A major piece of tax legislation, officially titled the One, Big, Beautiful Bill Act (Public Law 119-21), was signed into law on July 4, 2025. This new law introduces sweeping changes to the tax code that will affect your filing for the 2025 and 2026 tax years.
From untaxed tips to new vehicle deductions, here is a breakdown of the key provisions you need to know to maximize your refund and minimize your liability.
1. Bigger Standard Deductions
If you don’t itemize, you will see a significant bump in your standard deduction. This reduces the amount of your income that is subject to federal tax.
For Tax Year 2025:
- Single / Married Filing Separately: $15,750
- Married Filing Jointly: $31,500
- Heads of Household: $23,625
For Tax Year 2026:
- Single / Married Filing Separately: $16,100
- Married Filing Jointly: $32,200
- Heads of Household: $24,150
2. Tax-Free Income Sources (2025–2028)
For tax years 2025 through 2028, the bill introduces three major “No Tax” provisions that could save service workers and hourly employees thousands.
No Tax on Tips
- What it is: You can deduct qualified cash or charged tips (reported on W-2, 1099, or 4137).
- Limit: Up to $25,000 annually.
- Who Qualifies: Income limits apply (phases out over $150k MAGI for singles / $300k for joint filers). Note: Some specified service business owners do not qualify.
No Tax on Overtime
- What it is: You can deduct the “premium” portion of your overtime pay (e.g., the extra “half” in “time-and-a-half”).
- Limit: Up to $12,500 for singles ($25,000 for joint filers).
- Who Qualifies: Phases out for taxpayers with MAGI over $150k ($300k joint).
Car Loan Interest Deduction
- What it is: You can now deduct interest paid on a loan used to purchase a qualified personal vehicle (cars, SUVs, pickups, vans).
- Limit: Maximum deduction of $10,000.
- Requirements: The loan must originate after Dec 31, 2024. The vehicle must be assembled in the U.S. and weigh less than 14,000 lbs.
- Bonus: Available to both itemizing and non-itemizing taxpayers.
3. New “Trump Accounts” for Families
Starting July 4, 2026, the government introduces “Trump Accounts” under the Working Families Tax Cuts.
- Government Contribution: A one-time $1,000 federal contribution for each eligible child.
- Your Contributions: Parents and employers can contribute up to $5,000 per year.
- Growth: Funds must be invested in index funds (like the S&P 500) and grow tax-advantaged.
- Withdrawal: Funds are generally restricted until the child turns 18, after which the account functions like a traditional IRA.
4. Deductions for Seniors
Effective 2025 through 2028, individuals age 65 and older can claim an additional $6,000 deduction ($12,000 for qualifying couples). This is on top of the existing standard deduction for seniors.
- Income Limit: Phases out for MAGI over $75,000 ($150,000 for joint filers).
5. Adoption & Health Changes
- Adoption Credit: For 2026, the credit increases to $17,670. Crucially, up to $5,120 of this is now refundable.
- HSA Expansion: Starting Jan 1, 2026, Bronze and Catastrophic health plans will be treated as HSA-compatible, opening up Health Savings Accounts to many more people.
6. Important Deadlines: Clean Energy Credits Ending
The bill accelerates the expiration of several green energy credits. If you are planning purchases, take note:
- Clean Vehicle Credits (New, Used, & Commercial): Not allowed for vehicles acquired after September 30, 2025.
- Home Energy Credits (Windows, Solar, etc.): The Energy Efficient Home Improvement Credit (25C) and Residential Clean Energy Credit (25D) end for property placed in service after December 31, 2025.
Disclaimer: This article provides a summary of the “One, Big, Beautiful Bill” provisions for informational purposes. Tax laws are complex and subject to change. Please consult a qualified tax professional or refer to official IRS guidance before filing.