Major 2025 Tax Law Changes: How the OBBBA Impacts Individual Taxpayers

By Patrick Charvat, CPA and Conrad Martin

On July 4, 2025, President Donald Trump signed the One Big Beautiful Bill Act (OBBBA) into law. This sweeping legislation makes significant changes to the U.S. income tax code.

The following are the key provisions affecting individual taxpayers.

1. Extension, expansion, and modification of existing tax laws

The OBBBA permanently extends several key provisions from the Tax Cuts and Jobs Act of 2017, including:

• Expanded child tax credit
• Lower individual income tax rates
• Elimination of personal exemption
• Elevated unified gift and estate lifetime exemption
• Repeal of miscellaneous itemized deductions
• Limitation on excess business losses under Section 461(l)

2. Temporary senior citizen deduction

From 2025 through 2028, taxpayers age 65 and older can claim an additional deduction of $6,000 ($12,000 for joint filers).

The deduction phases out at modified adjusted gross incomes of $75,000 ($150,000 for joint filers).

3. Standard deduction changes

Starting in 2025, the standard deduction receives an annual increase of $750 for single filers and $1,500 for joint filers on top of regular inflation indexing.

Beginning in 2026, taxpayers taking the standard deduction can also deduct up to $1,000 ($2,000 for joint filers) in cash charitable contributions, previously only available to those who itemize.

4. Itemized deduction changes

The OBBBA made various changes to the way taxpayers can utilize itemized deductions:

• SALT Deduction:
  • Cap raised from $10,000 to $40,000 in 2025 for single filers earning less than $250,000 and joint filers under $500,000
  • Phases down to $10,000 for incomes above those thresholds
  • Increases 1% annually through 2029, reverts to $10,000 in 2030 (Example: in 2026, the deduction cap increases to $40,400, joint filer increases to $505,000)
• Educator Expenses:
  • No longer capped at $250
  • Fully deductible as itemized expense (like mortgage interest or charitable contributions)
• High-Income Limitation:
  • Reduces deductions for 37% bracket earners
  • Reduction is equal to 2/37 of lesser amount of the itemized deductions OR income over 37% threshold

5. New limited time individual tax deductions

The OBBBA introduced several temporary deductions effective only for tax years 2025 through 2028:

Tip income:

• Deduct up to $25,000 in tips per taxpayer
• Income limits: Adjusted Gross Income of $150,000 (single), $300,000 (joint)

Overtime pay:

• Deduct up to $12,500 in qualified overtime
• Subject to same income limits as above
• Must be reported on W-2

Auto loan interest:

• Deduct up to $10,000 of interest on new U.S.-assembled passenger vehicles
• Income phaseout for filers with an AGI of $100,000 (single), $200,000 (joint)

6. Repeal of green energy tax credits

To offset revenue losses from broad tax cuts, the OBBBA phases out or repeals several green energy-related tax incentives. These include:

Credit/Provision	OBBBA Termination Date/Rule
Clean Vehicle Credit	Acquired after 9/30/2025
Previously-Owned Clean Vehicle Credit	Acquired after 9/30/2025
Qualified Commercial Clean Vehicles Credit	Acquired after 9/30/2025
Alt. Fuel Vehicle Refueling Property Credit	Placed in service after 6/30/2026
Energy Efficient Home Improvement Credit	Placed in service after 12/31/2025
Residential Clean Energy Credit	Expenditures after 12/31/2025
New Energy Efficient Home Credit	Homes acquired after 6/30/2026
Energy Efficient Commercial Buildings Deduction	Construction beginning after 6/30/2026
Cost Recovery for Energy Property	Construction beginning after 12/31/2024

7. Bigger tax breaks for dependent care and education assistance

A few provisions were modified relating to tax breaks for benefits that one’s employer may offer their employees.

• Dependent care benefits: The annual cap on employer-provided dependent care benefits rises to $7,500 ($3,750 if married filing separately), up from $5,000.
• Employer education assistance: Employers may continue offering up to $5,250 annually in tax-free education assistance, including student loan payments. This provision is now permanent and inflation adjusted.

