The One Big Beautiful Bill Act (OBBBA) reshapes federal tax policy with lasting changes for middle-class families. By making key provisions of the Tax Cuts and Jobs Act (TCJA) permanent and adding new incentives, it opens new ways to save, give, and plan.
For some families, this could mean larger child tax credits, expanded charitable deductions, and protections that help lower tax liability. At the same time, new deduction limits, phase-outs for higher earners, and revised eligibility rules add tax complexities families need to watch closely.
Key Takeaways
- Individual income tax brackets (10%–37%) are locked in permanently.
- The standard deduction remains $15,750 for single and $31,500 married filers, personal deductions are eliminated with the exception of a temporary $6,000 senior deduction until 2028.
- The SALT deduction cap increases temporarily to $40,000 (2025–2029) before reverting to $10,000 in 2030.
- The Child Tax Credit rises to $2,200 per child and made permanent; Dependent Care Credit and FSA limits expanded to $3,000 per child.
- 529 plans now cover K–12 and credentialing costs, offering broader education savings options.
- A new above-the-line charitable deduction of up to $1,000 ($2,000 for joint filers) encourages giving even for non-itemizers.
- The estate tax exemption increases to $15 million per person by 2026.
- The IRS will move fully to electronic tax payments starting September 30, 2025.
Key Tax Changes Affecting Households
Income Tax Brackets & Rates
OBBBA makes permanent the individual income tax brackets introduced under TCJA, avoiding their scheduled expiration at the end of 2025. The brackets remain at 10%, 12%, 22%, 24%, 32%, 35%, and 37%, rather than reverting to pre-TCJA levels where the top rate would have increased to 39.6%. These brackets will be adjusted each year for inflation.
What this means for you: The lower brackets provide predictability, though the biggest benefits go to upper-income households. Lower-income households only receive modest relief with projected loss due to reductions in government benefits under other parts of the law.
Lower- and middle-income families may see only modest relief, while higher earners capture the biggest benefits. Even so, predictability makes it easier to plan. Keep in mind that changes to other government programs could offset some gains, so reviewing your full financial picture is important.
Standard Deduction and Exemptions
Perhaps the most sweeping update is making permanent the dramatically higher standard deduction introduced by TCJA. For 2025, the standard deduction is set at $15,750 for single filers, $23,625 for heads of household, and $31,500 for married couples filing jointly, with annual inflation adjustments.
Deduction of Personal Exemption has been terminated other than temporary senior deduction.
For taxpayers age 65 and older, OBBBA adds an extra deduction of $6,000 per person. This deduction is only available from 2025 through 2028. This benefit begins to phase out for incomes above $75,000 (single) or $150,000 (joint). It’s fully phased out when adjusted growth income hits $175,000 (single) or $250,000 (joint).
What this means for you: Most households will benefit more from taking the larger standard deduction, making tax filing simpler. The Tax Foundation estimates that only 14.2% of taxpayers will itemize in 2026 under OBBBA, compared to 32% if TCJA provisions had expired.
Itemized Deductions
For 2018 through 2025, the TCJA suspended the limitation on itemized deductions for higher-income taxpayers. The OBBBA makes that suspension permanent – except for taxpayers in the top 37% tax bracket. Starting in 2026, taxpayers with taxable income in the 37% bracket will be subject to a disallowance of itemized deductions otherwise available intended to limit the benefit of those deductions to 35%. Miscellaneous deductions – except for a few narrow categories, such as teacher expenses – remain suspended.
One of the most contentious provisions negotiated in the OBBBA was mitigation of the $10K annual limitation on the deductibility by individuals of state and local taxes (e.g., income and property taxes) as an itemized deduction, referred to as the SALT cap.
Starting in 2025 the SALT cap is temporarily increased to $40K. The cap is subject to a phasedown based on modified adjusted gross income (“MAGI”). That is, for tax years 2025 through 2029, the SALT cap is reduced by 30% of the excess of MAGI over a threshold amount. This reduction is not to result in the SALT cap being less than $10K. For 2025, the threshold amount is $500K. So, for a married couple filing jointly with MAGI of $600K or more in 2025, the SALT cap will effectively remain at $10K. As this provision is temporary, for tax years 2030 and beyond the SALT cap will revert to the TCJA level of $10K absent further legislative action.
