Individual Provisions Tax Summary
President Trump signed H.R. 1, One Big Beautiful Bill Act (OBBBA), into law on July 4, permanently extending key Tax Cuts and Jobs Act (TCJA) provisions and introducing new tax provisions. The new legislation introduces additional tax relief for middle-class families and workers while aiming to simplify compliance, reduce taxable income for certain earners and broaden access to tax benefits.
Building on the 2017 TCJA, the OBBBA retains popular elements such as reduced individual tax rates and the enhanced standard deduction. It also introduces notable updates, including a deduction for qualified overtime, expanded child tax credit and a deduction for seniors. It also launches Trump Accounts for young savers. The following outline of the individual tax provisions of the OBBBA is intended to help tax professionals navigate how these changes may affect planning and filing strategies.
Extension of reduced income tax rates
This provision permanently extends the individual income tax rates introduced by TCJA, which were previously set to expire after Dec. 31, 2025. The amendment to Section 1(j)(1) eliminates the sunset clause, ensuring that the reduced marginal rates of 10%, 12%, 22%, 24%, 32%, 35% and 37% remain in place.
Takeaways
This provision is intended to:
• Lock in the TCJA’s lower marginal tax rates
• Prevent automatic rate hikes in 2026
• Provide continued tax relief to individuals and families
• Control the way bracket thresholds grow with inflation for better targeting of rate brackets
Extension and enhancement of increased standard deduction
There are two changes to the standard deduction rules under §63(c).
First, the law permanently preserves the TCJA’s enhanced standard deduction amounts. Under prior law, the increased deduction, initially established for tax years 2018 through 2025, was set to revert to pre-2018 levels beginning in 2026. By eliminating the Jan. 1, 2026, sunset provision under §63(c)(7), the new legislation ensures that the higher TCJA deduction amounts will remain in effect indefinitely beyond 2025.
Second, the law increases the base standard deduction amounts beginning in tax year 2025. For married taxpayers filing jointly (MFJ), the new base deduction is $31,500, representing an increase over the inflation-adjusted TCJA amount of approximately $30,000, which was originally slated for 2025. The new base amount for single filers is $15,750, exceeding the prior 2025 inflation-adjusted amount of $15,000. These amounts are subject to future inflation adjustments using the chained Consumer Price Index (CPI) methodology.
Why it matters
• This provision offers broad-based tax relief by:
o Reducing taxable income for all filers who don’t itemize
o Making the standard deduction a more appealing alternative to itemizing, especially when combined with the continued cap on state and local tax (SALT) deductions
• Low- and middle-income taxpayers benefit most, as a higher deduction lowers their tax liability directly
Takeaways
• Locks in and expands the TCJA’s shift toward a higher standard deduction system
• Reduces reliance on itemized deductions
• Delivers direct tax savings to most U.S. households starting in 2025
Termination of deduction for personal exemptions other than the temporary senior deduction (new)
Permanent repeal of the personal exemption
The personal exemption, previously set at $4,050 per individual, was initially suspended for tax years 2018 through 2025. That suspension is now permanent, eliminating the availability of personal exemptions for all taxpayers and dependents going forward. Although the exemption is no longer factored into tax calculations, the inflation-adjusted amounts remain relevant in specific contexts, most notably when determining whether an individual qualifies as a dependent under the qualifying relative rules.
Takeaways
Personal exemption termination made permanent
• Under the Tax Cuts and Jobs Act (TCJA) (2018-2025), the personal exemption ($4,050 per person) was temporarily suspended
*H.R. 1 makes this suspension permanent by removing the expiration date (Jan. 1, 2026) in §151(d)(5) • Personal exemptions are no longer allowed for any taxpayer or dependents
NATP observation: The personal exemption amounts, including annual inflation adjustments, continue to exist “behind the scenes” to determine income requirements for a qualifying relative, for example.
Temporary deduction for seniors
Beginning in tax year 2025, and continuing through 2028, individuals age 65 or older by year-end may claim a new deduction of $6,000. On a joint return, each spouse may qualify, allowing for up to $12,000 in total deductions if both meet the age requirement.
The deduction is subject to a 6% phaseout based on a modified adjusted gross income (MAGI) exceeding $75,000 for single filers and $150,000 for joint filers. For this purpose, MAGI includes income typically excluded under specific foreign income provisions, such as those in IRC §§911, 931 and 933.
The senior must possess a valid Social Security number (SSN) to claim the deduction. An omission or invalid SSN is treated as a mathematical or clerical error, authorizing the IRS to adjust the return accordingly. In addition, married individuals must file a joint return to be eligible; married filing separately is not permitted for this deduction.
