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How Beautiful Are the Tax Breaks in the Big Beautiful Bill?

Steve Tomisek, CFP®

Steve Tomisek, CFP®

Partner and Chief Investment Officer

Partner and Chief Investment Officer, Steve leads the firm’s investment strategy and research with nearly two decades of experience.

July 30, 2025
6 min read
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By: Nitish Kommoju, Intern

A new tax law just passed — and it could help many Americans save. The One Big Beautiful Bill Act (OBBBA) extends key current tax rates from the 2017 Tax Cuts and Jobs Act (TCJA), which were set to expire at the end of this year. It also introduces new opportunities to reduce your overall tax bill. Without this bill, many Americans would have faced higher taxes starting in 2026, reverting to 2016 rates. This article outlines the key changes, focusing on tax rates, deductions, and credits that may impact household finances. The information in this article applies to married couples filing jointly (MFJ). Other filing statuses—such as single, head of household, married filing separately, or qualifying widow(er)—have different implications. Some general highlights for those groups are also included.

What’s in OBBBA?

The OBBBA keeps the TCJA’s lower tax rates and higher deductions in place, preventing a return to 2016’s higher rates, which could have cost a couple earning $150,000 over $8,000 more annually. It also introduces new deductions and exemptions as follows:

  • Standard Deduction: $31,500 for Married Filing Jointly (MFJ) in 2025, up from $30,000 (TCJA) and $12,600 (2016).
  • Child Tax Credit: $2,200 per child, up from $2,000 (TCJA) and $1,000 (2016).
  • Tax Brackets: Maintains the current 10%–37% brackets, compared to 10%–39.6% brackets in 2016.
  • State and Local Tax (SALT) Deduction: Cap raised to $40,000 from $10,000 (TCJA).
  • New Deductions (2025–2028): Tips/overtime ($25,000), auto loan interest ($10,000), seniors 65+ ($6,000).
  • Estate Exemption: $15 million per person ($30 million MFJ) in 2026, up from $13.99 million (TCJA).
  • Business Income: 20% deduction, with a $150,000 MFJ threshold (vs. $100,000 TCJA).
  • Charitable Donations: Starting in 2026, non-itemizers can deduct $2,000 (MFJ) for cash donations.

How Tax Rates Stack Up

OBBBA maintains TCJA’s tax brackets, which are lower than or equal to 2016’s tax brackets. The table below compares 2016 and 2025 OBBBA tax brackets for MFJ:

Tax Rate 2016 Pre-TCJA (MFJ) 2025 OBBBA (MFJ)
10% $0–$18,550 $0–$23,850
12% N/A $23,851–$96,950
15% $18,551–$75,300 N/A
22% N/A $96,951–$206,700
24% N/A $206,701–$394,600
25% $75,301–$151,900 N/A
28% $151,901–$231,450 N/A
32% N/A $394,601–$501,050
33% $231,451–$413,350 N/A
35% $413,351–$466,950 $501,051–$751,600
37% N/A $751,601+
39.6% $466,951+ N/A

The following graph depicts the taxes paid by couples with various (MFJ) gross incomes, comparing Pre-TCJA tax brackets with the permanent 2025 OBBBA tax brackets.

For a couple earning $150,000:

  • 2016: Married couples would owe $23,917 (15.94%)  in taxes after a $12,600 standard deduction and $8,100 in exemptions.
  • OBBBA 2025: Married couples would owe $15,880 (10.59%) in taxes with a $31,500 deduction, saving $8,037.

OBBBA’s wider 10% bracket and lower rates (12% and 22% vs. 15% and 25%) mean less of taxpayers’ income is taxed at higher rates.

