What the One Big Beautiful Bill Act (OBBBA) Means for Individual Taxpayers in 2025–2028

The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, brings major changes — and opportunities — for individual taxpayers. While the law covers a wide range of provisions, several of the most impactful updates affect how everyday workers and families pay taxes.

Below are five changes you should know — and what they could mean for you or your clients.

1. Bigger & Permanent Child / Dependent Tax Credit

• Under OBBBA, the Child Tax Credit (CTC) increases to $2,200 per eligible child starting in 2025.

• The refundable portion of the credit (previously temporary) is now made permanent and will be adjusted for inflation.

• The law also preserves the separate $500 credit for “other dependents” (e.g., older children, dependents who may not qualify for the full CTC) on a permanent basis.

• Income phase-out thresholds remain substantial: single filers up to $200,000 and married filing jointly up to $400,000.

Implication: Families with qualifying children or dependents — at a wide range of income levels — stand to benefit from more reliable and generous credits. It enhances predictability for family tax planning and may reduce the overall tax burden significantly.

2. “No Tax on Tips” — New Deduction for Qualifying Tip Income

One of the more worker-oriented changes under OBBBA affects people in tipped industries (servers, bartenders, hospitality workers, etc.).

• The law introduces a new above-the-line deduction for “qualified tips.” Taxpayers in occupations that customarily and regularly receive tips can deduct up to $25,000 of reported tips per year.

• The deduction applies whether a taxpayer uses the standard deduction or itemizes.

• There is a phase-out based on income: for single filers, the deduction begins to phase out when modified adjusted gross income (MAGI) exceeds $150,000; for married filing jointly, the threshold is $300,000.

• Importantly: it is a deduction, not an exclusion — tips are still reportable income, and the deduction simply reduces taxable income.

Implication: Tip-based workers who properly report their tips could see a meaningful reduction in taxable income, especially in industries like hospitality, dining, beauty services, and others. It offers a new form of tax relief that recognizes the reality of tip-based compensation.

3. “No Tax on Overtime” — Deduction for Qualified Overtime Pay

Workers who earn overtime under certain conditions also benefit under OBBBA.

• The law creates a deduction for “qualified overtime compensation” (the premium part — that is, the extra half-time pay above the regular rate required under the Fair Labor Standards Act).

• Deduction limits: up to $12,500 per year for single filers, or $25,000 for married filing jointly.

• As with tips, the deduction phases out for higher-income taxpayers — MAGI above $150,000 (single) or $300,000 (joint).

• This deduction applies whether you itemize or use the standard deduction.

Implication: For hourly workers or non-exempt employees working overtime under FLSA rules, this provision can increase take-home pay by reducing taxable income. It rewards extra work — at least in part — by easing the tax burden on overtime premiums.

4. Higher, Permanent Standard Deduction

The expanded standard deduction originally introduced under the Tax Cuts and Jobs Act (TCJA) remains — now permanently preserved under OBBBA.

• For 2025, the standard deduction amounts are: $15,750 (single), $23,625 (head of household), and $31,500 (married filing jointly).

• The law also eliminates the older system of personal exemptions (which under TCJA had been suspended).

• The amounts will continue to be adjusted for inflation in future years.

Implication: For many taxpayers, especially those without large deductible expenses or itemizable deductions, the standard deduction remains the simplest and often most beneficial filing method. The permanence of the higher standard deduction offers stability and simplifies long-term tax planning.

5. Enhanced Deduction for Seniors (Age 65+)

For older Americans, OBBBA provides a new benefit intended to ease their tax burden.

• Taxpayers age 65 or older are eligible for a temporary additional deduction of $6,000 (through tax years 2025–2028).

• For married couples filing jointly where both spouses are 65+, the combined additional deduction can be $12,000.

• Phase-outs apply: for singles, reduction starts above MAGI of $75,000; for couples filing jointly, above $150,000.

• The senior deduction can be used whether the taxpayer itemizes or takes the standard deduction.

Implication: Seniors — especially retirees — may find a lower taxable income, potentially reducing their overall federal tax owed. The added deduction acknowledges fixed income realities for older taxpayers and provides temporary relief during 2025–2028.

What This Means for Employers, HR, and PEO Clients

As a payroll, outsourcing, or PEO services provider, the implications of OBBBA go beyond individual tax savings — they also affect employer reporting, payroll systems, and compliance:

• Employers will need to adapt payroll accounting and reporting systems to separately track “qualified tip income” and “qualified overtime compensation,” since eligibility for deductions depends on accurate reporting.

• Because some of these deductions are “above-the-line,” they affect adjusted gross income (AGI), which may have downstream impacts on other tax calculations, qualifiers for credits, or deductions.

• For clients/employees who are seniors, or whose workforce includes tipped workers or frequent overtime — the new tax law may become a key part of their total compensation value proposition.

Final Thoughts

OBBBA represents one of the most significant tax overhauls in recent years — especially for everyday working Americans, families, seniors, and tip-dependent workers. For individuals, the combination of an enhanced child credit, permanent standard deduction, and temporary — but generous — deductions for tips, overtime, and senior taxpayers offers a substantial opportunity to reduce taxable income and overall tax liability.

For companies like ours in the outsourcing and PEO sector, the new law underscores the importance of accurate payroll reporting and proactive tax-planning advice for clients.