NATP observation: The new deduction for seniors partly addresses President Trump’s campaign promise to make Social Security benefits received nontaxable. H.R. 1 did not accomplish that
Takeaways
Several changes to the CTC will take effect beginning tax year 2025. The increase from $1,000 to $2,000 per child, enacted initially under TCJA and scheduled to expire after 2025, is made permanent for tax purposes.
Effective for tax year 2025, the maximum credit per qualifying child increases from $2,000 to $2,200. Beginning in 2026, this amount is subject to annual inflation adjustments. The refundable portion of the credit remains capped at $1,400 per child but will also be indexed for inflation beginning in 2025.
To qualify for the CTC, a child must have a valid SSN issued to a U.S. citizen or certain legal residents. For joint returns, at least one spouse must also have a valid SSN. SSNs must be issued before the return due date, generally April 15. If a valid SSN is not provided, the IRS may treat the omission as a mathematical or clerical error and disallow the credit.
Both the $2,200 credit maximum and the $1,400 refundable cap are adjusted for inflation using the chained Consumer Price Index, based on base years of 2017 and 2024, respectively. These amounts will round down to the nearest $100.
Effective date: Applicable to tax years beginning after Dec. 31, 2024
Takeaways
Enhancement of the child and dependent care tax credit
Effective for tax years beginning after Dec. 31, 2025, the child and dependent tax credit is enhanced in two key ways.
First, the maximum applicable percentage increases from 35% to 50%. This change provides a larger credit for lower-income taxpayers with qualifying child and dependent care expenses.
Second, the phase-out structure is revised to include two tiers based on adjusted gross income (AGI).
• Under Tier 1, the credit percentage is reduced by one percentage point for each $2,000 (or fraction thereof) of AGI over $15,000. However, the percentage cannot be reduced below 35% in this phase.
• Under Tier 2, for AGI above $75,000 ($150,000 for joint filers), the percentage is further reduced by one percentage point for each $2,000 ($4,000 for joint filers) over that threshold. This reduction continues until the percentage reaches the statutory floor of 20%.
Prior law provided a maximum credit rate of 35%, with a single-phase reduction down to 20% based on AGI. The new two-tier system preserves more credit for taxpayers with moderate incomes while continuing to limit the benefits at higher income levels.
Effective date: Applicable to tax years beginning after Dec. 31, 2025.
Example 1: Low-income, single parent
• Filer: Single parent • AGI: $14,000
• Qualifying expenses: $6,000
• Applicable %: 50% (no phase-out)
• Credit: 50% of $6,000 = $3,000
Example 2: Single filer with AGI = $25,000
• First $10,000 over $15,000 5 intervals of $2,000 5% point reduction
• Applicable % = 50% - 5% = 45%
• Qualifying expenses: $4,000
• Credit: 45% of $4,000 = $1,800
Example 3: Joint return with AGI = $160,000
• First, reduce from 50% to 35% as income exceeds $15,000 60 intervals over $15,000 = 60% reduction capped at 35%
• AGI exceeds $150,000 by $10,000 3 intervals of $4,000 (round up) Further 3% point reduction from 35% Final applicable % = 35% - 3% = 32%
• Qualifying expenses: $6,000
• Credit: 32% of $6,000 = $1,920
Example 4: Joint return with AGI = $195,000
• Income > $150,000 by $45,000 = 12 intervals of $4,000 12% reduction from 35% applicable % = 35% - 12% = 23%
• Qualifying expenses: $6,000
• Credit: 23% of $6,000 = $1,380
NATP observations:
• No matter how high the AGI, the credit rate won’t fall below 20%.
• Still subject to existing expense caps ($3,000 for one, $6,000 for two or more dependents)
Enhancement of the dependent care assistance contributions
Beginning in tax year 2026, §129(a)(2)(A) increases the annual contribution limits for employer provided dependent care assistance programs (DCAPs), commonly referred to as dependent care flexible spending arrangements (FSAs). The new limits are $7,500 per year ($3,750 for married individuals filing separately), up from the current $5,000 ($2,500 MFS).
DCAPs allow employees to set aside pre-tax income for qualifying dependent care expenses, such as day care, preschool and certain adult care. Contributions are excluded from gross income, reducing federal income, Social Security and Medicare taxes.
Effective date: Applicable to tax years beginning after Dec. 31, 2025.
NATP observations:
• The increased limit helps families with higher annual child care costs, allowing greater tax-preferred deferral.