What this means for you: Higher-income families will continue to face strict limits on itemized and SALT deductions, while only middle- and upper-middle-income households see meaningful relief.
Child & Family Tax Credits
OBBBA makes the expanded Child Tax Credit permanent, versus dropping to $1,000 per child in 2026. Starting in 2025, the maximum credit rises modestly to $2,200 per qualifying child, up from $2,000, with annual inflation adjustments. The credit phases out for higher earners.
The Dependent Care Credit also changes. Families can still claim up to $3,000 in expenses for one child and $6,000 for two or more. The credit rate is adjusted based on income, so more middle-income families can claim a benefit. The phase-out thresholds are also broadened, reducing the risk of losing the credit too quickly as income rises.
Additionally, OBBBA permanently raises the maximum contribution to Dependent Care Flexible Spending Accounts (FSAs), from $5,000 to $7,500 ($2,500 to $3,750 for MFS) per year effective in tax years beginning after Dec. 31, 2025.
What this means for you: Together, these credits provide greater predictability and a bit more breathing room for parents managing childcare and other household expenses.
Education Savings Implications
Education Savings
Effective after the date of enactment of the OBBBA (July 4, 2025), 529 qualified higher education expense has been expanded. The plan now includes expenses related to elementary or secondary public, private, and religious schools, and postsecondary credentialing expenses.
What this means for you: Families should revisit their education savings strategies now. These changes may be most valuable to households with higher disposable income, but even modest increases in contribution limits can compound into meaningful growth over time.
Charitable Giving and Deductions
Charitable giving sees both limits and opportunities. Starting in 2026, taxpayers who itemize can only deduct contributions exceeding 0.5% of their adjusted gross income, which may reduce incentives for smaller donations. Fewer taxpayers will itemize at all, since the higher standard deduction remains in place. High earners face additional caps, which could further lower charitable contributions.
On the up side, effective for 2025, a new “above-the-line” deduction allows all taxpayers –including those who don’t itemize – to deduct up to $1,000 for individuals and $2,000 for joint filers. Beginning after December 31, 2026, taxpayers may claim a nonrefundable tax credit of up to $1,700 per year for contributions made to “scholarship granting organizations. These changes are expected to encourage broader participation in charitable giving by providing a tax benefit that didn’t exist previously.
What this means for you: Families should review their charitable giving strategies to maximize tax benefits. Even modest contributions can provide a tax advantage. Thoughtful planning can help maintain or increase overall support despite itemization limits.
Estate and Gift Planning
The OBBBA introduces important changes for estate and gift planning, providing families with more clarity and flexibility for transferring wealth. One of the most important updates is the increase in the federal estate tax exemption.
For 2025, the exemption is set at $13.9 million per individual, which allows more families to transfer assets without incurring federal estate taxes. Married couples can combine exemptions, effectively doubling the amount that can pass tax-free. For 2026, the exemption increases to $15 million (effectively $30 million for married couples). It will be adjusted annually for inflation after 2026.
For gift tax limits, the annual exclusions remain at $18,000 per recipient for 2025. Inflation adjustments are set to follow in future years. Large gifts above that threshold must be reported to the IRS.
What this means for you: Families can take advantage of higher exemptions through trusts, gifts, or other strategies. High-net-worth households should work closely with advisors to optimize tax outcomes and avoid surprises. Even those who don’t expect to owe estate taxes can benefit from reviewing plans to ensure assets transfer efficiently and align with personal goals.
The End of Paper-Based Federal Tax Payments
Effective September 30, 2025, subject to certain exceptions, payments of federal tax will occur online. Furthermore, the IRS will cease issuing paper checks for federal tax refunds. According to the Department of Treasury, this change promotes operational efficiency and mitigate fraud.
What this means for you: Taxpayers will need to start making such payments via electronic methods such as electronic funds transfer, or ETF.
Take Control of Your Tax Strategy
Preparing for OBBBA starts with understanding how the changes affect your unique situation. From deductions and estate planning, your CBM advisor can help you maximize every opportunity. Reach out to your CBM advisor today to navigate OBBBA with confidence.
