Whenever a new tax law is passed, taxpayers across the country start asking the same question: How is this going to affect me? In the immediate aftermath of the recently enacted One Big Beautiful Bill (OBBB), there was a lot of noise in the news, some accurate, and some less so. Now that the dust has settled and we’ve had a chance to study the new legislation, we wanted to put something out so that you have better insight into the changes. It would be difficult to summarize everything, so here are the key changes that we believe could affect you, and what they could mean for your bottom line.
- The TCJA Tax Brackets Are Now Permanent
The Tax Cuts and Jobs Act (TCJA) of 2017 temporarily lowered federal income tax rates, reducing the top individual rate from 39.6% to 37% and adjusting most brackets downward. Under prior law, those cuts were set to expire after 2025, reverting to higher pre-2017 rates.
The OBBB makes those lower rates permanent. The seven-bracket system remains in place, and the income thresholds will continue to be adjusted annually for inflation.
What This Means for You
This permanence removes one of the biggest sources of uncertainty individuals have had in planning for taxes beyond 2025. For example, a married couple filing jointly with $150,000 in taxable income will remain in the 22% bracket instead of jumping back up to 25%. That predictability makes long-term planning — such as potential Roth conversions — much easier.
While this change doesn’t create new savings immediately, it locks in the benefits taxpayers have been enjoying since 2018.
- A Temporary Deduction for those age 65+
Back in the summer, there was some confusion around the taxability of social security retirement income. The OBBB does not make social security nontaxable, but it does introduce a temporary deduction of up to $6,000 for taxpayers age 65 or older ($12,000 MFJ), subject to income-based phaseouts. This deduction is available in addition to the standard deduction or itemized deductions.
Technical Details
- The deduction begins to phase out once adjusted gross income (AGI) exceeds $75,000 for single filers and $150,000 for joint filers.
- It is scheduled to remain in place for tax years 2025 through 2028, unless extended at a later date.
What This Means for You
If you’re a retiree who is in the drawdown phase of your financial plan, this additional deduction could help in several ways, like helping you stay in the 0% LTCG bracket. It could also provide additional planning opportunities, so be sure to talk to your advisor to see how it specifically impacts you.
- Adjustments to Charitable Giving Rules
Charitable deductions have undergone significant restructuring, beginning in 2026.
- Non-itemizers can now claim an “above-the-line” deduction of up to $1,000 for single filers or $2,000 for married couples filing jointly for qualified charitable contributions.
- Itemizers can still deduct charitable gifts on Schedule A, but those deductions are now subject to a new 0.5% of AGI floor — meaning the first half-percent of your AGI given to charity won’t count for tax purposes.
- Taxpayers in the 37% marginal bracket will have their charitable deduction capped at 35%, slightly reducing the benefit they get.
Technical and Practical Impact
The $2,000 above-the-line deduction is per return, not per taxpayer, and applies only to cash donations made to qualified 501(c)(3) organizations.
For itemizers, that new 0.5% floor works much like the medical expense threshold: if your AGI is $200,000, the first $1,000 of charitable giving won’t reduce your taxable income.
What This Means for You
If you typically take the standard deduction, this change gives you a new opportunity to get a tax benefit from your charitable donations — even if you don’t itemize.
For those who do itemize, especially higher-income taxpayers, you could “bunch” donations into alternating years or consider donor-advised funds to maximize deductions under the new rules. You should ask your advisor if this makes sense for you.
- Temporary Deduction for Qualified Tip Income
A notable addition for service industry employees: the OBBB provides a temporary deduction of up to $25,000 for qualified tip income, subject to phaseouts.
Technical Details
- Applies to employees in occupations where tips are regularly received and reported to the IRS.
- Phases out beginning at $150,000 AGI for single filers and $300,000 for joint filers.
- Scheduled to sunset after 2028 unless renewed.
What This Means for You
For servers, stylists, and other tipped workers, this deduction could drastically reduce your taxable income and help other income be taxed at a lower marginal rate.
- Deduction for Overtime Pay
The Fair Labor Standards Act (FLSA) requires time-and-a-half pay for hours worked beyond 40 in a week. Under the OBBB, FSLA mandated overtime pay is now eligible for a new, income-limited deduction.
Technical Details
- Applies only to FLSA-covered employees (not independent contractors).
- The deduction is for up to $12,500 for single filers and $25,000 for married individuals. It is subject to the same phaseouts and sunset period seen above for the tip income deduction.
- Employers will still report overtime wages as income on Form W-2; the deduction is claimed separately.
What This Means for You
This provision effectively reduces the tax burden on employees who work substantial overtime hours — such as nurses, factory workers, or first responders.
- SALT Deduction Cap Raised
The OBBB tackles one of the most controversial aspects of recent tax law: the State and Local Tax (SALT) deduction cap.
Previously capped at $10,000, the new law raises the cap to $40,000 for taxpayers with AGI under $500,000. The original $10,000 cap remains in place for those above that threshold.
What This Means for You
If you live in a high-tax state — such as New York, New Jersey, or California — and earn less than $500,000, this change could make a big difference.
For example:
- A married couple in New York with $400,000 AGI paying $30,000 in state and property taxes could now deduct the full $30,000 instead of being limited to $10,000.
- A similar household earning $550,000 would still be capped at $10,000.
The adjustment targets middle- and upper-middle-income households, providing relief without reopening the deduction entirely for the highest earners.
- Major Overhaul of Student Loan Repayment Options
As student loans continue to be one of the biggest financial topics in our culture, the OBBB drastically shakes up the options borrowers have when repaying. Popular programs like SAVE, PAYE, and REPAYE are going away, meaning borrowers enrolled in these programs will need to explore other options.
Going forward, only three options will remain:
- Standard repayment (fixed 10-year schedule)
- RAP (Repayment Assistance Program), a new simplified income-linked plan
- IBR (Income-Based Repayment), which will continue under revised terms
Transition Timeline
Borrowers currently enrolled in a retiring plan must transition to a new one by July 1, 2028.
What This Means for You
For many borrowers, especially those on SAVE or PAYE, monthly payments could increase once the new structure takes effect.
The OBBB’s intent is to simplify the repayment system, but borrowers should use the transition period wisely. Begin comparing the terms of RAP and IBR now to determine which best fits your long-term financial goals and be prepared for further potential changes. It is a good idea to work with your advisor and see how this will affect your financial plan.
As you can see from the above changes, this new tax bill affects nearly everyone in some way. The key takeaway? Don’t wait until next April to see how this all shakes out. Take a little time now to see how these rules fit into your bigger financial plan and check in with your advisor to make sure you’re getting the most out of what’s new. At SIGMA CPA, we are here to help Jackson, Tennessee residents better understand these changes, plan ahead and take the best steps for their tax preparation. Contact us today to get started.