• This change is especially useful for two-earner households with substantial qualifying care expenses. • If a taxpayer claims the child and dependent care tax credit, the same expenses cannot be used for the credit and the DCAP exclusion
Limitation on individual deductions for certain state and local taxes, etc. (SALT)
Under the revised provisions, the SALT deduction cap increases to $40,000 for tax year 2025. The limit rises slightly to $40,400 for 2026, and for years 2027 through 2029, it will be adjusted annually to 101% of the prior year’s cap. Despite these increases, the deduction limit will revert to the original $10,000 cap beginning in 2030 and for all subsequent years.
Importantly, eligibility to claim the enhanced SALT deduction from 2025-2029 is subject to a MAGI threshold. For 2025, taxpayers with MAGI exceeding $500,000 ($250,000 MFS) are ineligible for the increased cap. These thresholds will adjust to $505,000 ($252,500 MFS) in 2026 and continue to increase by 1% annually through 2029. The deduction will not fall below the original $10,000 ($5,000 MFS), even for those exceeding the MAGI limits.
Additionally, the law preserves a key workaround known as the pass-through entity tax (PTET) election. This provision allows certain state-level taxes paid by partnerships or S corporations to be deducted at the entity level, with a deduction or credit flowing through to individual partners or shareholders, depending on the applicable state’s law. Thus, the law offers a continued avenue for mitigating the SALT cap’s impact.
Effective date: Applicable to tax years beginning after Dec. 31, 2024.
NATP observation: Early versions of the proposed changes to SALT excluded service-based businesses from the new benefits. That provision was removed from the final bill.
No tax on tips (new)
This provision (§224) allows individuals to deduct certain cash tips from their taxable income. The deduction is available for tax years beginning after Dec. 31, 2024, and before Jan. 1, 2029.
This applies to individuals who receive cash tips in an occupation that customarily and regularly received tips on or before Dec. 31, 2024 (to be determined and published by the IRS). Both employees and self-employed individuals may be eligible, but the deduction is limited for self employed taxpayers if business expenses exceed income. Married taxpayers must file jointly to claim the deduction.
The tips must be reported on IRS-approved forms, such as Form 4137, Social Security and Medicare Tax on Unreported Tip Income, or employer-furnished wage statements (e.g., Forms W-2, Wage and Tax Statement, Form 1099-NEC, Nonemployee Compensation, Form 1099-K, Payment Card and Third Party Network Transactions, or other applicable statements). Additionally, the taxpayer must provide a valid SSN on their Form 1040.
The deduction is capped at $25,000 per year and phases out if the taxpayer’s MAGI exceeds:
• $150,000 for individuals
• $300,000 for joint filers
The deduction is reduced by $100 for every $1,000 over the threshold. MAGI means the taxpayer’s AGI for the taxable year increased by any amount excluded by §§911, 931 or 933.
Definition of qualified tips
Tips include cash, card-based payments and amounts distributed through tip-sharing arrangements. To qualify as a tip, the payment must be made voluntarily by the customer, not subject to negotiation and determined solely at the customer’s discretion. However, tips received in a specified service trade or business (SSTB) as defined under §199A are excluded unless the recipient is an employee of an employer not classified as an SSTB.
Additional provisions
Within 90 days of the bill’s enactment, the IRS will publish a list of qualifying occupations. Beginning in 2026, IRS withholding tables will be updated to reflect the new deduction. Employers who pay tips will face increased reporting requirements, including disclosing the amount of tips and the recipient’s occupation. Additionally, the bill expands the FICA tip credit to cover beauty service businesses, such as hair, nail, spa and esthetic services.
Effective date: Applicable to tax years beginning after Dec. 31, 2024.
No tax on overtime (new)
Taxpayers may deduct the amount of overtime compensation received during the taxable year, provided the compensation is reported on either Form W-2 or on an information return per §6041(d)(4). Only overtime that qualifies under Section 7 of the Fair Labor Standards Act of 1938 is eligible; that is, pay for hours worked in excess of the standard workweek, calculated at a rate above the individual’s regular hourly rate.
Importantly, qualified overtime compensation excludes any amount categorized as qualified tips under Section 224(d) of the Fair Labor Standards Act.
Deduction limitations
The deduction is subject to two primary limitations: a dollar cap and an income-based phaseout.
First, the maximum deduction is $12,500 for single filers and $25,000 for MFJ.
Second, the deduction is gradually reduced for higher-income taxpayers. For every $1,000 that a taxpayer’s MAGI exceeds $150,000 ($300,000 MFJ), the deduction is reduced by $100.
