Lower Rates, Bigger Deductions, and New Opportunities
The One Big Beautiful Bill Act (OBBBA) brings good news for individual taxpayers with its promises of keeping rates low, enhancing deductions, and introducing some creative new ways to save.
Here’s what individual taxpayers can expect under the new law:
Lower Tax Rates & Permanently Modified Brackets
One of the biggest wins for taxpayers is the permanent extension of the lower tax rates that were scheduled to sunset after 2025. Under the new bill, the 2026 tax brackets will look like this:
Bracket
| Bracket |
Current Law (2026) |
New Law |
| 10% |
10% |
10% |
| 15% |
15% |
12% |
| 25% |
25% |
22% |
| 28% |
28% |
24% |
| 33% |
33% |
32% |
| 35% |
35% |
35% |
| 39.6% |
39.6% |
37% |
The lower rates mean more money stays in your pocket at every income level.
Higher Standard Deduction
The nearly doubled standard deduction that many taxpayers have come to rely on was set to expire, but now it’s hereto stay.
For 2025, the standard deduction will look like this:
| Filing Status |
Old Law |
New Law |
| Single |
$8,300 |
$15,750 |
| Head of Household |
$12,150 |
$23,625 |
| Married Filing Jointly |
$16,600 |
$31,500 |
Additionally, from 2026–2028, there will be increases for inflation.
Child & Dependent Credits
Good news for families:
- The child tax credit remains at $2,000 per child (instead of reverting to $1,000) and is temporarily increased to $2,200 per child for 2025 and is increased for inflation through 2028.
- The non-child dependent credit stays in place.
- Income phase-out thresholds for these credits remain higher, allowing more families to qualify.
- To claim these credits, both the taxpayer and dependents must have work-eligible Social Security numbers.
Personal Exemptions & Miscellaneous Deductions Eliminated
While these new benefits are welcome, the bill also permanently eliminates some provisions:
- Personal exemptions will no longer be available.
- Miscellaneous itemized deductions are eliminated.
- The deduction for moving expenses(except for active-duty military) is gone.
- The Pease limitation (a reduction in itemized deductions for high earners) is replaced with a cap that limits the value of deductions to $0.35 per dollar, but only for those in the top tax bracket.
New Deductions & Credits
The bill introduces several innovative ways to lower your taxable income:
- No tax on tips - An above-the-line deduction for qualified tips in eligible occupations of up to $25,000 per year(2025–2028).
- No tax on overtime - Deduct your overtime premium pay (2025–2028) of up to $12,500 (single) and $25,000 (joint) per year.
- Enhanced deduction for seniors - If you’re65+, you can claim a $6,000 deduction if your income falls below certain thresholds.
- Car loan interest - Deduct up to $10,000 of interest paid on U.S.-assembled passenger vehicles, subject to income limits(2025–2028).
- Charitable contributions - Non-itemizers can deduct up to $1,000 (single) or $2,000 (married) for cash donations to qualified charities (2025–2028).
- Student loan forgiveness - Income from student loan discharge due to death or disability remains excluded from taxable income.
Other Notable Changes
- The mortgage interest deduction remains limited to loans up to $750,000, permanently.
- Only losses from federally declared disasters qualify for casualty loss deductions.
- The exclusion for bicycle commuting reimbursements is eliminated.
What Should You Do Now?
These changes present an opportunity to reassess your tax strategy and ensure you’re maximizing the benefits available to you. Whether it’s planning to take advantage of the increased standard deduction, exploring the new deductions for tips or overtime, or adjusting your withholding to reflect the lower rates, there are steps you can take today to prepare for tomorrow.
At Reagan & Reagan CPA, we’re here to help you navigate these changes and tailor a tax plan to fit your needs. Contact us to schedule a consultation and see how the new law could impact your bottom line.