Standard Deduction: Lowering Your Taxable Income

The standard deduction reduces the income the IRS taxes. OBBBA allows you to deduct more:

Filing Status 2016 TCJA 2025 OBBBA 2025
Married Filing Jointly $12,600 $30,000 $31,500
Married Filing Separately $6,300 $15,000 $15,750
Head of Household $9,300 $22,500 $23,625
Qualifying Widow(er) with Dependent Child $12,600 $30,000 $31,500

State and Local Tax (SALT) Deductions: When to Itemize

  • Itemizing vs. Standard Deduction: In 2025, under OBBBA, MFJ couples should itemize if their state and local tax (SALT) deductions exceed the $31,500 standard deduction, reducing taxable income more.
  • SALT Deduction Cap: If income is below $500,000 for MFJ couples, they can deduct up to $40,000 in SALT (state income, property, or sales taxes), but only if they’ve paid at least $40,000.
  • SALT Phase-Out: If income exceeds $500,000 for MFJ couples, the SALT cap drops by $0.30 per dollar over $500,000, reaching $10,000 at $600,000.
  • Need Enough Deductions: With income over $500,000 for MFJ couples, they would need other deductions (e.g., $22,000 mortgage interest plus $10,000 SALT) to beat $31,500.
  • Future Change: The $40,000 SALT cap reverts to $10,000 in 2030.

Child Tax Credit: Support for Families

The child tax credit helps families with kids under 17:

Category 2016 (Pre-TCJA) TCJA 2025 OBBBA 2025
Amount per Child $1,000 $2,000 $2,200
Phase-Out Start (MFJ) $110,000 $400,000 $400,000
Reduction Rate $50/$1,000 above Phase-Out Start $50/$1,000 above Phase-Out Start $50/$1,000 above Phase-Out Start
  • Phase-Out Rate Explained: In 2025, under new OBBBA rules for MFJ couples with two children, the Child Tax Credit would decrease by $50 for each $1000 over $400,000, resulting in a $0 Child Tax Credit once their income reaches $488,000.
  • Two-Child Household Example: Under OBBBA, a two-child household with an annual gross income under $400,000 may receive up to $4,400 in total Child Tax Credit—$400 more than under TCJA and $2,400 more than in 2016. This can support families with school expenses or savings.

More Ways OBBBA Impacts Your Taxes

OBBBA offers additional benefits:

  • SALT Deduction: $40,000 cap (vs. $10,000 TCJA). If you’re paying $30,000 in state/property taxes, you could save $6,600 (22% rate) if itemizing. This phases out above $500,000 (MFJ).
  • New Deductions (2025–2028):
    • Tips/Overtime: Deduct up to $25,000, saving $3,000 (12%) for a server with $40,000 in tips.
    • Auto Loan Interest: Deduct up to $10,000 for U.S.-made cars, saving $500 on a $40,000 loan at 5%.
    • Seniors (65+): Extra $6,000 deduction, saving $2,640 for an MFJ couple (22%).
  • Estate Exemption: $15 million per person ($30 million MFJ) in 2026, up from $13.99 million. A $20 million estate saves $404,000.
  • Business Income: 20% deduction, $150,000 MFJ threshold (vs. $100,000 TCJA).
  • Charitable Donations: Starting 2026, non-itemizers deduct $2,000 (MFJ), saving $440 (22%).

What If OBBBA Had Not Passed?

Without OBBBA, 2016 rules would return in 2026:

  • Higher rates (10%–39.6%).
  • Smaller standard deduction ($12,600 MFJ).
  • Lower child credit ($1,000).

For a couple with $500,000 income:

  • OBBBA 2025: Tax = $104,076 (20.82%).
  • 2016: Tax = $138,738 (27.75%), a $34,662 increase.

We’re Here for You!

OBBBA, overall, lowers taxable income for most taxpayers and small business owners, which generates extra cash flow available for discretionary income, savings, paying down debt, and more. The extra savings can go a long way to bringing Americans closer to retirement (e.g., funding a Roth IRA for yourself, helping fund a child or grandchild’s college savings, offsetting Roth conversions for higher income earners).

We are analyzing the various tax planning opportunities OBBBA may offer clients. Every situation is unique, and now is the time to start planning for 2026. Contact your advisor today to see how OBBBA can bring your family closer to financial independence.

Additionally, be sure to check out the sources mentioned on the next page to dig deeper into the numbers and visit www.irs.gov for IRS updates or reach out to us to see how these rules apply to you.

Sources:

Steve Tomisek, CFP®

Steve Tomisek, CFP®

Partner and Chief Investment Officer

Partner and Chief Investment Officer, Steve leads the firm’s investment strategy and research with nearly two decades of experience.

More about Steve

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