For this purpose, MAGI includes AGI increased by any amounts excluded under §§911, 931 or 933.
Additional requirements
For taxable years beginning after Dec. 31, 2024, and before Jan. 1, 2029, a deduction is permitted only when the taxpayer includes the recipient’s SSN on the return. Additionally, in the case of married individuals as defined under §7703, the deduction is available solely if the taxpayer and spouse file a joint return.
Effective date: Applies to tax years beginning after Dec. 31, 2024, and before Jan. 1, 2029.
Example: Maria is a restaurant shift supervisor earning $20/hour. In 2026, she works 250 hours of overtime at time-and-a-half.
• Regular rate: $20/hour
• Overtime pay: $10/hour × 250 hours = $2,500
• Maria’s AGI is $90,000
• Maria includes all relevant info on her tax return, including her SSN Maria can deduct $2,500 from her taxable income under this section.
Example: Jason is a software engineer earning a high income and earns $20,000 of overtime pay in 2026.
• Jason and his spouse have a joint AGI of $325,000
o Exceeds the $300,000 threshold subject to $100 reduction per $1,000 over
$325,000 - $300,000 = $25,000 over $2,500 deduction reduction
• He also forgot to file his Social Security number on his return
Result:
• His cap of $25,000 overtime deduction is reduced to $22,500
• Because he omitted his SSN, he loses the entire deduction due to compliance rules under Section 225(d)
Additional notes
• This is an above-the-line deduction. Per IRC 62 (a): Taxpayers do not have to itemize to claim. The deduction is added to the standard deduction for non-itemizers.
• IRS is authorized to regulate and prevent abuse (e.g., recharacterizing wages as “overtime”).
• W-2s and 1099s must separately report overtime.
• This deduction is available for tax years 2025 through 2028.
Deductible car loan interest (new)
For tax years 2025 through 2028, interest paid on a loan to purchase a qualifying passenger vehicle for personal use may be deducted under a temporary provision in §163(h)(4). To qualify, the loan must be incurred after Dec. 31, 2024, and secured by a first lien on the vehicle. The interest is only deductible if the taxpayer includes the vehicle’s identification number (VIN) on their return. Refinancing of such loans is also eligible for the deduction, but only to the extent the refinanced amount does not exceed the original loan principal.
However, the deduction is subject to several exclusions. Interest on loans for fleet sales, commercial-use vehicles, leased vehicles, salvage-title vehicles or vehicles intended for scrap or parts is not deductible. Additionally, loans from related parties, defined under §267(b) or §707(b)(1), are excluded from eligibility.
Deduction limits
The deduction is capped at $10,000 of interest per taxable year. It is also phased out for higher income taxpayers. The phaseout begins when a taxpayer’s MAGI exceeds $100,000 ($200,000 for joint filers). The allowable deduction is reduced by $200 for every $1,000 (or part thereof) of MAGI above the applicable threshold.
Qualified vehicle definition
To qualify, the vehicle must be intended for the taxpayer’s original use and primarily manufactured for use on public roads. Eligible vehicles include cars, minivans, vans, SUVs, pickup trucks and motorcycles, as long as they have at least two wheels and a gross vehicle weight rating (GVWR) under 14,000 pounds. The vehicle must also be classified as a motor vehicle under the Clean Air Act and assembled in the United States.
Availability to non-itemizers
Importantly, this deduction is available to both itemizers and non-itemizers. Under §63(b)(7), taxpayers who do not itemize may claim this deduction as an above-the-line adjustment to income.
Effective dates: Applies to tax years beginning after Dec. 31, 2024, and before Jan. 1, 2029.
NATP observation: The interest incurred on business-use vehicles remains deductible for the percentage
Mortgage interest deduction
Under current law, the deduction for qualified residence interest is limited to acquisition debt of up to $1 million ($500,000 if MFS) for loans incurred on or before Dec. 15, 2017. The limit for loans incurred after that date is $750,000 ($375,000 if MFS). These limitations, enacted under the TCJA, were set to expire after 2025.
The OBBB makes the TCJA limitations permanent by removing the scheduled sunset date. As a result, the $750,000 acquisition debt cap remains in effect indefinitely for post-2017 mortgages.
The new law also reinstates the deduction for mortgage insurance premiums (PMI), treating them as qualified residence interest. The prior provision, which applied only through 2025, is amended to allow deductibility for years beginning after 2017, without a sunset.
Effective date: Applies for tax years beginning after Dec. 31, 2025.
