The One Big Beautiful Bill Act (OBBBA) was signed into law by President Donald Trump on Thursday, July 4, 2025. The bill makes permanent several of the expiring tax cuts contained in Trumpâs signature 2017 tax legislationâthe Tax Cuts and Jobs Act (TCJA). It also introduces a few new provisions, including some temporary tax breaks for individuals.
Following the House vote, I wrote a summary article (you can find it here). Since that time, Iâve been fielding some of your questions via email and social media.
I thought it would be helpful to address some of the most frequently asked questions in a separate article. Hereâs what youâve been askingâalong with my answersâabout those tax provisions. Please note that these answers are based on the information currently available. Treasury and IRS are expected to issue regulations and other guidance in the coming months.
Child Tax Credit
Under OBBBA, the child tax credit allows families a tax break of up to $2,200 per qualifying child beginning in 2025, adjusted for inflation. The credit remains subject to phase-outs.
How old does my child have to be to qualify for the child tax credit? Your child must be under the age of 17 at the end of the tax year.
Iâve read mixed things about Social Security numbers. Who has to have one for the child tax credit? The taxpayer (thatâs you) and the child must both have a Social Security number. The provision that both parents must have an SSN didnât make it into the final version of OBBBA.
State and Local Tax (SALT) Deduction
Under OBBBA, if you itemize your deductions, you can deduct state and local income taxes or sales taxes, and you can deduct state and local property taxes up to a $40,000 cap, often referred to as the SALT cap. The capâwhich is an increase from last yearâs $10,000 capâgoes into effect for the 2025 tax year. Thereâs a 1% increase in the cap each year, but only until 2029 (it goes back to $10,000 in 2030). A phase-down applies for taxpayers with modified adjusted gross income (MAGI) over $500,000âunlike a phaseout, which eliminates the deduction, a phase-down simply reduces it.
How do I know if this applies to me? Despite the earlier drama in Congress, this provision does not impact most taxpayers. It impacts taxpayers who itemize and carry a high overall state and local tax burden. Hereâs a quick cheat: if you itemize, take a peek at Schedule A. If the amount on line 5d is more than $10,000, that means that you benefit from the tax break. If you haven’t been itemizing, but pay high real estate or state income taxes, then you’ll want to run the numbers when you prepare your 2025 income tax return, to see if you’ll now benefit from itemizing.
Charitable Deductions
Under OBBBA, the charitable donation deduction has been expanded to include a permanent âabove-the-lineâ deduction for taxpayers who do not itemize their deductions. Beginning in 2026, taxpayers who do not itemize can claim a deduction of up to $1,000 ($2,000 for those taxpayers who are married filing jointly) for certain charitable contributions. Taxpayers who itemize are subject to a new limit on deductionsânew carryover rules would also apply. OBBBA also makes the 60% contribution limit for cash gifts to qualified charities permanent.
What is a floor, and why does it matter for charitable giving? OBBBA creates a 0.5% floor on charitable contributions for taxpayers who itemize. A floor is a baseline that you have to exceed in order to benefit from the deduction (the medical expense deduction also has a floor). In this case, taxpayers who itemize can only deduct the amounts over 0.5% of their adjusted gross income (AGI). Hereâs a quick example: Letâs say your AGI is $100,000 and you donated $1,500. You can deduct $1,000âthatâs your $1,500 donation less the floor of $500 ($100,000 x .5%).
What does the 60% of AGI limit for cash gifts mean? When it comes to cash donations, you can generally deduct an amount up to 60% of your AGI. If you give more, the excess is not deductible that year, but you may be able to carry it forward for up to 5 years. Hereâs a quick example: Letâs say your AGI is $100,000 and you donated $75,000 in cash. You can deduct $60,000 this year (60% of $100,000) and you can carry the extra forward to use in a future year.
Are there any limitations on the deduction for taxpayers who do not itemize? Mostly, the normal rules for charitable giving apply, but there is one addition: you cannot claim the deduction for contributions to donor-advised funds.
No Tax On Social Security (Sort Of)
Under OBBBA, seniors who are age 65 and older are eligible to claim a new, temporary deduction of $6,000 beginning in 2025âthe deduction would expire after 2028. The deduction would be available to taxpayers who itemize and those who claim the standard deduction. This is a stand-in for Trumpâs âno tax on Social Securityâ promiseâthere is no separate provision.
Do you need to be age 65 or over age 65 to claim the deduction? You must have reached age 65 as of the end of the tax year.
If I am receiving Social Security retirement benefits and am not yet age 65, do I qualify for the deduction? No, it is age-dependent, not benefits-dependent.
If I am age 70 and not receiving Social Security retirement benefits, do I qualify for the deduction? Yes, assuming you meet the other criteria, you would qualify for the deduction. It is age-dependent, not benefits-dependent.
