Key Tax Changes in 2025 Under the One Big Beautiful Bill Act
The One Big Beautiful Bill Act (OBBBA) introduces several important tax deductions for 2025, despite a government shutdown that delayed IRS updates to W-2 wage reporting forms reflecting recent tax-code changes.
Among the significant provisions is a deduction of up to $25,000 per individual for tipped income received during the year, aimed at benefiting many tipped workers who likely had too much tax withheld. Filing the 2025 tax return by the April 15 deadline and applying this deduction should reduce taxes owed and may result in refunds. However, eligibility for this deduction is not universal, and workers should verify their qualification. State and local taxes may still apply, while FICA taxes (Social Security and Medicare) remain unaffected.
An additional overtime pay deduction is available, allowing up to $12,500 per individual or $25,000 for joint filers, with a phase-out beginning at incomes above $150,000.
Older adults can claim an extra $6,000 deduction over their standard deduction in 2025, subject to specific limits.
Small businesses also benefit from higher first-year depreciation and research and development deductions. Furthermore, there is increased flexibility for contributions to flexible savings accounts and a new provision for up to $5,000 to be placed in a "Trump savings account" for a newborn. This account is tax-free until the child reaches age 18, with penalty-free withdrawals permitted.
These deductions are not one-time benefits; taxpayers are advised to adjust their withholdings for 2026 to align with the updated taxable income and to promptly file 2025 returns to secure any refunds. Although critics argue that the OBBBA increases deficits and reduces other spending, it is now law, and taxpayers should take advantage of the available benefits.
