One Big Beautiful Bill (OBBBA): 2025–2026 Individual Tax Updates You Should Know

ByHinali Shah

In 2025, Congress passed major tax legislation known as the One Big Beautiful Bill Act (OBBBA). This law introduces numerous updates that affect individual taxpayers. Some changes take effect immediately, while others roll out over 2026 and beyond. Here’s a clear guide to what you need to know.

Overtime and Tips Deductions (2025–2028)

Overtime Deduction:
Eligible workers can deduct the overtime portion of their pay — usually the “half” in time‑and‑a‑half — up to $12,500 for single filers and $25,000 for married couples filing jointly. Phase‑outs start at $150,000 (single) and $300,000 (MFJ) in MAGI. Employers will report totals on W‑2s as IRS guidance is updated.
Tips Deduction:
Employees who receive tips can deduct up to $25,000 per year, subject to income limits. Accurate record‑keeping is essential for IRS compliance.

Extra Deduction for Seniors (2025–2028)

Taxpayers aged 65 and older can claim an additional $6,000 deduction on top of standard or itemized deductions. This benefit gradually phases out at higher income levels and requires a valid Social Security number, helping retirees offset rising living and healthcare costs.

Higher SALT Deduction Cap (Starting 2025)

The state and local tax (SALT) deduction cap increases for many taxpayers, offering relief for households in high‑tax states who previously hit the $10,000 limit. Phase‑out details will appear in IRS Publication 4011 (Rev. 10‑2025).

Form 1099‑K Threshold Returns to $20,000 / 200 Transactions (2025+)

Freelancers and online sellers using platforms like PayPal, Etsy, or Venmo will only receive Form 1099‑K if they exceed $20,000 in payments and 200 transactions, restoring the pre‑2023 reporting threshold. (Implementation guidance is still forthcoming.)

  1. Car‑Loan Interest Deduction (2025–2028)

Buyers of qualifying new, U.S.-assembled vehicles can deduct up to $10,000 in loan interest, phased out for higher earners. Include the VIN and lender info when filing. IRS

529 Plan Expansion (Starting 2026)

The annual K–12 withdrawal limit increases to $20,000, and eligible expenses now include tutoring, online courses, and certain certifications. State rules may vary, so confirm eligibility for tax benefits. Kiplinger+1

  • Timing and Filing Notes: 2025 vs. 2026
  • 2025 is transitional for reporting overtime and tips, possibly via W‑2 Box 14.
  • By 2026, new IRS codes and instructions for Form 1040 will be finalized.
  • Paper refund checks will be phased out after September 30, 2025. Taxpayers should set up direct deposit or IRS Direct Pay to avoid delays.

Steps You Should Take Now

  1. Confirm with your employer how overtime and tips will be reported for 2025.
  2. Track all tips and overtime carefully.
  3. If purchasing a new vehicle, ensure U.S. assembly eligibility and keep loan records.
  4. Evaluate itemized vs. standard deduction strategies under the new SALT cap.
  5. Understand the $20k / 200 transaction 1099‑K threshold for side income.
  6. Consult a tax advisor before making 529 withdrawals under the expanded rules.

Final Thoughts

The OBBBA brings meaningful tax benefits for workers, seniors, and families. To maximize deductions and remain compliant, it’s essential to plan carefully and work with a qualified tax professional.

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