If you are a couple both over 65, do you get $12,000 in deductions? Yes. Itâs $6,000 per qualifying senior. If youâre married, you must both file a tax return.
If I am receiving SSDI and am not yet age 65, do I qualify for the deduction? No, again, it is age-dependent, not benefits-dependent.
How will this affect my SSI benefits? It wonât affect your benefits at all. And, SSI is not subject to taxâthis deduction doesnât change that.
If I normally donât file a tax return because I donât make enough money, do I need to file to get the deduction? No. The deduction only lowers your taxable incomeâif your taxable income is already too low to result in a tax bill (or the need to file a return), you wonât get any additional benefit from the deduction, so no changes are necessary.
Is this available if I itemize? Yes, the deduction is available for those who itemize and those who do not.
Is this for people who are still working? Thereâs no work requirement.
Can you explain how a phase-out works? It is subject to phaseouts, which means the deduction decreases as income increases. In this case, the phaseout begins at $150,000 for joint filers ($75,000 for all other taxpayers)âup until those amounts, you would qualify for the full deduction. The deduction begins to shrink at a rate of 6% over those amounts. In other words, for every $100 extra you earn, you lose $6 of the deduction. That means the deduction completely disappears once income reaches $350,000 for joint filers ($175,000 for all other taxpayers).
Is the threshold based on MAGI or AGI? MAGI is modified adjusted gross income, and AGI is adjusted gross income. The phaseout is based on MAGI. There is no line item for MAGI on your Form 1040. To calculate it, you find your AGI (line 11) and add back in certain deductions, like student loan interest, IRA contributions, and one-half of self-employment tax (you can find the full list here).
Iâve read that seniors on Medicare Part A can now keep contributing to HSAs, too. Is that true? No, that was in the House bill and did not make it into the final version.
If you withdraw 401K funds during the year, does that money count towards the $75,000 limit before the phaseout? Yes. Taxable income, including other retirement benefits, counts towards the income limits.
I normally pay tax on my Social Security benefits. Will that change? Maybe. The formula for taxing Social Security hasnât changed (you can find it, together with an example, here). The extra deduction could reduce your overall tax bill, however.
Do I still need to give my Form SSA-1099 to my tax preparer when I do my taxes? Yes.
No Tax On Tips
Tip income would be temporarily deductibleâonly for tax years 2025 through 2028âfor individuals in traditionally and customarily tipped industries, regardless of whether they itemize. The deduction is limited to $25,000 of reported tips. It’s important to note that this is a federal income tax deduction, not an exclusion. That means that tips would still be reportableâand taxable at the state and local level. Highly compensated employees (those who make more than $160,000 in 2025) would be excluded.
Is it true that this applies only if you make under $25,000 a year and itemize your deductions? No. You can deduct up to $25,000 of reported tips (you can have other income) and you do not need to itemize to claim the deduction.
Iâve read that cash-only tips mean that only tips actually paid in cash qualify. Is that true? No. Donât let those social media threads on âcash only tipsâ throw youâthe deduction applies to cash or cash-equivalent tips (including those tips on credit cards).
Some articles say that only Social Security and Medicare will still be withheld on the income, while others say all taxes will be withheld. Which is it? Under OBBBA, tips remain subject to payroll taxes, including Social Security and Medicare, for employees. They may also be subject to state income taxes. The tax break is a deduction, not an exemption, so some taxpayers will likely want to have income tax withheld from their wages because they will still owe tax. Those who wonât owe any tax will likely want to make an adjustment, but indications are that will happen on a case-by-case basis. Currently, we donât expect any automatic changes to withholding on tips or other income.
Should I change my Form W-4 now? Depending on your income, you may well see a significant difference in your tax bill as a tipped worker. However, most tax prosâincluding meârecommend exercising some patience: wait for new guidance before updating your withholdings (or, since the halfway point in the year has already passed, you could also just wait and receive a fat refund next year).
When will Treasury release the list of jobs that qualify? Treasury is supposed to release a list of âtraditionally tipped industriesâ that are eligible for the credit. Thereâs no timeline on when that will happen. A good rule of thumb? If you are normally tipped as part of your jobâlike my daughter who is a serverâexpect to see it on the list. But tax attorneys and Forbes writers? We wonât make the cut.
No Tax On Overtime
Workers who receive overtime will be eligible for a deduction for qualified overtime pay of $12,500 ($25,000 for married taxpayers filing jointly). As with tips, this is a deduction, not an exclusion. The deduction would apply to taxpayers who do not itemize and would also be temporaryâonly for tax years 2025 through 2028. For purposes of the rule, overtime compensation is defined as the amount paid in excess of the employeeâs regular rateâonly the overtime compensation is part of the break. It phases out for taxpayers with income over $150,000 ($300,000 for married taxpayers filing jointly)âthat means the maximum deduction would disappear at $275,000 for single filers.
