The One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025, introduced a raft of major tax changes that affect Americans as of this tax year. The changes represent the most comprehensive tax reform since 2017, with implications for individuals, families, and businesses nationwide.
How the changes will affect you depends largely on your income level and filing status. High-income earners will see substantial benefits, while middle and lower-income households face a mixed bag of modest gains and potential program cuts. In this article, we’ll examine how each component of the tax plan—from bracket extensions to new deductions—affects various groups, and how Harness can help you stay tax efficient, whatever your circumstances.
Key takeaways
- The OBBBA extends 2017 tax rates permanently while adding temporary benefits like senior deductions and tax-free tips through 2028.
- The SALT deduction cap rises to $40,000 through 2029, helping homeowners in high-tax states before reverting to $10,000 in 2030.
- High-income taxpayers may see typical gains of around $30,000 annually, while low-income Americans may lose up to $1,600 yearly from social program changes.
- Workers gain deductions for overtime and tips, while families benefit from higher Child Tax Credits and new Trump Savings Accounts.
Table of Contents
- Tax brackets and rates made permanent
- New tax benefits for workers
- Tax relief for seniors and retirees
- Benefits for parents and families
- Changes to state and local tax deductions
- Home and charitable deduction changes
- Winners and losers under the new tax plan
- How Harness can help
Tax brackets and rates made permanent
The OBBBA permanently extends the seven tax brackets (10% to 37%) from the 2017 Tax Cuts and Jobs Act, preventing rates from increasing at the end of 2025. This means your tax rate will not suddenly jump when you file your 2026 return—a welcome relief if you have been concerned about potential rate increases.
The standard deduction will increase to $15,750 for single filers and $31,500 for joint filers in 2025, providing immediate tax relief to most taxpayers. These amounts represent an increase from the previous $15,000 and $30,000 thresholds, giving you a slightly larger buffer before your income becomes taxable.
Personal exemptions remain permanently eliminated, though specific exemptions for seniors have been introduced as part of the new legislation. What you once claimed as a personal exemption has essentially been rolled into the higher standard deduction structure.
The Qualified Business Income (QBI) deduction for pass-through entities remains permanent at 20%, with a new $400 minimum deduction for active businesses. If you operate a sole proprietorship, partnership, or S corporation, you can continue your tax planning, confident that this deduction won’t disappear in the next few years.
New tax benefits for workers
Service workers can now exclude up to $25,000 in qualified tips from federal income taxes between 2025 and 2028, although state and payroll taxes still apply. This change delivers on a campaign promise and could significantly reduce tax liability for waitstaff, bartenders, and others in tipped positions.
Hourly employees gain a new deduction for overtime pay up to $12,500 for individuals and $25,000 for joint filers through 2028. Your employer will need to designate overtime wages on your Form W-2, and there is a special rule allowing approximation for 2025.
Both the tip and overtime tax benefits phase out for individuals earning over $150,000 and married couples earning over $300,000. If your modified adjusted gross income exceeds these thresholds, you’ll see a gradual reduction in these benefits until they disappear entirely at higher income levels.
When it comes to car buyers, they can deduct up to $10,000 in auto loan interest through 2028, provided the vehicle was assembled in the United States. The deduction begins to phase out for individuals with Modified Adjusted Gross Income (MAGI) over $100,000 and married couples filing jointly with MAGI over $200,000. The deduction is completely eliminated for single filers at $150,000 MAGI and joint filers at $250,000 MAGI, and you’ll need to include the vehicle identification number (VIN) on your tax return.
Tax relief for seniors and retirees
Taxpayers 65 and older will receive an additional $6,000 deduction from January 1, 2025, through December 31, 2028, on top of the standard deduction or itemized deductions.
The senior bonus deduction begins to phase out for individuals with Modified Adjusted Gross Income (MAGI) over $75,000 and married couples filing jointly with MAGI over $150,000. The deduction is completely eliminated for single filers at $175,000 MAGI and joint filers at $250,000 MAGI. To claim it, you must have a valid Social Security Number (SSN) and can’t use the Married Filing Separately status.
Social Security recipients hoping for complete tax exemption on benefits will only receive the limited senior deduction rather than full elimination of benefit taxation. This falls short of what some advocates pushed for during the legislative process.
Retirees with substantial estates benefit from the permanent increase in the estate tax exemption to $15 million per person ($30 million for married couples) indexed for inflation. This provides a degree of long-term certainty for if you’re concerned about estate planning, wealth transfer to your heirs.
Benefits for parents and families
The Child Tax Credit increases to $2,200 per child in 2025 (up from $2,000) and will adjust for inflation in subsequent years. Importantly, the refundable portion (the Additional Child Tax Credit) is also indexed for inflation and increases to $1,700 for the 2025 tax year. You’ll need valid Social Security numbers for yourself, your spouse, and the qualifying children to claim the credit.
The New “Trump Savings Accounts” provide a tax-deferred savings vehicle with a $5,000 annual contribution limit for children under 18, available as of 2026. These accounts offer flexibility that goes beyond traditional education savings, allowing tax-free withdrawals for qualified expenses including education, first-time home purchases, small business costs, and retirement.
