Key changes from the One Big Beautiful Bill Act: permanent TCJA brackets, no tax on tips or overtime, higher SALT cap, and more.
The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, is the most significant tax legislation since the 2017 Tax Cuts and Jobs Act. If you file a tax return — and you do — this law affects you. Some changes are immediately helpful, some are subtle, and a few have conditions that matter more than the headline suggests.
Here is a straightforward breakdown of what changed, who benefits, and what stayed the same.
The biggest change is one you might not feel directly — because it prevents something bad from happening. The 2017 Tax Cuts and Jobs Act was set to expire after 2025, which would have pushed tax brackets back to their pre-2017 levels. For most filers, that meant a 2-4 percentage point increase in their effective tax rate.
The OBBBA makes the TCJA individual tax brackets permanent. The seven-bracket structure (10%, 12%, 22%, 24%, 32%, 35%, 37%) is here to stay. Without this change, the 12% bracket would have reverted to 15%, the 22% bracket to 25%, and so on up the ladder.
For a single filer earning $60,000 in taxable income, the TCJA expiration would have meant roughly $1,300 more in federal taxes per year. For a married couple at $120,000, the increase would have been around $2,600. The OBBBA prevents that.
Use our tax calculator to see exactly how the permanent brackets apply to your income.
Workers who receive tips — restaurant servers, bartenders, delivery drivers, hairstylists, hotel staff — now get a significant break. Tip income is exempt from federal income tax, though it remains subject to Social Security and Medicare taxes (FICA).
For a server earning $30,000 in wages plus $25,000 in tips, this exemption eliminates roughly $3,000 in federal income tax. The exemption applies to cash tips, credit card tips, and tip-sharing arrangements, as long as they are properly reported.
There are limits. The exemption caps at $25,000 annually per individual, and it does not apply to workers earning more than $160,000 in total compensation. This is targeted at lower- and middle-income tipped workers, not high-earning professionals who happen to receive gratuities.
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Calculate Your 2026 Taxes →Overtime pay — hours worked beyond 40 per week at 1.5x or higher rates — is now exempt from federal income tax. Like tips, overtime pay is still subject to FICA taxes.
This is a meaningful change for hourly workers in manufacturing, healthcare, construction, and logistics. A worker earning $25/hour who works 10 overtime hours per week earns $375 in overtime weekly, or about $19,500 per year. Exempting that from federal income tax saves roughly $2,300-$4,300 depending on the worker's bracket.
The exemption has a total compensation cap of $160,000. If your base salary plus overtime exceeds that, you do not qualify. This means salaried-exempt workers (who don't receive overtime by law) and high earners are excluded.
Check your take-home pay under the new rules to see how overtime exemption affects your paycheck.
The state and local tax (SALT) deduction cap has been raised from $10,000 to $40,000. This is big news for itemizers in high-tax states like California, New York, New Jersey, and Connecticut.
Under the original TCJA, your combined deduction for state income taxes, local income taxes, and property taxes was capped at $10,000 ($5,000 married filing separately). Many homeowners in high-cost states hit that cap easily — a $15,000 property tax bill alone exceeded it.
The new $40,000 cap ($20,000 MFS) means most filers in high-tax states can now deduct their full state and local tax burden. A couple in New Jersey paying $18,000 in property taxes and $12,000 in state income taxes can now deduct the full $30,000, saving roughly $6,600-$7,200 in federal taxes at the 22-24% bracket.
Note: The higher SALT cap phases out for AGI above $400,000 (single) or $500,000 (married filing jointly).
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See Your Take-Home Pay →The child tax credit increases to $2,500 per qualifying child under 17, up from $2,000 under the TCJA. The refundable portion also increases, meaning lower-income families who owe little or no federal tax still receive cash back.
The credit begins phasing out at $200,000 AGI for single filers and $400,000 for joint filers — the same thresholds as before, just with a higher credit amount.
For a family with three children under 17, the new credit is worth $7,500, up from $6,000. If the family's tax liability is only $3,000, the refundable portion ensures they still receive a meaningful benefit.
The 2026 standard deduction amounts under the OBBBA are:
These are inflation-adjusted amounts that continue the TCJA's larger standard deduction. Without the OBBBA, the standard deduction would have dropped back to roughly $8,000 single / $16,000 joint — the pre-TCJA baseline adjusted for inflation.
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Calculate Self-Employment Tax →The OBBBA's biggest winners are:
A few things the OBBBA did not touch:
If you are self-employed, the OBBBA does not change your self-employment tax calculation. You still owe the full 15.3% on net earnings.
Run your numbers under the new law. Use our 2026 tax calculator to see your updated federal liability, check your paycheck calculator to estimate take-home pay, and if you are self-employed, review your quarterly estimated payments using our self-employment tax calculator.
If you are in a high-tax state and were not itemizing because of the $10,000 SALT cap, recalculate. With the $40,000 cap, itemizing may now save you more than the standard deduction.
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