8. Expansion of 529 college savings plans

529 accounts, state-run programs for tax-advantaged education savings, now cover:

• Required testing and continuing education
• Expands allowable K-12 expenses:
• Annual cap increased to $20,000 (previously $10,000)
• Now covers private school tuition, curriculum, tutoring, and testing

9. Introduction of “Trump Accounts” for kids’ savings

OBBBA created a new type of savings account – the Trump Account – for minors. Children born between Jan. 1, 2025, and Dec. 31, 2028, receive a $1,000 government seed contribution, and accounts will likely be automatically created for those eligible during the seed period.

Trump Accounts share features with 529 plans and Roth IRAs, but have unique rules — state tax treatment, gifting, qualified distributions, and rollovers await Treasury guidance. Voluntary contributions begin in July 2026.

States administer 529 plans, and these plans may vary. The following table applies specifically to the Pennsylvania 529 program:

Feature / Plan Aspect	Traditional IRA	Pennsylvania 529 College Savings Plan (PA 529)	Trump Accounts
Who Can Establish and is earned income necessary	Any individual with earned income	Any individual (account owner) for a designated beneficiary (usually a child), no earned income requirement	Parents/guardians for children under 18, no earned income requirement
Who can contribute?	Individual account holder with earned income.	Any related or unrelated individual, trust, estate, corporation or entity.	Any related or unrelated individual, trust, estate, corporation or entity. Employers can contribute to employee (or dependents of employees) Trump accounts tax-free up to $2,500 annually.
Annual Contribution Limits (2025)	$7,000; $1,000 catch-up if age 50+; limited to taxable compensation	No federal annual limit; PA plan aggregate account limit set by state annually, $511,758 for 2025.	$5,000 for most contributors, $2,500 annually from employers, which is included in $5,000 total
Federal Tax Treatment of Qualified Distributions	Contributions are deductible subject to income limits and plan participation). Distributions taxable as ordinary income (with exceptions for basis and qualified charitable distributions).	Contributions not deductible federally. Qualified distributions (including plan earnings) for education expenses are tax-free.	Contributions are not deductible besides employer contributions discussed above. Qualified distributions are taxed at the favorable long-term capital gain tax rate, usually 15% or 20% for most individuals. Further details pending U.S. Treasury comment.
Qualified Uses / Distributions	Primarily for retirement income age 59½+, but also various additional qualified uses including first-time home purchase ($10,000), higher education, certain medical expenses, etc.	Qualified higher education expenses (tuition, fees, books, supplies, equipment, room & board for half-time+ students, computers, K-12 tuition apprenticeship expenses, student loan repayment.	Distributions allowed when beneficiary turns 18. Qualified distributions yet to be fully defined by Treasury (likely education, training, first home, or other specified uses); details pending regulations
Investment Direction	Broad, self-directed (subject to prohibited transaction rules)	Limited: investment changes allowed only twice per year per federal law; PA plan offers age-based and static portfolios	Must be invested in mutual funds or exchange traded funds that track a qualified U.S. index (such as Dow Jones). Sector or industry funds not allowed.

10. Expansion of Child Tax Credit

The Child Tax Credit increases from $2,000 to $2,200 per child and is now inflation-indexed. The Additional Child Tax Credit, the refundable portion, is set at $1,700 for 2025 and is permanently extended.

11. Expansion of child and dependent care credit

OBBBA expanded the child and dependent care credit, used most often for daycare and related expenses.

The credit now covers up to 50% of eligible expenses for families earning up to $15,000. It drops to 35% for incomes of $75,000 (or $150,000 for joint filers), and then to 20% for higher incomes.

Bottom line

OBBBA made numerous changes to the tax landscape that will have impacts for years to come. The tax experts at Boyer & Ritter are ready to answer your questions and will continue to put out the latest updates about this landmark legislation.