is $16,100 for single filers and married filing separately, $32,200 for married filing jointly, and $24,150 for head of household. It is now permanent and indexed for inflation.
What changed for student loans under the OBBBA?
The SAVE plan ended and the Repayment Assistance Plan (RAP) replaced it, and the tax-free treatment of forgiven income-driven balances expired at the end of 2025, so most forgiveness from 2026 on is taxable. PSLF stays tax-free.
Which OBBBA tax breaks are temporary?
The tips, overtime, senior, and car loan interest deductions all expire after 2028 unless extended. The $40,000 SALT cap runs through 2029. The brackets, standard deduction, QBI deduction, and Child Tax Credit increase are permanent.
Bottom line: The OBBBA locked in the 2017 tax cuts and added new deductions for tips, overtime, seniors, families, and car buyers, while reforming student loans. The numbers to remember are a permanent 20% QBI deduction (not 23%), a SALT cap raised to $40,000 through 2029, a $2,200 Child Tax Credit, and the expiration of the student loan forgiveness tax break.
How to Claim This on Your 2026 Return
Now that you know the rules, here is how to actually claim it when you file. The step-by-step guides below cover which boxes to check on your W-2, where the deduction appears on Form 1040, and how the major tax software platforms handle it:
- How to File Your 2026 Taxes (2027 Season): Complete Guide to Claiming the New OBBBA Deductions
- How to Claim the No-Tax-on-Tips Deduction on Your 2026 Return
- How to Claim the No-Tax-on-Overtime Deduction on Your 2026 Return
- How to Claim the Car Loan Interest Deduction (2026 Return)
- When Can You File 2026 Taxes? 2027 Season Dates, Deadlines and Refund Timeline
- Best Tax Software for 2027: TurboTax vs H&R Block vs FreeTaxUSA for the New OBBBA Rules
This article is for educational and informational purposes only and is not tax advice. Tax rules and dollar figures change, and how a provision applies depends on your individual situation. We want you to feel confident, not overwhelmed, so treat this as a map of what changed and check the details with a qualified tax professional or at irs.gov before you file.