I work overtime, and I donât see it on my paycheck. How do I claim the deduction? You canât. If you are a salaried employee who doesnât get paid extra for overtime, you canât claim the deduction.
How much of my overtime can I deduct? You can deduct up to $12,500 of your overtime pay per year. The deduction only applies to the âhalfâ portion of âtime and a halfâ from federal tax, not the entire amount. The employee would still be taxed at normal rates on their regular rate of pay. So, for example, if you normally get paid $20/hour and your overtime rate is $30/hour (thatâs time and a half), the deduction only applies to the $10/hourâor the âhalfââand not the entire amount youâre paid for overtime.
When does it start? The deduction is available for the 2025 to 2028 tax years.
Iâm an employer. Thereâs not an overtime box on Form W-2. Where would this be reported? We donât have the final details yet, but I expect to see a redesign of Form W-2.
No Taxes On Car Loan Interest
Car loan interest used to be deductible until 1986, when Congress decided that it, along with other consumer loan interest, encouraged spending and discouraged saving. Now, a temporary provision would make auto loan interest deductible (but only for cars assembled in the U.S.) in tax years 2025 through 2028. The deduction would be limited to $10,000 and subject to phase-outs for individuals with income above $100,000 (for single filers) or $200,000 (for married taxpayers filing jointly). And autos onlyâcampers and RVs are excluded.
Is the deduction for $10,000 of the purchase price or $10,000 of interest? The deduction allows you to deduct $10,000 in interest paid on a car loan (per year).
Is the deduction for the entire life of the loan? No, it only applies to cars purchased after December 31, 2024, and is available each year that youâre paying interest from 2025 to 2028 (the tax break disappears after that time).
Do you have to itemize to qualify? No.
Iâve read that it has to be an American car. What does that mean? To qualify, the car must be new and assembled in the United States.
Since OBBBA eliminated the credit for electric cars, does this mean I canât claim the deduction for an electric car? No, there is no provision that says that you canât claim the deduction on an electric car. The elimination of the EV (electric vehicle) credit is a separate matter.
What about a refinanced car loan? The details on this are still sketchy, but OBBBA allows a deduction for âindebtednessâ which includes refinancing. You must still meet the other criteria.
Can I buy a car for my business and claim the deduction? No, itâs for personal use only (tax breaks already exist for business vehicles).
Clean Energy Credits
OBBBA eliminated most individual credits for clean energy, including the clean vehicle credits for cars, the energy-efficient home improvement credit, the residential clean energy credit, and the new energy-efficient home credit. The repeal takes effect 180 days from the date of the bill (thatâs December 31, 2025) except for the new energy-efficient home creditâthatâs eliminated 12 months from the date of enactment (thatâs July 4, 2026).
Iâm getting new windows. Does that mean I canât claim the credit now?Energy-efficient credits for home improvements, including doors, windows, and skylights, will disappear for installations after December 31, 2025. If youâre planning on improvements, start work well before the end of the year (we had a door replaced last year, and it took weeks to install).
Federal Estate Tax
Under OBBBA, the federal estate tax remained in place, but the federal estate tax exclusion amount increased to $15,000,000 in 2026 ($30,000,000 for married couples filing jointly), adjusted for inflation in future years.
What about the gift tax? The lifetime exclusion for gifts is rising along with the estate tax exemption because they are one and the sameâ-in other words, you can use this exclusion to pass on wealth while you’re alive or through your estate. There are no separate changes to the annual gift exclusion, which is an amount you can give annually without eating into your lifetime exclusion. The annual exclusion is $19,000 in 2025 (it gets adjusted for inflation, though not every year, since adjustments come in increments of $1,000). That means you can gift $19,000 per person to as many people as you want with no federal gift tax consequences in 2025; if you split gifts with your spouse, that total is $38,000.
More Questions
How do you refer to the One Big Beautiful Big Act? As with the TCJA, I think the easiest thing to do is use the acronym. Thatâs OBBBA. I pronounce it âah-bahâ (with a soft o, like in mob, not a short a like ABBAâthatâs completely different).
What does the IRS have to say about all of this? The IRS has not issued any guidanceâexpect it in the coming weeks and months in the run-up to next tax season.
What about you? Iâm happy to continue to answer your questions: here’s how to ask. Iâll update this article with more questions and answers, and you can find additional information on the original post.
Thereâs more information to come, so check back with Forbes. To keep it easy, I recommend that you subscribe to our free tax newsletterâthat way, the information you need will land in your email inbox each Saturday morning with no additional work on your part!