Babies born between 2025 and 2028 will automatically receive a $1,000 government contribution to a Trump Savings Account, provided they are U.S. citizens. If you don’t open an account yourself, the federal government will create one automatically for your child.
The adoption credit becomes partially refundable, with up to $5,000 available as a refund even if you do not owe taxes. The total credit remains up to $17,280 in 2025, but now families with lower tax liability can benefit from the refundable portion.
As of 2026, 529 plans allow distributions up to $20,000 for K-12 expenses and cover additional qualified expenses like tutoring, and online learning materials.
The Child and Dependent Care Credit now in 2026, with a higher maximum percentage of 50% and more generous income phaseouts for credit eligibility. The full 50% credit applies to all filers with Adjusted Gross Income (AGI) up to $15,000, with the credit percentage gradually phasing down to a minimum of 20% for joint filers with AGI up to $43,000 and single filers with AGI up to $35,000.
Changes to state and local tax deductions
The SALT deduction cap increases dramatically from $10,000 to $40,000 for joint filers ($20,000 for individual filers) from 2025 through 2029. This represents one of the most fundamental provisions in the legislation and provides major relief to taxpayers in states with high property and income taxes.
That said, high-income taxpayers face a 30% phasedown of the SALT deduction once income exceeds $500,000 for joint filers or $250,000 for individuals. Although the deduction won’t drop below the original $10,000 floor, it means the full $40,000 benefit is reserved for those below these income thresholds.
Homeowners in high-tax states like California, New York, and New Jersey stand to benefit most from the SALT cap increase. If you’ve been limited by the $10,000 cap since 2017, you will likely see meaningful tax savings—particularly if your combined state income and property taxes exceed that amount.
The increased SALT cap may make itemizing deductions worthwhile again for many homeowners who switched to the standard deduction after 2017. You’ll want to calculate whether your total itemized deductions (including mortgage interest, charitable contributions, and SALT) now exceed the standard deduction.
After 2029, the SALT deduction cap will revert to $10,000, making this temporary relief important for tax planning in the coming years. It would be wise to consider accelerating certain deductible expenses or adjusting your financial strategy before the higher cap expires.
Home and charitable deduction changes
The mortgage interest deduction remains permanently capped at $750,000 of mortgage debt for homes purchased after December 15, 2017. If you bought your home before that date, you’ll be grandfathered into the old $1 million limit, but the new cap now has certainty rather than an expiration date.
Available in 2026, taxpayers who don’t itemize can claim a new above-the-line charitable deduction of up to $1,000 for individuals or $2,000 for joint filers. This permanent provision replaces earlier temporary charitable deductions and allows you to support your favorite causes while still claiming the standard deduction.
Clean energy tax credits for EVs and home energy improvements expired at the end of 2025. If you made a qualifying purchase before December 31, 2025, be sure to claim the credit on your return.
Private mortgage insurance premiums can now be treated as qualified mortgage interest, providing additional tax relief for homeowners with less than 20% down payments. This reinstates a benefit that had expired and provides much-needed relief for first-time homebuyers.
Winners and losers under the new tax plan
High-income taxpayers will see the largest benefits, with the top 1% receiving an average tax cut of approximately $30,000, according to multiple analyses. The combination of permanent lower rates, higher estate tax exemptions, and expanded SALT deductions delivers substantial savings to wealthy households.
Middle-income households will see modest benefits of $500–$1,000 annually on average, primarily from the extension of lower tax rates and higher standard deductions. While not insignificant, these gains represent a much smaller percentage of income compared to what high earners receive.
Low-income Americans could actually experience reduced resources by as much as $1,600 per year due to changes in social programs like Medicaid and SNAP. The Congressional Budget Office estimates that 11.8 million more people will be uninsured by 2034, including impacts from stricter work requirements and benefit reductions.
Small business owners with pass-through entities benefit from the permanent QBI deduction. That said, a Treasury Department analysis concluded that most small firms won’t see meaningful benefits, as over half of pass-through income flows to the top 1% of earners.
How Harness can help
The Trump tax plan brings a lot of changes that need careful consideration. Between temporary provisions, income-based phaseouts, and interactions between different tax benefits, creating an optimal strategy takes the insight and understanding of a tax professional.
Harness connects individuals and businesses with tax experts who deliver highly personalized advice based on your specific financial situation, income sources, and long-term goals. From planning around the temporary SALT cap increase to structuring your business income to optimize the QBI deduction, a Harness advisor will help you capture every available tax advantage.
Get started with Harness and make the most of the new tax landscape.
Meet the Authors
David Snider
David Snider is the Founder & CEO of Harness, a platform to power entrepreneurial tax advisors & their clients. Harness was recognized by Inc Magazine as one of the 200 fastest growing companies in the U.S. David incubated Harness as an executive-in-residence at Bain Capital Ventures. Previously he served as COO & CFO of Compass, a real estate tech company that he helped grow from pre-launch to a valuation of $1.8 billion. David was an investor at Bain Capital private equity, where he completed investments worth over $2 billion as well as the IPO of Sensata on the NYSE. He is the author of Money Makers, published by Macmillan.
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