Major 2025 Tax Law Changes Every U.S. Taxpayer Needs to Know About

The One Big Beautiful Bill Act and Its Impact on Individual Taxpayers

On July 4, 2025, Congress passed one of the most comprehensive tax reform bills in recent history — the One Big Beautiful Bill Act (OBBBA).

This legislation brings major updates to the tax code, many of which will directly affect individual taxpayers starting January 1, 2025.

If you’re a taxpayer preparing for the 2025 tax year, these changes may impact your withholding, estimated payments, and year-end planning. While some provisions still require additional guidance from the IRS, the time to start preparing is now.

Child Tax Credit

Beginning in 2025, the Child Tax Credit will be permanently increased to $2,200, with a $1,400 refundable portion. The phase-out thresholds remain at $200,000 for single filers and $400,000 for joint returns. The $500 credit for other dependents is still available. However, these figures are not adjusted for inflation, so careful planning is important for families near the income limits.

SALT Deduction

The State and Local Tax (SALT) deduction cap rises to $40,000 (or $20,000 for married filing separately) beginning in 2025. This expanded deduction begins phasing out for taxpayers with modified adjusted gross income (MAGI) above $500,000, but it will never fall below $10,000. These expanded limits are set to expire after 2029.

Taxpayers with high SALT liabilities should review their itemized deduction strategy heading into the new tax year.

Tip and Overtime Income Deductions

Two new deductions will be available between 2025 and 2028:

• Qualified Tips Deduction: Up to $25,000 for individuals in IRS-recognized tip-earning occupations. Begins phasing out at $150,000 MAGI ($300,000 joint).

• Overtime Deduction: Up to $12,500 ($25,000 for joint filers) for eligible overtime compensation, as defined by the Fair Labor Standards Act. Also phased out starting at $150,000 ($300,000 joint).

These deductions are not a blanket tax exemption on tips or overtime — tax planning is required to claim the maximum benefit.

Senior Deduction

A new senior deduction of up to $6,000 per person ($12,000 for qualifying couples) applies to taxpayers aged 65 and older. Phase-outs begin at $75,000 MAGI for individuals and $150,000 for joint returns.

This deduction is not tied to Social Security benefits and is completely separate from any communication received from the SSA.

Car Loan Interest Deduction

Starting in 2025, individuals can deduct up to $10,000 of interest paid on qualified passenger vehicle loans. To qualify, the vehicle must be for personal use and assembled in the U.S., meeting strict eligibility criteria.

Phase-outs begin at $100,000 MAGI ($200,000 joint), reducing the deduction by $200 per $1,000 above the limit. Married taxpayers filing separately may each claim the full deduction.

Adoption Credit

The adoption tax credit receives a major update: up to $5,000 of the credit will now be refundable for adoptions finalized after December 31, 2024 — making the benefit more accessible to more families.

Expiring Clean Energy and Green Credits

Several popular energy-related tax credits are set to expire soon, including:

• Clean Vehicle Credits (§25E & §30D): End for vehicles acquired after September 30, 2025.

• Energy-Efficient Home Improvements (§25C): Ends for property placed in service after December 31, 2025.

• Residential Clean Energy Credit (§25D): Ends for installations after December 31, 2025.

Homeowners and consumers considering clean energy upgrades should act quickly to capture these incentives.

Strategic Planning for 2025 and Beyond

These tax law changes are significant and, in many cases, complex. Some offer strong opportunities for tax savings, while others may create unexpected challenges if left unaddressed.

To make the most of these changes, now is the time to review your situation and develop a personalized tax strategy. Whether it’s adjusting your withholding, preparing for deductions, or rethinking your estimated payments — proactive planning will help you stay ahead.

Contact us today to discuss how the One Big Beautiful Bill Act affects your unique tax picture for 2025 and beyond.