Takeaways
This amendment applies a 0.5% floor against the sum of charitable contributions that a taxpayer(s) makes. Only the amount of charitable contributions above this floor can be deducted. Specifically, amended §170(b)(1) states that individual taxpayers may only deduct charitable contributions to the extent that the aggregate of their contributions exceeds 0.5% of their contribution base (generally their AGI for the year).
This means taxpayers will not receive a tax benefit for the first 0.5% of their contribution base donated to charity. Only amounts contributed beyond this threshold are eligible for a deduction, subject to other existing percentage limitations for charitable deductions.
Effective date: Applicable tax years after Dec. 31, 2025.
Cash contributions limitation clarification
Section 170(b)(1)(G) was updated to clarify the 60-percent AGI limit for cash contributions to public charities. The maximum deduction for cash contributions remains capped at 60 percent of the taxpayer’s contribution base. Contributions under subparagraphs (A) and (G) are now coordinated explicitly to avoid exceeding combined deduction limits, ensuring consistency in applying the percentage of ceilings across different categories of charitable gifts.
Effective date: Applicable tax years after Dec. 31, 2025.
Charitable deduction for non-itemizers
This permanent charitable contribution deduction is available for taxpayers who do not itemize. Specifically, the provision amends §170(p) to reinstate and increase the above-the-line deduction limit for charitable contributions made by non-itemizing individuals:
• The maximum deduction for single filers is $1,000.
• The maximum deduction for married individuals filing jointly is $2,000.
Effective date: Applicable tax years after Dec. 31, 2025.
Takeaways
• Individual taxpayers cannot deduct the first 0.5% of their contribution base in charitable contributions. For example, a taxpayer with $100,000 AGI must contribute more than $500 before any charitable deduction is allowed.
• Disallowed contributions due to the new floor can still be carried forward if total contributions exceed other applicable deduction limits, preserving the tax benefit in future years.
• Taxpayers with smaller charitable giving patterns or those with income volatility could see deductions reduced or eliminated in low-income years. Planning to bundle donations in alternate years or increase contribution levels may help maximize tax benefits.
• Updates to §170 ensure the new floor integrates smoothly with existing limitations on cash gifts and other types of charitable contributions, preventing unintended overstatements or conflicts.
Termination of miscellaneous itemized deductions other than educator expenses
TCJA temporarily suspended miscellaneous itemized deductions subject to the 2% adjusted gross income (AGI) threshold through 2025. These deductions included unreimbursed employee expenses, tax preparation fees, investment expenses and other similar items.
This suspension becomes permanent by removing the sunset provision in §67(g). As a result, taxpayers still cannot deduct a broad range of previously eligible expenses. Specifically, deductions will be disallowed for unreimbursed employee costs, investment advisory fees, union dues, tax prep fees, hobby expenses and safe deposit box fees.
Educator expenses have been added to the definition of what is not a miscellaneous itemized deduction subject to the 2% of AGI floor. Section 62(a)(2)(D) was not repealed. As such, educators are presumably still allowed the $300 above-the-line deduction. Any excess could be deductible if the taxpayer itemizes. Clarification is needed in this area. The scope of who qualifies has also expanded to include not just classroom teachers, but also interscholastic sports coaches and administrators.
The types of deductible expenses have been broadened. Supplies and materials not related to athletics but used in instructional activities are now explicitly included. Moreover, expenses incurred outside the traditional classroom, such as those associated with extracurricular programs or alternative instructional environments, can qualify as long as they are directly tied to educational activities.
Effective date: Applicable tax years after Dec. 31, 2025.
Limitation on tax benefit of itemized deductions
Beginning in tax years after Dec. 31, 2025, a modified version of the Pease limitation will be reinstated under new §68. This provision curtails the tax benefit of itemized deductions for high income taxpayers by phasing out a portion of those deductions once income exceeds specified thresholds.
Specifically, the reduction equals 2/37 of the lesser of:
• The taxpayer’s total itemized deductions, or
• The excess of the taxpayer’s AGI over the 37% tax bracket threshold
For the 2024 tax year (as a reference point), these thresholds are approximately $609,350 for single filers and $731,200 for joint filers. As income rises above these amounts, affected taxpayers will see a corresponding reduction in allowable itemized deductions, thereby increasing their overall tax liability.
This change revives a mechanism last used before TCJA and is designed to limit the value of deductions for those at the highest income levels. NATP observation: High-income taxpayers will lose part of their itemized deductions as income rises above these thresholds.
Effective date: Applies to tax years beginning after Dec. 31, 2025.
Takeaways
Trump Accounts (new)